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The Relationship between Bitcoin and Inflation

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Speculation is that some investors have turned to bitcoin in order to protect their holdings from the impacts of hyperinflation. But what exactly does that mean?

People are drawn to everything they can run to in order to protect themselves from inflation, which has reached unprecedented highs.

The bitcoin assets are assumed to be inflation-resistant, despite evidence to the contrary. However, things quickly become unclear if you discover that each cryptocurrency is unique, and some are inflationary by design.

The notion that fiat money will eventually lose value as a result of central banks printing money is the rationale behind the frequent marketing of Bitcoin (BTC) as an inflation hedge.

The sudden drop in the price of Bitcoin has investors in cryptocurrencies speculating on a number of factors, such as inflation, which is causing losses in their Bitcoin wallet (exodus dot com/bitcoin-wallet). However, there is a fixed quantity of 21 million coins for Bitcoin. Since Bitcoin has a limited upper limit, it has an advantage over inflation. But does Bitcoin have no impact on inflation?

Inflation: What is it?

The general characteristics of inflation include a rise in the cost of consumer items and a gradual decline in the value of currencies. Cryptocurrencies like Bitcoin often have low rates of inflation due to their restricted supply.

The typical definition of inflation is a persistent rising trend in the cost of goods and services across an economy. Additionally, it coincides with the economy’s currency losing buying power, which means that as inflation increases, a certain amount of goods and services requires an increasing number of units of currency to be purchased.

Every good or service is impacted by inflation, including utilities, cars, food, health care, and housing. Because inflation essentially devalues currency, it has an impact on both corporations and individual customers.

In other words, inflation lowers a consumer’s purchasing power, depreciates savings, and puts off retirement. Global central banks keep an eye on inflation so they can react appropriately.

For instance, the US Federal Reserve has set a target inflation rate of 2%. In order to combat inflation, should inflation rates exceed the desired level, and should the system modify its monetary policy?

Is inflation a consistent problem?

Recently, inflation has become more of an enduring than a passing occurrence. Financial markets are witnessing a gradual rise in inflation rates globally, which is mostly driven by the international reaction to the epidemic.

Yahoo contends that inflation is here to stay for the following three reasons, notwithstanding the possibility that high inflation rates would eventually decline:

– Uneven supply and demand in the labor market
– Rising real estate costs
– Entry prices are anticipated to increase as well

Bitcoin and price rises

Even though the economics of the Bitcoin market is complicated, some cryptocurrencies, are built to either resist inflation or have predictable, low rates of inflation. Additionally, although Bitcoin is frequently hailed as a hedge against inflation, recent changes in the economy have seen Bitcoin’s performance as a pure hedge decline.

What part does Bitcoin play in the rise in prices?

The cryptocurrency has increasingly matched market trends thanks in large part to institutional investors. This implies that Bitcoin will probably decrease along with the market when it does.

Consequently, the Federal Reserve will probably implement a dual mandate when inflationary news arises. There will be a rise in policy interest rates and a tightening of the financial system. As a result, the value of assets will decrease, including cryptocurrencies like Bitcoin.

Is Bitcoin immune to inflation?

So, the question is: Is Bitcoin a decent inflation hedge? Although gold has traditionally been regarded as the best inflation hedge, cryptocurrencies like Bitcoin can provide excellent options.

Bitcoin can be thought of as more of an “inflation-resistant” asset as opposed to “inflation-proof,” which suggests complete impenetrability against any outside changes. In general, Bitcoin is seen as an excellent inflation hedge since it is the biggest and most well-known cryptocurrency. It may even be seen as a more effective hedge than gold.

Bitcoin has superior long-term growth potential and hence protects against inflation, although being more volatile than gold. How so?

Low availability of Bitcoin

Bitcoin is a strong inflation hedge due to its fixed supply. The risk of inflation is eliminated when the supply of an asset is fixed and constrained, preventing the introduction of new coins into circulation.

Bitcoin is unattached to a particular economy or currency

Like gold, bitcoin is not a part of any one economy, business, or currency. It is a worldwide asset class that reflects demand all across the world. Because it does not have to cope with the numerous economic and political dangers connected with stock markets, bitcoin is a better alternative than shares.

The Bitcoin Currency is simple to transfer

Bitcoin is enduring, interchangeable, limited, and secure, much like gold. Given that it is more portable, decentralized, and transferable than gold, bitcoin has an advantage over it. Bitcoin may be stored by anybody because of its decentralized structure, in contrast to gold, whose supply is regulated by sovereign states.

Why is inflation crucial for cryptocurrencies?

