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I had to do a double take when I read this one the other day. It was a tweet from CNBC linking to an article about rising wages in the U.S. The narrative to the piece was essentially “wages could increase, but they may not be enough to catch up with prices.”
Unsurprisingly, Twitter had a good laugh at CNBC’s expense for the blunder. “Those salaries in Zimbabwe are off the charts!” Preston Pysh, a popular Bitcoin evangelist, joked.
Personally I have been warning anyone who will listen about the risk of the dollar going into hyperinflation over the years. Obviously there are a great many crypto enthusiasts who share the same concerns and beliefs. In fact, it’s one of the main arguments hard line Bitcoin maximalists use to validate their beliefs in Satoshi’s coin.
Don’t get me wrong, the U.S. is obviously not at Zimbabwe’s level, but the numbers are hard to deny all the same. Inflation hit its highest peak since 2008 earlier this year, which isn’t a surprise given everything that’s gone down since the start of the pandemic.
Stocks have surged amid the crisis, and billionaire investors like Ray Dalio now recommend Bitcoin as an inflationary hedge.
Before the pandemic, and while we were still in a crypto winter, I used to think that another bull run could be years away. But in retrospect, last year’s events were the perfect catalyst for Bitcoin and everything else to rally.
Bitcoin is capped at 21 million, so it’s harder money than any dollar on the planet. Digital scarcity is the fundamental property Bitcoiners value. While many are philosophically aligned with Bitcoin’s focus on decentralization, digital scarcity is what gives the asset a $619 billion market cap.
Bitcoin is seen as crypto’s de facto store of value, and its believers hope that it could one day be bigger than gold. And while it will probably be the crypto of choice among the Dalios of the world for some time, it’s not even the only scarce crypto out there.
Ethereum has done a pretty good job of becoming a utility network in the last couple of years, and some think ETH has potential as a store of value too. Goldman Sachs said that it could even become crypto’s dominant store of value because it has the “highest real use potential” this week.
ETH isn’t as scarce as BTC, but its upcoming EIP-1559 update feels like it could add to ETH’s value proposition as an inflationary hedge. As of Aug. 4, a portion of ETH will get burned with every transaction, which will reduce the supply, and potentially turn ETH into a deflationary asset. Ethereum will issue ETH to validators as part of its Proof-of-Stake mechanism, so the network would have to see enough activity for the supply to deflate.
Who knows what crypto’s next big store of value will be, if there is another to rival BTC and ETH. Either way, when fiat’s inflating, I think digital scarcity starts to look a lot more appealing - which for those of us in the know could very well be our own silver lining.
