Why Inflation Keeps Rising And Impact On Bitcoin

Introduction: Inflation Today And Bitcoin’s Role

Between 2020 and 2023, the world experienced an inflation shock that few people under 50 had ever witnessed firsthand. In the United States, the Consumer Price Index peaked at 9.1% in June 2022, the highest reading in over four decades. Across the Atlantic, the Eurozone saw inflation climb above 10% in late 2022, while emerging markets faced even steeper price surges. For millions of households, the abstract concept of inflation suddenly became painfully concrete.

Everyday life got more expensive, fast. Rent increases outpaced wage growth in most major cities. Grocery bills climbed week after week. Fuel prices spiked, making commutes and travel more costly. The result was a silent erosion of purchasing power, the same paycheck buying less than it did just a year or two prior. For anyone holding cash savings, the message was clear: your dollars, euros, and pounds were losing value in real time.

This is precisely the environment that Bitcoin was designed for. When Satoshi Nakamoto published the Bitcoin whitepaper in October 2008, the global financial system was collapsing under the weight of bank failures, bailouts, and emergency money printing. The digital currency that emerged in January 2009 wasn’t just a technological experiment, it was a direct response to systemic monetary problems. In this article, we’ll first examine why inflation keeps rising in modern economies, then explore how Bitcoin’s architecture was built to address these structural issues at their root.

What Is Inflation And Why Does It Keep Rising?

Inflation, at its core, is a sustained rise in the general price level of goods and services over time. Economists typically measure it using indexes like the Consumer Price Index (CPI), which tracks price changes across a basket of common purchases. When inflation runs at 3% annually, something that costs $100 today will cost roughly $103 next year, and that compounding effect adds up dramatically over decades.

The primary driver of inflation is straightforward: when the money supply expands faster than the real economy (the actual production of goods and services), more currency units chase the same amount of stuff. Prices rise as a natural consequence. Central banks like the Federal Reserve, the European Central Bank, and the Bank of Japan deliberately target positive inflation rates, typically around 2% per year, as a matter of monetary policy. They believe modest inflation encourages spending and investment rather than hoarding cash.

The 2010s saw relatively stable inflation in the US, hovering between 1.8% and 2.3% annually. Then came the disruptions. COVID-19 triggered massive supply chain shocks, reducing the availability of goods precisely when demand was rebounding. Energy prices spiked dramatically in 2021 and 2022. Governments around the world deployed trillions in fiscal stimulus, funded largely by newly created money and debt. The Federal Reserve’s balance sheet, which had taken a century to reach $1 trillion, ballooned to nearly $9 trillion by 2022.

The result was predictable: US CPI inflation jumped to 7.0% in 2021 and hit 9.1% by June 2022. Even as inflation moderated somewhat in 2023 and 2024, it remained stubbornly above the Fed’s 2% target. Research from the San Francisco Federal Reserve indicates that recent inflation has been primarily demand-driven rather than supply-driven, a distinction that makes it harder to resolve without significant policy tightening or economic slowdown.

The Fiat Money Era: Why Modern Currencies Drift Toward Inflation

To understand why modern currencies tend toward chronic inflation, you need a brief history lesson. From 1944 to 1971, under the Bretton Woods system, the US dollar was pegged to gold at $35 per ounce. Other major currencies were then pegged to the dollar, creating an indirect gold standard. This system constrained how much currency governments could print, if you wanted more dollars, you theoretically needed more gold to back them.

That constraint ended on August 15, 1971, when President Richard Nixon closed the “gold window,” suspending the dollar’s convertibility to gold. From that moment forward, the dollar, and by extension, most other currencies, became pure fiat money. Unlike fiat currencies of the pre-1971 era, modern money is backed only by government decree and the issuing nation’s credit, not by any physical commodity or reserve.

The practical implication is profound: governments can now issue essentially unlimited currency units. The only constraints are political will and the risk of runaway inflation damaging public confidence. There’s no physical vault of gold bars limiting how many dollars the Federal Reserve can create with a few keystrokes.

