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Cryptocurrency isn’t the only way to escape USD inflation. Investors have been investing to avoid inflation long before Bitcoin was invented. Investing in virt

Cryptocurrency isn’t the only way to escape USD inflation. Investors have been investing to avoid inflation long before Bitcoin was invented. Investing in virtually any asset other than cash will, almost by definition, shield you from inflation. Inflation is an increase in asset prices, resulted in reduced buying power. You only need to invest in assets (stocks for example) and minimize holdings in cash if your goal is simply to avoid losing buying power of your cash. Cryptocurrency currently functions as a speculative instrument, not a stable store of value. Cryptocurrency in general is only deflationary if we pretend only a single cryptocurrency exists and ignore all of the increasingly brazen financial instruments offered by exchanges. As it stands, the ever expanding list of crypto currencies, NFTs, crypto lending products, and new crypto currencies represents a general inflation in the cryptocurrency space.

api 6y ago
> Investing in virtually any asset other than cash will, almost by definition, shield you from inflation. ... which is why virtually every nation on Earth adopted some kind of inflationary fiat currency. It pushes money to be invested, not held. Wealth is a verb, not a noun.
- PragmaticPulp 6y ago
  The world would certainly be a strange and sad place if the best thing for everyone to do with their wealth was hoard it in currency. Not holding wealth in cash has been investing 101 material long before cryptocurrency. It is fascinating how crypto proponents took over that narrative to imply that crypto was the only investment that could escape inflation. They’ve also spread an idea that money printing is the singular source of inflation, which isn’t true at all. Bitcoin, for example, is an inflating asset due to hype-driven demand. It hasn’t spiked upward 100% of the time because USD became 50% less valuable overnight
  - CarelessExpert 6y ago
    > They’ve also spread an idea that money printing is the singular source of inflation, which isn’t true at all. Bitcoin, for example, is an inflating asset due to hype-driven demand. Uh, I'm very much of the opinion that your average BTC fan isn't exactly educated about macroeconomics, but this sentence makes absolutely no sense. Inflation isn't a thing that happens to a currency, it's a thing that happens to an economy. It's a systemic increase in prices across a basket of assets that demonstrates the devaluation of a currency, as a single unit of that currency effectively buys less. Bitcoin, if it had been a usable currency over the last decade, is very clearly deflationary, as its rise in value as a currency relative to USD has dramatically outpaced the rise in the price of goods and services as denominated in USD, meaning that had prices been denominated in BTC, they would have dropped.
    - jcranmer 6y ago
      Inflation can happen to assets, and PragmaticPulp is analyzing Bitcoin as an asset, not a currency. Given that even when you buy stuff with BTC, you're buying a product or service denominated in USD, their analysis is generally more correct than arguing that Bitcoin should be analyzed as a currency.
      - CarelessExpert 6y ago
        > Inflation can happen to assets, and PragmaticPulp is analyzing Bitcoin as an asset, not a currency. Actually PragmaticPulp was doing both. In the comment I quoted, they stated: > They’ve also spread an idea that money printing is the singular source of inflation, which isn’t true at all. This is specifically referring to currency inflation. They then went on to say: > Bitcoin, for example, is an inflating asset due to hype-driven demand. As you say, this is asset inflation. These should not be compared like this, which is why I noted that "this sentence makes absolutely no sense." I stand by that statement.
  - abernard1 6y ago
    > The world would certainly be a strange and sad place if the best thing for everyone to do with their wealth was hoard it in currency. Wealth is never held in currency, ever. It's a physically impossible thing. When a person holds savings, it doesn't prevent humans from working, or raw resources from being used, or land from being purchased -- it just means that person is not redeeming a claim on those resources at the time. Their failure to redeem at a point in time does not preclude others from doing so: otherwise said, for every debit there's a credit. But historically, you don't have to take my word for it. The United States had deflation and 0% interest rates on government bonds for 100+ years during the period between the National Banks and the Fed. You held money in cash at 0%, because when you purchased goods later, your dollars were worth more.
  - atleta 6y ago
