There is a lot of talk out there lately that crypto currency is a way to essentially hedge yourself from inflation. When there is inflation it is widely known that the cost of real goods and commodities rise in price because of the devaluing currency. The problem that I have in the case of cryptos being this hedge is that there is currently no evidence to suggest this.
I don’t have to tell any of you that there is inflation happening and to an extent beyond what the government is telling us. Right now I believe that the US government is publishing a number of only a mere 2% inflation not counting food or energy costs. Despite the low headline number the costs of food at our grocery store or supplies at Home Depot have gradually been going up every year.
When we look at the bulk of the gains in cryptos they’ve mostly happened within the course of 2017. During 2017 was there a huge change in the value of the US dollar? Not really, it got stronger and real goods prices stayed relatively low. That’s not to say that there wasn’t any inflation at all, there was some but nothing to cause the justifications of the crypto price action.
Looking at 2018, in the beginning of the year we had the US dollar flat to lower on the dollar index yet we had massive corrections in price among the crypto currencies. So, where is the correlation to anything that is happening with the dollar? The dollar has gotten stronger in the past week or two but we didn’t see any cause and effect correlation with the cryptos. As we know with our Steem prices they’ve been gaining in value and have retained quite a bit of the gains they’ve made.
Therefore, it’s premature to say that a crypto is going to hold value if the US dollar falls. Looking at the daily price fluctuations of cryptos and the amount of gains they’ve recently made we can’t even say that they’re very stable. They’re still extremely speculative. The mentality on investing in cryptos in a lot of instances is to put your money in before you miss the next big up move rather than to determine any actual rationale for this said up move.
I would like to see cryptos succeed but I think that we mustn’t get ahead of ourselves. If we see market action where the US dollar is actually going down and crytpos moving accordingly in the opposite direction then we can establish the correlation and be a little more certain on the directional trade we want to make. But, in the absence of evidence we need to be extremely careful. Remember, “there are those that don’t know, and those that don’t know they don’t know”, which one are you?
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