The long-term results speak for themselves. According to Bureau of Labor Statistics data, the US dollar has lost approximately 85-90% of its purchasing power since the early 1970s. A 1971 dollar buys roughly what ten cents buys today. This isn’t an accident or market failure, it’s the predictable outcome of a fiat money system operating as designed.

Structural budget deficits compound the problem. The US national debt surpassed $30 trillion in 2022 and continues climbing, with more than half of current deficit spending now going toward interest costs alone. When governments carry large debts denominated in their own currency, they face persistent temptation to inflate those debts away, making repayment easier by paying back with devalued money. This dynamic virtually guarantees ongoing monetary inflation over time.

How Policymakers Respond To Inflation (And Why It’s A Cycle)

When inflation rises too quickly, central banks respond with their primary tool: raising interest rates. The Federal Reserve, for instance, hiked its policy rate from near 0% in early 2022 to over 5% by mid-2023, the fastest tightening cycle in decades. As such, elevated interest rates cause borrowing to be more costly, which grinds consumer spending and business investment down lower.

But this creates its own problems. Rate hikes can trigger recessions, increase unemployment, and crash asset prices in the stock market and real estate. The 2022-2023 tightening contributed to significant declines in both stocks and bonds, plus a regional banking crisis in early 2023. Policymakers face constant pressure to ease off before fully extinguishing inflation, especially when financial security concerns or election cycles loom.

This dynamic creates a repeating policy cycle that has played out for decades:

During major crises, central banks go further with quantitative easing (QE), creating new money to purchase government bonds and other assets. The Fed deployed trillions in QE during both the 2008-2009 financial crisis and the 2020 COVID crisis. These interventions accumulate over time. Each crisis leaves more dollars in circulation than before, making long-term currency debasement a structural feature of the system rather than a temporary bug.

The current environment remains challenging. With inflation rates still running above the Fed’s 2% target and structural factors like labor market constraints and housing shortages maintaining upward price pressure, the Federal Reserve faces limited options. JPMorgan and other analysts suggest rates may need to stay elevated longer than markets hope, while RSM forecasts PCE inflation reaching 2.7% in 2026 with ongoing pressure.

The Impact of Inflation on Economies

Inflation doesn’t just affect the price of groceries or gas, it ripples through entire economies, shaping everything from personal finance decisions to global investment flows. When inflation rises, the purchasing power of money declines, meaning each dollar, euro, or yen buys less than before. This erosion of value impacts consumers directly, making everyday life more expensive and reducing the real value of savings held in fiat currencies.

Central banks, such as the Federal Reserve, play a crucial role in managing inflation through monetary policy. By adjusting the money supply and setting interest rates, they aim to keep inflation within target ranges. When inflation accelerates, central banks often raise interest rates to cool demand and stabilize prices. However, these moves can have side effects: higher interest rates make borrowing more expensive, which can slow economic growth and dampen stock market performance. Investors may become wary, leading to declines in the value of riskier assets and increased volatility across markets.

In periods of high inflation, the value of fiat currencies can drop rapidly, undermining confidence in the currency and prompting individuals and businesses to seek alternatives. This is where the concept of a hedge against inflation becomes critical. Assets like gold, and increasingly, Bitcoin, are viewed as potential stores of value that can help preserve wealth when traditional money loses its purchasing power. Bitcoin’s fixed supply and decentralized nature set it apart from fiat currencies, making it an attractive option for those looking to protect their assets from the unpredictable effects of rising inflation and aggressive monetary policy.

Characteristics of a Good Inflation Hedge

Not all assets are created equal when it comes to protecting against inflation. A good inflation hedge should be able to maintain its value even as the money supply expands and inflation rates fluctuate. This means it must be resistant to the forces that erode the value of fiat currencies, such as excessive money printing or sudden regulatory changes.