    Not only that, but inflation is a feature not a bug. Maybe a bug turned into a feature, but still a feature. Something governments and national banks use to stimulate investment and thus economic growth. Because, as you say, hoarding and holding cash (or cash equivalent) does no good for the world. Even though our instinct is to do just that: secure what we have, secure our future and avoid risks. The strange thing about this is that it's not some secret knowledge, but something that is being discussed in (front of) e.g. the media constantly.
- anewaccount2021 6y ago
  This makes sense when you are under forty and can wait out a bad market. If you are 75, expect to live to be 83, you are much better off being able to guarantee your assets. This is a strange pattern emerging on HN lately - that inflation is fine because you should be fully invested in equities anyway
mumblemumble 6y ago
Even if we assume only Bitcoin, it's not currently expected to stop printing money until (assuming Ray Kurzweil wasn't right all along) long after we're all dead. The Bitcoin inflation story is more political than simply economic. Right now, it's not really possible for it to be narrowly about whether printing money is OK. But one could easily mount an argument about whether humans should be able to twiddle with the money printing policy.
- PragmaticPulp 6y ago
  It is supremely ironic that we’re supposed to believe that the best way to escape money printing is to buy a cryptocurrency that was invented out of thin air, which is continuously mined (during most of our lifetimes) out of thin air by doing useless calculations. Or even worse, a basket of multiple crypto currencies, where the number of available crypto currencies and crypto assets grows larger every day.
  - dasudasu 6y ago
    It’s not really surprising when anyone pushing crypto to you also happen to hold a lot of crypto. It’s self-serving advice 100% of the time. It’s pretty much a staple also to call every other crypto you don’t hold a fraud trying to steal the spotlight.
    - vidarh 6y ago
      While it may well be self-serving, this is also a near tautological statement, as you'd expect someone who pushes crypto to also hold a lot of crypto if they genuinely believe in it - whether for sound reasons or not. As such the fact they're holding crypto tells us nothing about whether they're pushing it because they're holding it or pushing it because they believe in it.
  - silexia 6y ago
    I saw a great comment earlier, "Buying bitcoin to hedge against inflation is like buying lotto tickets to hedge against Apple stock declines."
bronzeage 6y ago
Stocks might fall in inflationary circumstances, depending on many things such as how much of the companies revenue can inflate - and most times, the answer is worse than inflation. Bonds might not give you a yield exceeding the inflation, especially in inflation created for the sole purpose of buoying bonds. Speculative inflation hedges might also act erratically, like bitcoin and gold, getting ahead of themselves and the inflation sometimes.
eigenvalue 6y ago
It’s absolutely not true that investing in any assets besides cash will shield you from inflation. Inflation impacts companies very differently, and you want a preservation of real earnings power taking into account the need to replace plant and equipment over time. The best inflation protection would come from a company with a pure revenue royalty with fixed expenses. The worst would be a company with bad pricing power and lots of commodity inputs.
- redblacktree 6y ago
  Is there an easy way to determine which companies are which? Do I need to be well-studied in business, or is there a chart or key statistic I can look at to tell one from the other?
  - eigenvalue 6y ago
    This article gives a lot of good criteria for finding companies that should thrive in an inflationary environment: https://horizonkinetics.com/app/uploads/Q1-2020-CVALUE-Review_FINAL.pdf https://horizonkinetics.com/app/uploads/Q1-2020-CVALUE-Revie...
- deanmoriarty 6y ago
  What’s your recommendation for least-worse inflation hedge?
orasis 6y ago
Yes! Value producing assets produce value regardless of the nominal price of that value. It’s insane that people don’t understand this.
devoutsalsa 6y ago
Stocks prices get negatively impacted by rising interest rates. With interest rates at ~0%, there's little money to be made in bonds, savings accounts, or anything that pays interest income, so people put money into stocks w/ the hope the stocks will go up. When interest rates go up to fight inflation, there's more incentive to put money into bond markets, which means there's not as much money going into stocks, which means stock prices don't go up as much. Housing prices also tend to go down as interests go up, as rising borrowing costs mean fewer funds are available for buying a home.
- deanmoriarty 6y ago
  What’s your recommendation for least-worse inflation hedge?
  - BenoitEssiambre 6y ago
    Buy all the non perishables, non obsoletables you're going to need for the next decade. Buy them in discounted bulk for and extra return. Bonus: capital gains tax free!
    - dec0dedab0de 6y ago
      So invest in toilet paper?
      - gus_massa 6y ago
