Bitcoin’s inflation rate is now three times lower than US dollars

With over 90% of Bitcoin (BTC) in circulating supply, the asset’s inflation rate has fallen significantly over the years to beat the US dollar (USD) by at least three times. This positions Bitcoin to act as a possible hedge against inflation and economic uncertainty.

Bitcoin’s declining inflation rate stems from the cryptocurrency’s fixed supply of 21 million BTCs. The rate decreases after every four years during the halving event. As a result, the inflation rate of the maiden cryptocurrency has been on a steady decline since its inception in 2009 to stand at 1.79% as of March 4, data by crypto analytics platform WooBull indicates.

At the same time, the annual inflation rate for the US dollar in 2023 is 6.4%. The value peaked at 7% in 2021, data from US Inflation Calculator indicates. This means that the inflation rate for US dollars is 3.57 times higher than Bitcoin.

Intrigue of Bitcoin’s Falling Inflation Rate

Bitcoin’s ability to record a low inflation rate is due to the asset’s deflationary model. The design means that the rate of inflation decreases post-halving events. The rate is determined by the miner reward system, which is halved with each halving event. During the halving event, Bitcoin rewards for miners are reduced by half. This means that the number of Bitcoins produced through mining has been halved, with the next event estimated to take place in May 2024.

In contrast, the rate of inflation in the US dollar is likely to rise as the currency’s value declines over time. The fall in value is primarily due to excessive printing and the diminishing purchasing power of each dollar. In particular, inflation can be caused by several factors, including an increase in the money supply, a decrease in demand, or a decrease in output.

Experts have also opined that Bitcoin’s inflation rate remains lower due to its decentralized nature, meaning the virgin crypto can bypass most of the political and economic risks associated with the US dollar.

Best inflation hedge?

The contrasting inflation rate between the assets has translated into a debate about the best investment option and the perfect hedge. Bitcoin proponents argue that BTC is the ideal asset to hedge against inflation.

However, the same has yet to translate into the asset’s price amid rising inflation and interest rate hikes. Amidst the broader economic downturn, Bitcoin and the overall cryptocurrency market have suffered significant losses.

Meanwhile, Bitcoin’s 2023 rally has been cut short, with the crypto facing threats to retest the lows below $20,000. At press time, BTC was trading at $22,382.