Key characteristics of a strong inflation hedge include a limited or predictable supply, high market capitalization, and the ability to attract increasing demand from investors. The asset should also be widely recognized and accepted, making it easy to buy, sell, or use as a store of value. Bitcoin stands out in this regard: its total supply is capped at 21 million coins, and its transparent, decentralized system ensures that no central authority can arbitrarily increase the supply. As more investors seek protection from inflation, demand for Bitcoin has grown, contributing to its rising value and solidifying its reputation as a potential inflation hedge.

Additionally, a good inflation hedge should be able to weather regulatory changes and maintain its role as a store of value even in uncertain environments. Bitcoin’s resilience, global reach, and growing market capitalization have made it a leading candidate for those looking to hedge against inflation and safeguard their wealth in an era of monetary uncertainty.

Bitcoin’s Origin Story: Designed For Systemic Monetary Problems

On October 31, 2008, Halloween, a pseudonymous figure named Satoshi Nakamoto published a nine-page document titled “Bitcoin: A Peer-to-Peer Electronic Cash System.” The timing was not coincidental. Just six weeks earlier, Lehman Brothers had collapsed, triggering the worst financial crisis since the Great Depression. Central banks were flooding markets with emergency liquidity. Governments were bailing out banks deemed “too big to fail.”

Satoshi’s whitepaper proposed something radical: digital money that required no trusted third party, no bank, no government, no central authority, to function. Transactions would be verified by a decentralized network of computers using cryptographic proof rather than institutional trust.

The Bitcoin network went live on January 3, 2009, when Satoshi mined the first block (the “genesis block”). Embedded in that block’s data was a message that left no doubt about the project’s motivations: “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.” This headline from a London newspaper served as both a timestamp and a pointed critique of the bailout-and-print monetary regime.

Bitcoin’s design addressed specific concerns about how governments and central banks handle money:

• No discretionary money printing: New coins are created only through mining, following a fixed schedule written into the code

• No central authority: No single entity can change the rules, freeze accounts, or inflate the supply

• Transparent supply: Anyone can verify exactly how many Bitcoins exist and will ever exist

• Censorship resistance: Transactions cannot be blocked by governments or institutions

Updating Bitcoin’s protocol is a slow process because it requires overwhelming consensus among network participants. This slow process can hinder rapid improvements, but it also protects stakeholders’ interests by making it difficult to change the core rules.

This wasn’t just software engineering, it was monetary engineering with explicit political and economic intent.

Bitcoin’s Monetary Policy: Fixed, Transparent, And Predictable

Bitcoin’s monetary policy stands in stark contrast to fiat currencies. The rules are embedded in code, publicly verifiable, and extremely difficult to change without overwhelming global consensus among network participants.

The most fundamental rule: Bitcoin’s total supply is capped at 21 million coins. Ever. This hard cap cannot be altered by any government, corporation, or central bank. As of mid-2024, approximately 19.7 million BTC have already been mined, leaving only about 1.3 million remaining to be created over the next century-plus.

The issuance schedule follows a predetermined pattern called the “halving.” Every 210,000 blocks (approximately four years), the reward miners receive for adding new blocks is cut in half:

This halving process continues until approximately the year 2140, when the final fraction of a Bitcoin will be mined and new issuance drops to zero. The Bitcoin supply schedule is not a projection or policy target, it’s mathematical certainty, verifiable by running the open-source software yourself.

The result is that Bitcoin’s annual “inflation rate” (the rate at which new coins enter circulation) declines predictably over time. After the 2024 halving, Bitcoin’s annual supply growth fell below 1%, lower than many central banks’ target inflation rates and far below actual inflation rates in recent years.

Is Bitcoin Inflationary, Deflationary, Or Something Else?