        Tuna cans. The $/volume ratio of toilet paper is horrible, and in case of a real big emergency the other end is more important.
        kijin 6y ago
        Spam has more calories and lasts just as long. If you want carbs as well, add canned fruits and vegetables. Any kind of dry bulk food will also work as long as you take proper measures to keep mold and insects out. Bonus points if you can also keep oxygen out. (Grains often contain a surprisingly large amount of lipids that can go rancid.) In the kind of emergency where you'd be seriously worried about the "other end", you could very well exchange a bag of rice or sugar for a handgun or a bottle of motor oil.
ROARosen 6y ago
While your point is correct, I live in NY and true, it's heartening to see that someone is looking out for obvs fraud. But it's really annoying that I can't (straightforwardly) open an account at most crypto exchanges, and I'm banned from investing according to my choosing and to my knowledge. If I decide to hedge inflation with some obscure or even mainstream "coin" that should be my choice why should gov be able to deny that right?
- easymodex 6y ago
  So much for freedom right?
BenoitEssiambre 6y ago
On top of that, any asset for which demand comes mostly from being an "inflation hedge" is a bad inflation hedge since prices will rise when people want more inflation hedging and drop when they want less hedging, meaning the majority of people inflation hedging will buy high and sell low. Gold has had that dynamic for a long time, which is one reason it is not considered a good investment most of the time. Buy assets that are productive and you will be much less subject to that. Real inflation hedges look like stockpiles of goods, inventory or production capacity thereof.
- kipchak 6y ago
  Could that make such inflation hedges a good pre-inflation hedge? For example buying gold with the expectation that people will soon want more hedging than they do now, though this relies on getting in earlier than others.
  - pas 6y ago
    This is how derivatives trading (and speculation, and investing itself ultimately) works. It's all about mentalizing how others will trade. The big question is to pick the optimal asset for hedging.
  - dkersten 6y ago
    So, just price speculation then?
  - vkou 6y ago
    Yes, but at that point, you should just borrow money, and do something useful with it, because being in debt is a simple, straightforward inflation hedge.
- boredpandas777 6y ago
  This proven logic is drowned by people's instinct to follow the herd... and buy Bitcoin.
antonios 6y ago
Cryptocurrency "in general" obviously isn't deflationary, given that one can create a new cryptocurrency with a simple code fork. But Bitcoin is, no?
- hiq 6y ago
  As commenters hinted at in a previous thread, the price is a measure of the combination of demand and supply. The mechanics of Bitcoin only address the supply side. OP hinted at the demand side: if a new cryptocurrency were to become more popular, then Bitcoin could lose value.
- throwaway4good 6y ago
  Which Bitcoin?
yabudemada 6y ago
This is why I think the proper crypto currencies are backed by another functional use instead of "just coins." (e.g. Ethereum vs. Bitcoin)—one is a useful Turing-complete machine; the other only exists to send coins. Bitcoin will probably always outshine the other "just coins" because it was the first. Why get another coin if this one works fine for monetary transactions? Similarly with the functional ones: Ethereum will probably always outshine the other "Global Turing Machines" because it was the first. We don't really need another one—assuming it can adapt to changes in efficiency with hard-forks as needed. The rest of them really ought to provide another service underneath to become valuable.
- ad31mar 6y ago
  > Ethereum will probably always outshine the other "Global Turing Machines" because it was the first. We don't really need another one—assuming it can adapt to changes in efficiency with hard-forks as needed. We didn't need the first one.
maaaaattttt 6y ago
I used to say "a house will always have the price of a house" (it has issues of course cough 2008 cough) to illustrate what you're saying here as I never managed to explain it properly like you did.
- gph 6y ago
  But it also has property taxes and maintenance costs, which will likely be higher than inflation. So it's not a great passive investment unless you expect the value minus costs to gain faster than inflation. Otherwise you gotta live in it or rent it to make back your money, and that's no longer passive.
RC_ITR 6y ago
>Inflation is an increase in asset prices Inflation is an an interaction between the supply of any non-dollar "thing" and dollars. Sometimes that means certain assets like equities become more expensive in $, sometimes that means commodities like oil, sometimes it means labor. But to be clear, rising Consumer Goods Inflation (what people most commonly talk about when they mean inflation) can lead to significantly lower asset prices, depending on valuation methodologies.

