How Inflation and Debased Fiat Currencies are Pushing Investors to Bitcoin

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Even if the increases in Bitcoin trading volume that we’ve observed recently may not indicate that widespread acceptance is close at hand, they do indicate that Bitcoin is starting to behave like a safe haven asset.

The world of conventional banking has long cast doubt on Bitcoin’s standing as an asset with a reputation for being a safe haven. Because of its lack of centralized management, very volatile price range, and relative newness, it was difficult to classify as either recession-proof or inflation-proof.

However, over the course of the last year, we have seen that when faced with uncertainty, investors continue to choose Bitcoin over fiat currency.

Consider, for instance, the Turkish lira as an example (TRY). Since 2018, the value of the currency has been steadily deteriorating, and the total rate of inflation over the preceding three years has surpassed 100%. When measured against the dollar, the value of the lira has decreased by 26% since the beginning of the year (USD). In its study from September, PwC classified the economy of Turkey as hyperinflationary, stating that circumstances have been worsening since 2021 and have become much more dire since the middle of summer 2022.

The exchange rate for one US dollar to three and a half Turkish lira in 2017 is now 1 USD to 18 TRY. Because of this, the volume of trading in US dollars against Turkish lira has skyrocketed since the beginning of the year and is already approaching exponential levels.

The dollar is not the only money that individuals in Turkey have shown a strong interest in.

On centralized exchanges, the volume of Bitcoin to Turkish Lira trades has been steadily growing over the last several months. According to information obtained from Binance, the price of one Bitcoin measured in TRY hit its all-time high in the beginning of 2022, while the 24-hour trading volume for the pair reached its highest point in May of this year.

On September 26, 2022, the British pound went through a flash collapse that was just as severe as the one that was recorded on Black Wednesday 1992. In only one day, the pound lost 4.3% of its value in comparison to the United States dollar. The dip was caused by an unexpected intervention by the Bank of England in the bond market, as CryptoSlate explained in a previous article on the topic.

On the same day that the value of the pound witnessed its greatest collapse in thirty years, the trading volume of BTC/GBP achieved its all-time high, surging more than 1,200% in only one day.

In Japan, where the situation was no better, the country’s central bank intervened in the foreign currency market and spent over $20 billion, which is equivalent to 3.6 trillion yen, in order to keep the yen from further depreciating. It is popularly thought that the whole of the $20 billion was spent on a single intervention on September 22, despite the fact that the number represents the total amount of money the government spent on currency intervention over the entirety of the month of September.

This is currently the Bank of Japan’s biggest and most important intervention, breaking the record of 2.6 trillion yen that it established in 1998. The Bank of Japan sold dollars and bought yen during this intervention. It was hoped that the intervention would help stabilize the ailing yen, which has shed a fifth of its value versus the United States dollar so far in 2018.

After the intervention, the value of the yen versus the dollar momentarily touched 140, having been trading at 144 before to the intervention. However, the solution was only temporary. The impacts of the intervention were neutralized the next day as the yen strengthened against the dollar, reaching 145 to one against the dollar.

As the value of the yen fell, Japanese investors also became more interested in Bitcoin. Right around the time of the intervention, the volume of trade in BTC/JPY reached a high point.

As the value of the ruble reached a new all-time low, the volume of trade in BTC/RUB skyrocketed in Russia. As Russia started its invasion of Ukraine, investors in the nation switched their attention to the most difficult asset available and began pouring their money into bitcoin.

Even if the increases in Bitcoin trading volume that we’ve observed recently may not indicate that widespread acceptance is close at hand, they do indicate that Bitcoin is starting to behave like a safe haven asset. Investors are rushing to buy Bitcoin in droves as a hedge against the macroeconomic instability, inflation, and currency devaluation they are experiencing.

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