This question often confuses newcomers because the terms “inflation” and “deflation” can refer to different things. Let’s distinguish between them:

• Monetary inflation: The rate at which new currency units are created

• Price inflation/deflation: Changes in what a currency unit can purchase

Bitcoin is currently experiencing low monetary inflation, new coins are still being created, but at a decreasing rate that will eventually reach zero. This is fundamentally different from fiat currencies, where monetary inflation can accelerate at any time based on policy decisions.

In terms of price, Bitcoin has historically been neither consistently inflationary nor deflationary on short timeframes. Bitcoin prices have shown extreme volatility, with drawdowns of 50-80% occurring multiple times in its history. On a week-to-week or month-to-month basis, holding Bitcoin can feel like riding a roller coaster in cryptocurrency markets.

However, zoom out to multi-year periods, and a different pattern emerges. Despite severe drawdowns, Bitcoin’s value measured in dollars has appreciated dramatically over each major market cycle since 2009. Someone who bought Bitcoin at almost any point before 2020 and held through the volatility would have seen significant appreciation in dollar terms.

This distinction matters: Bitcoin may not track monthly CPI readings or provide smooth, predictable returns. But its fixed supply creates a structural tendency toward scarcity that fiat money cannot replicate. As demand for a fixed supply grows, basic economics suggests price appreciation, though this is never guaranteed and depends entirely on continued adoption.

Bitcoin vs. Fiat In An Inflationary World

The contrast between Bitcoin and fiat currencies becomes clearest when you examine how supply decisions are made.

For fiat currencies:

• A small committee (Fed governors, ECB council, etc.) decides supply changes

• Decisions can be made quickly in response to political or economic pressure

• There is no hard limit on how much currency can be created

• The public has no direct input or veto power

For Bitcoin:

• Supply schedule is fixed in code, known decades in advance

• Changes require overwhelming consensus among thousands of node operators globally

• Hard cap of 21 million coins cannot be overridden

• Anyone can run a node and participate in enforcing rules

This difference becomes acutely relevant in countries experiencing high inflation or currency crises. When Argentina’s peso lost more than half its value against the dollar in 2023, some citizens turned to Bitcoin and stablecoins as alternatives. In these situations, hyperinflation causes dramatic changes in the exchange rate between local currencies and assets like Bitcoin, making it crucial for people to consider how value is preserved or lost when converting between them. In Turkey, where the lira has depreciated dramatically since 2018, cryptocurrency adoption has surged. Venezuela’s hyperinflation in the 2010s drove similar interest.

Bitcoin’s borderless, digital nature offers something physical foreign currencies cannot: the ability to store and move value without relying on local banking systems, which may be subject to capital controls, freezes, or other restrictions. More investors in unstable monetary environments have begun viewing Bitcoin as a form of financial security independent of their government’s policies.

This doesn’t mean Bitcoin is risk-free, far from it. But for people watching their savings evaporate in devaluing currencies, an asset with a fixed supply and no central authority represents a fundamentally different value proposition than simply holding a different fiat currency.

Comparison to Other Cryptocurrencies

While Bitcoin is often the first digital asset that comes to mind as an inflation hedge, it’s not the only cryptocurrency in the conversation. Other cryptocurrencies, such as Ethereum and Litecoin, have also been proposed as potential hedges against inflation. However, there are important differences that set Bitcoin apart.

Bitcoin’s limited supply, high market capitalization, and widespread acceptance make it unique among digital currencies. Its fixed supply of 21 million coins ensures scarcity, while its robust network and long track record have established it as a reliable store of value and investment vehicle. In contrast, Ethereum has a larger and more flexible supply, with its value often tied to the broader ecosystem of decentralized applications and the US dollar. Litecoin, known for its faster transaction times, is more suited for everyday payments but lacks the same level of market capitalization and recognition as Bitcoin.

Other cryptocurrencies may offer innovative features or different use cases, but their suitability as inflation hedges depends on factors like supply dynamics, adoption rates, and regulatory environment. For most investors seeking a hedge against inflation, Bitcoin’s combination of scarcity, security, and market dominance makes it the benchmark against which other cryptocurrencies are measured.