Increased investments in digital currencies may result from high rates of fiat money inflation, which allays consumers’ concerns that their money would eventually lose value. Investors who wish to diversify their investment portfolios have a wonderful option in cryptocurrencies like Bitcoin (BTC) and Ether (ETH).

Benefits of a Fixed Supply of Bitcoin

Scarcity is one of the elements that help an asset resist inflation. Bitcoin is referred to as “digital gold” because of its restricted quantity, which keeps it rare and guarantees that its value will hold over time.
Satoshi Nakamoto, who invented Bitcoin, wanted each unit to increase in value over time. This was made possible by the finite maximum supply and the gradual emergence of new Bitcoin.

Once the limit has been reached, there can be no more Bitcoin created. Transactions will continue as usual, and miners will still be paid, but through processing charges. However, you can mine other currencies or tokens. Helium mining is one option, for instance.

In a downturn, what will happen to Bitcoin?

The “Great Recession” of 2007–2008, commonly known as the financial crisis, is where Bitcoin was born. Satoshi Nakamoto created Bitcoin to give the people money that was independent of third parties and centralized authority in reaction to widespread bank failure. The outcome was a cryptocurrency that was not tied to any organization or sovereign state.

Negative economic consequences from a recession can spread to nations with strong economic relations. Bitcoin can act as a recession-resistant asset due to its inherent diversification. Bitcoin is not restricted to any one country’s loss or gain, unlike the U.S. dollar, which is susceptible to the advantages and disadvantages of the U.S. economy, including GDP, export prices, monetary policy, and currency demand.

Additionally, Bitcoin is valuable independent of the state of the economy. This is due to the asset’s scarcity and security. It is also transportable anywhere. Since its main use is as a store of value, bitcoin is predicted to perform better during a recession than other cryptocurrencies like Ethereum.

How Bitcoin can ultimately benefit customers

Although it is doubtful that Bitcoin would displace significant centralized currencies, since its launch in 2009, it has altered the financial landscape. Its technology has enabled ground-breaking developments in decentralized finance (DeFi) and benefits unbanked customers in remote, low-income areas.

Although blockchain technology has set the way for many developments, its main goal is to reliably serve consumers. Blockchain technology’s main benefit is that it gives consumers a decentralized, secure, and permissionless means to trade money. Along with other crypto assets, bitcoin offers monetary alternatives that are immune to inflation and economic downturn.

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Politics

Fintech Kennek raises $12.5M seed round to digitize lending

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London-based fintech startup Kennek has raised $12.5 million in seed funding to expand its lending operating system.

According to an Oct. 10 tech.eu report, the round was led by HV Capital and included participation from Dutch Founders Fund, AlbionVC, FFVC, Plug & Play Ventures, and Syndicate One. Kennek offers software-as-a-service tools to help non-bank lenders streamline their operations using open banking, open finance, and payments.

The platform aims to automate time-consuming manual tasks and consolidate fragmented data to simplify lending. Xavier De Pauw, founder of Kennek said:

“Until kennek, lenders had to devote countless hours to menial operational tasks and deal with jumbled and hard-coded data – which makes every other part of lending a headache. As former lenders ourselves, we lived and breathed these frustrations, and built kennek to make them a thing of the past.”

The company said the latest funding round was oversubscribed and closed quickly despite the challenging fundraising environment. The new capital will be used to expand Kennek’s engineering team and strengthen its market position in the UK while exploring expansion into other European markets. Barbod Namini, Partner at lead investor HV Capital, commented on the investment:

“Kennek has developed an ambitious and genuinely unique proposition which we think can be the foundation of the entire alternative lending space. […] It is a complicated market and a solution that brings together all information and stakeholders onto a single platform is highly compelling for both lenders & the ecosystem as a whole.”

The fintech lending space has grown rapidly in recent years, but many lenders still rely on legacy systems and manual processes that limit efficiency and scalability. Kennek aims to leverage open banking and data integration to provide lenders with a more streamlined, automated lending experience.

The seed funding will allow the London-based startup to continue developing its platform and expanding its team to meet demand from non-bank lenders looking to digitize operations. Kennek’s focus on the UK and Europe also comes amid rising adoption of open banking and open finance in the regions.

Featured Image Credit: Photo from Kennek.io; Thank you!

Radek Zielinski

Radek Zielinski is an experienced technology and financial journalist with a passion for cybersecurity and futurology.

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Politics

Fortune 500’s race for generative AI breakthroughs

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Deanna Ritchie


As excitement around generative AI grows, Fortune 500 companies, including Goldman Sachs, are carefully examining the possible applications of this technology. A recent survey of U.S. executives indicated that 60% believe generative AI will substantially impact their businesses in the long term. However, they anticipate a one to two-year timeframe before implementing their initial solutions. This optimism stems from the potential of generative AI to revolutionize various aspects of businesses, from enhancing customer experiences to optimizing internal processes. In the short term, companies will likely focus on pilot projects and experimentation, gradually integrating generative AI into their operations as they witness its positive influence on efficiency and profitability.