api 6y ago

> Investing in virtually any asset other than cash will, almost by definition, shield you from inflation. ... which is why virtually every nation on Earth adopted some kind of inflationary fiat currency. It pushes money to be invested, not held. Wealth is a verb, not a noun.

PragmaticPulp 6y ago
The world would certainly be a strange and sad place if the best thing for everyone to do with their wealth was hoard it in currency. Not holding wealth in cash has been investing 101 material long before cryptocurrency. It is fascinating how crypto proponents took over that narrative to imply that crypto was the only investment that could escape inflation. They’ve also spread an idea that money printing is the singular source of inflation, which isn’t true at all. Bitcoin, for example, is an inflating asset due to hype-driven demand. It hasn’t spiked upward 100% of the time because USD became 50% less valuable overnight
- CarelessExpert 6y ago
  > They’ve also spread an idea that money printing is the singular source of inflation, which isn’t true at all. Bitcoin, for example, is an inflating asset due to hype-driven demand. Uh, I'm very much of the opinion that your average BTC fan isn't exactly educated about macroeconomics, but this sentence makes absolutely no sense. Inflation isn't a thing that happens to a currency, it's a thing that happens to an economy. It's a systemic increase in prices across a basket of assets that demonstrates the devaluation of a currency, as a single unit of that currency effectively buys less. Bitcoin, if it had been a usable currency over the last decade, is very clearly deflationary, as its rise in value as a currency relative to USD has dramatically outpaced the rise in the price of goods and services as denominated in USD, meaning that had prices been denominated in BTC, they would have dropped.
  - jcranmer 6y ago
    Inflation can happen to assets, and PragmaticPulp is analyzing Bitcoin as an asset, not a currency. Given that even when you buy stuff with BTC, you're buying a product or service denominated in USD, their analysis is generally more correct than arguing that Bitcoin should be analyzed as a currency.
    - CarelessExpert 6y ago
      > Inflation can happen to assets, and PragmaticPulp is analyzing Bitcoin as an asset, not a currency. Actually PragmaticPulp was doing both. In the comment I quoted, they stated: > They’ve also spread an idea that money printing is the singular source of inflation, which isn’t true at all. This is specifically referring to currency inflation. They then went on to say: > Bitcoin, for example, is an inflating asset due to hype-driven demand. As you say, this is asset inflation. These should not be compared like this, which is why I noted that "this sentence makes absolutely no sense." I stand by that statement.
- abernard1 6y ago
  > The world would certainly be a strange and sad place if the best thing for everyone to do with their wealth was hoard it in currency. Wealth is never held in currency, ever. It's a physically impossible thing. When a person holds savings, it doesn't prevent humans from working, or raw resources from being used, or land from being purchased -- it just means that person is not redeeming a claim on those resources at the time. Their failure to redeem at a point in time does not preclude others from doing so: otherwise said, for every debit there's a credit. But historically, you don't have to take my word for it. The United States had deflation and 0% interest rates on government bonds for 100+ years during the period between the National Banks and the Fed. You held money in cash at 0%, because when you purchased goods later, your dollars were worth more.
- atleta 6y ago
  Not only that, but inflation is a feature not a bug. Maybe a bug turned into a feature, but still a feature. Something governments and national banks use to stimulate investment and thus economic growth. Because, as you say, hoarding and holding cash (or cash equivalent) does no good for the world. Even though our instinct is to do just that: secure what we have, secure our future and avoid risks. The strange thing about this is that it's not some secret knowledge, but something that is being discussed in (front of) e.g. the media constantly.
anewaccount2021 6y ago
This makes sense when you are under forty and can wait out a bad market. If you are 75, expect to live to be 83, you are much better off being able to guarantee your assets. This is a strange pattern emerging on HN lately - that inflation is fine because you should be fully invested in equities anyway