Does Bitcoin Really Hedge Inflation? Short-Term vs Long-Term

The question of whether Bitcoin functions as a good inflation hedge requires separating short-term price behavior from long-term monetary properties.

Short-term reality: Bitcoin often trades like a risk asset. During the 2022 rate-hiking cycle, Bitcoin prices fell roughly 65% from their all-time highs, moving in correlation with tech stocks and other riskier assets. When the Federal Reserve tightens policy, investors often flee speculative positions, including Bitcoin. In periods of acute crisis, Bitcoin has sometimes fallen alongside the stock market rather than serving as a safe haven.

Long-term picture: Over multi-year horizons, Bitcoin’s performance looks dramatically different. Despite repeated 50%+ drawdowns, Bitcoin returns over any four-year holding period since 2011 have been positive. Bitcoin has exhibited market crushing outperformance compared to most other asset classes over its lifetime, though past performance never guarantees future results.

Consider this framework:

The key insight is that Bitcoin wasn’t designed to track monthly inflation readings or provide smooth, bond-like stability. It was designed to resist the chronic, compounding currency debasement that occurs over years and decades in fiat systems. Expecting Bitcoin to be a good hedge on a month-to-month basis misunderstands its purpose.

For investors and savers, this means time horizon matters enormously. Using Bitcoin as a short-term trading vehicle is speculation. Holding Bitcoin over extended periods with the thesis of monetary preservation is a fundamentally different proposition.

Hyperinflation And Extreme Cases: Where Bitcoin’s Design Shines

While developed economies rarely experience runaway price increases, hyperinflation, typically defined as 50%+ monthly inflation, remains a recurring phenomenon in certain countries. These extreme cases reveal why an asset with a truly fixed supply holds appeal.

Zimbabwe’s hyperinflation in the late 2000s reached absurd levels, with the government eventually printing 100-trillion-dollar notes that couldn’t buy basic groceries. Venezuela’s crisis in the 2010s saw inflation exceed 1,000,000% annually at its peak, destroying lifetime savings in months. In both cases, citizens who held local currency watched their wealth evaporate while those holding dollars, gold, or other non-local assets fared far better.

Bitcoin offers specific advantages in these environments:

• Cannot be debased locally: Unlike the bolivar or Zimbabwe dollar, no government can print more Bitcoin

• 24/7 global liquidity: Bitcoin trades continuously on exchanges worldwide, allowing rapid conversion

• Portable and concealable: Memorizing a seed phrase allows carrying unlimited value across borders

• Censorship resistant: Governments cannot easily freeze or seize properly-secured Bitcoin

During Lebanon’s 2020-2023 banking crisis, when banks froze withdrawals and the pound lost 95%+ of its value, some citizens reported using Bitcoin and stablecoins to preserve and move funds when traditional banking failed them.

It’s crucial to maintain perspective here: Bitcoin in these scenarios is primarily a defense mechanism against total savings destruction, not a guaranteed path to wealth. Someone holding Bitcoin during hyperinflation might still experience volatility, but they’re holding an asset whose supply cannot be manipulated by the very government debasing their currency. That matters when bad news about your local economy means more money printing.

Investing in Bitcoin

For both individual and institutional investors, adding Bitcoin to a portfolio is a decision that requires careful consideration. Institutional investors, including hedge funds and pension funds, have increasingly turned to Bitcoin as a hedge against inflation and a way to diversify their holdings, attracted by its growing market capitalization and history of market crushing outperformance compared to traditional asset classes.

However, investing in Bitcoin is not without risks. The cryptocurrency is known for its volatility, with prices capable of swinging dramatically in short periods. Regulatory changes can also impact the market, as governments and agencies like the Securities and Exchange Commission and Commodity Futures Trading Commission continue to shape the legal landscape for digital assets. Security is another concern, as investors must take steps to protect their holdings from theft or loss.