Goldman Sachs’ Cautious Approach to Implementing Generative AI

In a recent interview, Goldman Sachs CIO Marco Argenti revealed that the firm has not yet implemented any generative AI use cases. Instead, the company focuses on experimentation and setting high standards before adopting the technology. Argenti recognized the desire for outcomes in areas like developer and operational efficiency but emphasized ensuring precision before putting experimental AI use cases into production.

According to Argenti, striking the right balance between driving innovation and maintaining accuracy is crucial for successfully integrating generative AI within the firm. Goldman Sachs intends to continue exploring this emerging technology’s potential benefits and applications while diligently assessing risks to ensure it meets the company’s stringent quality standards.

One possible application for Goldman Sachs is in software development, where the company has observed a 20-40% productivity increase during its trials. The goal is for 1,000 developers to utilize generative AI tools by year’s end. However, Argenti emphasized that a well-defined expectation of return on investment is necessary before fully integrating generative AI into production.

To achieve this, the company plans to implement a systematic and strategic approach to adopting generative AI, ensuring that it complements and enhances the skills of its developers. Additionally, Goldman Sachs intends to evaluate the long-term impact of generative AI on their software development processes and the overall quality of the applications being developed.

Goldman Sachs’ approach to AI implementation goes beyond merely executing models. The firm has created a platform encompassing technical, legal, and compliance assessments to filter out improper content and keep track of all interactions. This comprehensive system ensures seamless integration of artificial intelligence in operations while adhering to regulatory standards and maintaining client confidentiality. Moreover, the platform continuously improves and adapts its algorithms, allowing Goldman Sachs to stay at the forefront of technology and offer its clients the most efficient and secure services.

Featured Image Credit: Photo by Google DeepMind; Pexels; Thank you!

Deanna Ritchie

Managing Editor at ReadWrite

Deanna is the Managing Editor at ReadWrite. Previously she worked as the Editor in Chief for Startup Grind and has over 20+ years of experience in content management and content development.

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Politics

UK seizes web3 opportunity simplifying crypto regulations

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Deanna Ritchie


As Web3 companies increasingly consider leaving the United States due to regulatory ambiguity, the United Kingdom must simplify its cryptocurrency regulations to attract these businesses. The conservative think tank Policy Exchange recently released a report detailing ten suggestions for improving Web3 regulation in the country. Among the recommendations are reducing liability for token holders in decentralized autonomous organizations (DAOs) and encouraging the Financial Conduct Authority (FCA) to adopt alternative Know Your Customer (KYC) methodologies, such as digital identities and blockchain analytics tools. These suggestions aim to position the UK as a hub for Web3 innovation and attract blockchain-based businesses looking for a more conducive regulatory environment.

Streamlining Cryptocurrency Regulations for Innovation

To make it easier for emerging Web3 companies to navigate existing legal frameworks and contribute to the UK’s digital economy growth, the government must streamline cryptocurrency regulations and adopt forward-looking approaches. By making the regulatory landscape clear and straightforward, the UK can create an environment that fosters innovation, growth, and competitiveness in the global fintech industry.

The Policy Exchange report also recommends not weakening self-hosted wallets or treating proof-of-stake (PoS) services as financial services. This approach aims to protect the fundamental principles of decentralization and user autonomy while strongly emphasizing security and regulatory compliance. By doing so, the UK can nurture an environment that encourages innovation and the continued growth of blockchain technology.

Despite recent strict measures by UK authorities, such as His Majesty’s Treasury and the FCA, toward the digital assets sector, the proposed changes in the Policy Exchange report strive to make the UK a more attractive location for Web3 enterprises. By adopting these suggestions, the UK can demonstrate its commitment to fostering innovation in the rapidly evolving blockchain and cryptocurrency industries while ensuring a robust and transparent regulatory environment.

The ongoing uncertainty surrounding cryptocurrency regulations in various countries has prompted Web3 companies to explore alternative jurisdictions with more precise legal frameworks. As the United States grapples with regulatory ambiguity, the United Kingdom can position itself as a hub for Web3 innovation by simplifying and streamlining its cryptocurrency regulations.

Featured Image Credit: Photo by Jonathan Borba; Pexels; Thank you!

Deanna Ritchie

Managing Editor at ReadWrite

Deanna is the Managing Editor at ReadWrite. Previously she worked as the Editor in Chief for Startup Grind and has over 20+ years of experience in content management and content development.

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