How to invest in an era of soaring inflation
In the short term, it is difficult to predict whether inflation will occur and how large the potential fluctuations in a currency’s purchasing power will be. However, as you zoom out, you are faced with a stark reality – every major national currency has regularly (and in some cases rapidly) has lost value over time, and there are no exceptions to this unambiguous trend.
This trend long predated rampant money printing triggered by the COVID-19 pandemic, although the past year has indeed seen an unprecedented increase in global money supply. Almost 21% of all existing U.S. dollars have been minted in the past year, and while the Federal Reserve’s quantitative easing does not involve the actual printing of new physical dollars, the result still comes down to flooding the markets with liquidity to continue borrowing at low cost. Total money in the United States has grown from $ 4.6 trillion in 2000 to $ 19.5 trillion in 2021, and it’s no surprise that the U.S. dollar has lost more than a third of its power. relative purchase over the past two decades alone.
What does this mean for investors? On the one hand, it’s worth increasing your investment’s exposure to durable assets. The USD has lost 98.2% of its purchasing power against gold over the past century, and in general, assets such as real estate and previous metals have maintained their market value much better. than all national currencies. However, of all your available investment options, cryptocurrencies have the most asymmetric advantages and the strongest track record.
Cryptocurrencies are relatively new and there is a big difference in quality and design between different crypto projects. Many of the same criticisms leveled against cryptocurrencies apply to fiat currencies like USD, EURO, and JPY, but the truth is, major crypto projects are hard-coded to have predictable, capped supply. . This means that unlike the USD and other national currencies, the supply of Bitcoin, Ethereum, and other major cryptocurrencies cannot be unilaterally expanded or changed by anyone. Almost 90% of Bitcoin’s total supply has already been created, and there is no way to change this total supply cap now or in the future. And even though most blockchain projects are open source, you cannot secretly duplicate a cryptocurrency network because a cloned project will not have transaction history like the original project it is derived from. In other words: unlike fiat currencies, your cryptocurrencies cannot be diluted by supply inflation.
In addition, portfolio diversification is particularly critical during times of economic uncertainty. It is extremely risky to put all your eggs in one basket under current market conditions, whether that basket is made up of stocks, commercial real estate, or crypto. The key is to spread your holdings across multiple uncorrelated assets and rebalance your portfolio over time. The price of Bitcoin is only weakly correlated to the S&P 500, with a 180-day correlation coefficient of 0.2, and the correlation of cryptocurrency with gold is -0.08. Many other cryptocurrencies evolve in tandem with Bitcoin’s movements, and these loose correlations with traditional investments underscore crypto’s potential as an effective portfolio diversifier.
Ultimately, we believe there is a responsible way to invest in crypto without taking too much risk. The best way to do this is to go through a crypto lending platform like Vauld, which allows you to earn 12.68% APY on your USD backed stablecoins, which is more than SPY’s historical returns. And because Vauld doesn’t subject its users to any deposit / withdrawal fees or mandatory lock-in periods, investors can stay flexible and rebalance their investments whenever they want. Additionally, Vauld offers investors a range of automated investment plans, which make it easy for investors to diversify into a particular blockchain industry or emerging market trend. And in order to mitigate worst-case scenarios, investor funds stored in Vauld’s cold wallets are insured to the tune of $ 100 million by Lloyd’s London.
As a comprehensive digital wealth management solution, Vauld allows you to trade cryptocurrencies and access real-time market information, while delivering some of the highest returns in the industry. The team behind Vauld believe it is irresponsible for investors to put all of their money and trust in a national monetary system that has been shown to decline in value over time. Likewise, it would also be unwise to invest everything you have in cryptocurrencies or other alternative assets. What Vauld enables is a balanced approach to preserving and growing wealth using the latest technology and the most reliable and predictable returns. To take advantage of all these features and more, join Vauld today.
Â© 2021 The Block Crypto, Inc. All rights reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial or other advice.