Before investing in Bitcoin, it’s essential to assess your own risk tolerance, investment goals, and time horizon. While Bitcoin has delivered impressive returns over the long term, it can also experience significant losses, especially during periods of market stress or regulatory uncertainty. 

A long-term perspective, combined with thorough research and, if needed, professional financial advice, can help investors navigate the complexities of the cryptocurrency markets. By understanding both the potential rewards and the risks, investors can make informed decisions about whether Bitcoin deserves a place in their strategy as a hedge against inflation and a tool for financial security.

Risks, Limitations, And Practical Considerations

Bitcoin’s elegant monetary design doesn’t eliminate significant risks that anyone considering it should understand.

Volatility remains extreme. Bitcoin has experienced multiple drawdowns of 50-80% from peak to trough. This volatility can be psychologically devastating and practically ruinous if you need to sell during a downturn. Bitcoin today trades with volatility that dwarfs traditional asset classes like stocks, bonds, or gold.

Regulatory changes pose ongoing uncertainty. Governments worldwide continue debating how to regulate different cryptocurrencies. The Securities and Exchange Commission and Commodity Futures Trading Commission in the US have taken varying positions on crypto assets. Other countries have banned cryptocurrency markets outright. Future regulatory changes could significantly impact Bitcoin’s accessibility and market cap.

Self-custody has a learning curve. Unlike bank accounts, Bitcoin held in personal wallets has no “forgot password” recovery option. Losing access to private keys means losing access to funds permanently. Hardware wallets and proper backup procedures require technical knowledge many people lack.

Adoption is not guaranteed. Bitcoin’s fixed supply only creates scarcity value if demand continues. If institutional investors lose interest, if technology renders Bitcoin obsolete, or if better alternatives emerge, Bitcoin value could decline regardless of its supply properties. Market capitalization can shrink as easily as it grows.

Personal finance basics still apply. For most people, a balanced approach combining cash for near-term needs, diversified investments for growth, and possibly Bitcoin for monetary hedging makes more sense than concentrated positions. Consider your time horizon, risk tolerance, and local legal frameworks before allocating significant capital.

The existence of these risks doesn’t invalidate Bitcoin’s monetary design, but it does mean that understanding the investment thesis requires eyes-open acknowledgment of what can go wrong.

Conclusion: Why Bitcoin Was Built For An Inflationary Century

The monetary system we live under today has a structural bias toward ongoing inflation. Fiat currencies, unmoored from commodity backing since 1971, can be expanded at will by central banks responding to political pressure, economic crises, or the need to service growing government debts. This isn’t a conspiracy, it’s simply how the system works. Two percent annual inflation, compounded over decades, means your currency loses most of its purchasing power within a lifetime.

Bitcoin was explicitly designed as an alternative to this system. Its fixed 21-million-coin supply, predetermined issuance schedule, and decentralized governance mean that no government, central bank, or corporation can dilute your holdings through money printing. Unlike gold, which can still be mined in increasing quantities, Bitcoin’s supply schedule is mathematically certain and verifiable by anyone running the software.

This doesn’t make Bitcoin a perfect hedge or a risk-free investment. In the short term, Bitcoin prices will continue experiencing volatility, correlation with risk assets, and sensitivity to interest rates and regulatory news coverage. Holding Bitcoin requires patience, technical competence, and genuine understanding of both its benefits and limitations.

But for those looking beyond the next quarter or next year, those thinking about wealth preservation across decades in an inflationary century, Bitcoin offers something no fiat currency can: absolute certainty about supply. In the best case scenario, this creates a powerful hedge against inflation that compounds over time. In any scenario, it represents a genuine alternative to currencies that are structurally designed to lose value.

The first step isn’t rushing to buy Bitcoin. It’s education, understanding why Bitcoin exists, how it works, and whether its properties align with your financial goals. From there, gradual, informed allocation based on your personal circumstances makes far more sense than chasing returns or fleeing to safety in a panic. Bitcoin was built for the long game. Approach it accordingly.