Pity the fools who still believe that Bitcoin and other cryptocurrencies will prove to be reliable hedges against inflation.
Unfortunately, those people are still out there, clinging to a vain hope, despite all the evidence to the contrary. Various digital currencies have been spiraling downward as inflation rates in many countries reach levels not seen in decades.
That divergence should dispel the illusion, spread by many crypto apostles, that investing in these highly speculative assets will protect, and possibly enhance, the purchasing power of ordinary people.
But it won’t.
Digital devotion is now dogma for many retail investors, which is why global regulators need to take coordinated action to protect these self-deluded disciples.
Investing in memes, even crypto, is the epitome of groupthink. But the temptation is understandable because times are tough for ordinary people.
Interest rates are rising, gas prices are skyrocketing, and it’s costing us more to put food on the table. That’s why so many people are still willing to bet what’s left of their hard-earned money on these speculative assets.
It doesn’t help that they’ve been egged on by people like Tesla CEO Elon Musk and Ottawa Area Parliamentarian pierre polièvre. The Conservative leadership candidate has claimed, among other things, that cryptocurrencies like bitcoin offer Canadians the opportunity to “opt out” of inflation.
Such claims about bitcoin, in particular, are based on the notion that its supply is capped at 21 million, suggesting that its scarcity will safeguard its value.
To her credit, Bank of Canada Senior Deputy Governor Carolyn Rogers has debunked Mr. Poilievre’s “opt-out” inflation myth by emphasizing that cryptocurrencies are not a stable source of value.
But we are living in the age of anti-intellectualism. There is no guarantee that people will accept such reasoned logic when crypto promoters have attacked the credibility of our central bankers and offered the masses a more seductive solution to their inflation problems.
Regulators have a lot of work ahead of them, especially when it comes to investor education.
A report published Thursday by the technology firm Block suggests that 27 percent of higher-income people would use bitcoin as an “inflation hedge.” It seems that 17 percent of low-income people share that opinion.
Meanwhile, recent research published by the Bank of Canada found that roughly 5 percent of Canadians owned bitcoin between 2018 and 2020. Furthermore, that ownership was “concentrated among young, educated men with high family incomes and little financial literacy.” .
Oh! But it sounds good.
It’s mind-boggling that anyone still thinks it’s appropriate to suggest that bitcoin and other cryptocurrencies should compete with gold as safe investments. Gold is not only something you can actually get your hands on, but is widely accepted as an alternative asset.
China and India are among the world’s largest consumers of gold precisely because it could be used as a medium of exchange. Why do you think Asian parents, including mine, are so obsessed with giving gold as a wedding gift?
Furthermore, “as a tangible finished product, gold exists even if no new gold is mined. The existence of Bitcoin depends on the support of Bitcoin miners and the existence of computer networks and electricity,” according to RBC Wealth Management.
Although some industry promoters also claim that cryptocurrencies are the solution to the problem of income inequality in the worldCould not be farther from the truth. Recent Bitcoin price declines appear to be tied to the dwindling fortunes of tech stocks.according to analysts.
Even TerraUSD, a stablecoin that is supposed to be pegged to the US dollar, has been caught in the downdraft. That prompted US Treasury Secretary Janet Yellen to repeat her call for regulation in recent weeks.
A regulatory crackdown appears to be coming, but not soon enough for retail investors who have already lost their savings.
The industry is still very much the Wild West. Regulators need a bigger stick to keep crypto businesses at bay, dispel misinformation, and stop scammers.
All this double talk about hedging inflation is a warning about false claims that could follow.
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