There’s no doubt that economies all over the world are experiencing inflation. This isn’t surprising given the historic government spending in the past 18 months to mitigate the economic and social impacts of the pandemic. There are even fears that inflation will rise. If that happens, the reduced buying power of fiat currencies, such as dollars, will drop further.
This fear has led many to look for alternative ways to protect their money and hedge against inflation. In the past, the solution was to invest in gold and other precious metals. But with the emergence of cryptocurrencies now means digital assets are part of the conversation. With hundreds of cryptocurrencies in existence, it’s challenging to know the ones that are the best hedge against inflation. But some cryptocurrencies have peculiar deflationary features and resilience that make them worthy. Here are the top 5 cryptocurrencies that can serve that purpose.
Without any doubt, Bitcoin is the number one cryptocurrency that can be a hedge against inflation. It is the first cryptocurrency and most valuable by a wide gap. Its complete decentralization and autonomy make it the standard for all cryptocurrencies. The total supply is also capped at 21 million tokens.
Over the years, the supply has been reducing due to halving while the value keeps rising. Even though it’s also volatile, it has established some stability in the past few months. Since its supply is capped, there’s no chance of it being inflationary. There won’t be any more Bitcoin to mine once the total supply is maxed out, likely in 2140.
Features such as autonomy, capped supply, consistently low inflation rate, market capitalization, and widespread adoption make it the best cryptocurrency to hedge against inflation.
If Bitcoin is the king of Cryptocurrencies, ETH is its queen. Ethereum is a blockchain network hosting decentralized applications and smart contracts. Using Ethereum requires paying gas fees in Ether (ETH) which is the native cryptocurrency of the platform. As the home of decentralized finance, NFTs, and many other blockchain applications, Ethereum is widely used, which has led to the increase in the value of ETH.
Currently, the network is a proof of work blockchain, but it plans to transition to proof of stake in the future. It’s already implemented proposals that such EIP 1559 as a step toward that transition. Even though Ethereum doesn’t have a limited supply like Bitcoin, it has an inflation cap of 18 million new coins per year, with coins awarded to miners who validate transactions on the platform.
Once the network transitions to proof of stake, the numbers of coins minted annually will reduce too. The EIP 1559 also has a burning mechanism that will prevent Ether inflation. Thus, its wide usage, high value, and plans to transition to PoS make it a good hedge against inflation.
Polkadot is a PoS multichain facilitating interoperability of blockchains. Its uniqueness is that it allows blockchain to operate independently while also benefiting from the security of shared multichain. In addition, Polkadot connects chains, oracles, permissionless networks, and other future technologies.
Polkadot’s native token, DOT, has a maximum supply of 1 billion tokens. It was initially 10 million before its redenomination, which was done to minimize decimals and make it easier to calculate. Its strength lies in its novel approach and mechanism. These will increase its usage in an age where more people want scalability for blockchains.
Binance Coin (BNB)
As the largest cryptocurrency exchange by trading volume, Binance also has its native token. BNB is an ERC 20 token that started on Ethereum before transferring to Binance Smart Chain, a PoS blockchain.
BNB supply is capped at 170,532,785 coins. Over 90% of that is already in circulation. But Binance has put deflationary measures in place. Every quarter, it burns a large amount of BNB through buybacks. The goal is to burn 100,000,000 coins, and it will take close to ten years for that to happen. With its deflationary measure and trading volume of Binance, BNB can be a good hedge against inflation.
EOS is a delegated proof of stake network that focuses on simplifying the use of blockchain technology. As a result, users can build decentralized applications. It has a maximum supply of 1.02 billion tokens, with over 900 million tokens already in circulation.
The network executed deflationary proposals passed by the community. In 2020, it burnt EOS tokens worth $132 million, which deflated supply by 0.8%.
The debate on whether cryptocurrencies are a good hedge against inflation will continue for a long time. But, if you’re planning to invest in crypto as a hedge, you should do the necessary research. Cryptocurrencies are very volatile and speculative, so there’s a huge risk of losing money, especially if you have no adequate knowledge.