How to preserve capital during inflation using cryptocurrencies?
Just when the global economy largely recovered from the crippling effects of the COVID-19 pandemic, geopolitical tensions and the resultant supply chain pressures have once again roiled financial markets across the world.
Furthermore, inflation has once again reared its ugly head, forcing central banks across major economies to raise interest rates in an attempt to curtail runaway prices of essential commodities like food and fuel.
Despite these efforts, developed economies like the United States and the United Kingdom continue to report inflation at multi-year highs, adding even more stress on household savings and negatively impacting consumer spending.
Apart from the threat of a looming recession, these inflationary pressures have a negative impact on the value of fiat money in the hands of consumers and highlight the need for financial tools or assets that can act as a hedge against inflation.
Along with its impact on the purchasing power of a country’s fiat currency, inflation has a detrimental effect on the true returns generated by financial instruments, especially if the inflation rate exceeds the rate of return on investment.
Take, for example, the S&P 500 index, which comprises the top 500 publicly traded companies in the USA and acts as the benchmark index for the country’s stock markets. Having generated an average annualized return of 11.82% since its inception in 1928, this index’s performance can seem quite spectacular at the outset.
However, with the Consumer Price Index (CPI) climbing to a 40-year high of 9.1% in June 2022, the returns generated from investments made in mutual funds that mimic this index will be significantly lower.
In fact, the index has provided an inflation-adjusted historic annual
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