mumblemumble 6y ago

Even if we assume only Bitcoin, it's not currently expected to stop printing money until (assuming Ray Kurzweil wasn't right all along) long after we're all dead. The Bitcoin inflation story is more political than simply economic. Right now, it's not really possible for it to be narrowly about whether printing money is OK. But one could easily mount an argument about whether humans should be able to twiddle with the money printing policy.

PragmaticPulp 6y ago
It is supremely ironic that we’re supposed to believe that the best way to escape money printing is to buy a cryptocurrency that was invented out of thin air, which is continuously mined (during most of our lifetimes) out of thin air by doing useless calculations. Or even worse, a basket of multiple crypto currencies, where the number of available crypto currencies and crypto assets grows larger every day.
- dasudasu 6y ago
  It’s not really surprising when anyone pushing crypto to you also happen to hold a lot of crypto. It’s self-serving advice 100% of the time. It’s pretty much a staple also to call every other crypto you don’t hold a fraud trying to steal the spotlight.
  - vidarh 6y ago
    While it may well be self-serving, this is also a near tautological statement, as you'd expect someone who pushes crypto to also hold a lot of crypto if they genuinely believe in it - whether for sound reasons or not. As such the fact they're holding crypto tells us nothing about whether they're pushing it because they're holding it or pushing it because they believe in it.
- silexia 6y ago
  I saw a great comment earlier, "Buying bitcoin to hedge against inflation is like buying lotto tickets to hedge against Apple stock declines."

bronzeage 6y ago

Stocks might fall in inflationary circumstances, depending on many things such as how much of the companies revenue can inflate - and most times, the answer is worse than inflation. Bonds might not give you a yield exceeding the inflation, especially in inflation created for the sole purpose of buoying bonds. Speculative inflation hedges might also act erratically, like bitcoin and gold, getting ahead of themselves and the inflation sometimes.

eigenvalue 6y ago

It’s absolutely not true that investing in any assets besides cash will shield you from inflation. Inflation impacts companies very differently, and you want a preservation of real earnings power taking into account the need to replace plant and equipment over time. The best inflation protection would come from a company with a pure revenue royalty with fixed expenses. The worst would be a company with bad pricing power and lots of commodity inputs.

redblacktree 6y ago
Is there an easy way to determine which companies are which? Do I need to be well-studied in business, or is there a chart or key statistic I can look at to tell one from the other?
- eigenvalue 6y ago
  This article gives a lot of good criteria for finding companies that should thrive in an inflationary environment: https://horizonkinetics.com/app/uploads/Q1-2020-CVALUE-Review_FINAL.pdf https://horizonkinetics.com/app/uploads/Q1-2020-CVALUE-Revie...
deanmoriarty 6y ago
What’s your recommendation for least-worse inflation hedge?

orasis 6y ago

Yes! Value producing assets produce value regardless of the nominal price of that value. It’s insane that people don’t understand this.

devoutsalsa 6y ago

Stocks prices get negatively impacted by rising interest rates. With interest rates at ~0%, there's little money to be made in bonds, savings accounts, or anything that pays interest income, so people put money into stocks w/ the hope the stocks will go up. When interest rates go up to fight inflation, there's more incentive to put money into bond markets, which means there's not as much money going into stocks, which means stock prices don't go up as much. Housing prices also tend to go down as interests go up, as rising borrowing costs mean fewer funds are available for buying a home.

deanmoriarty 6y ago
What’s your recommendation for least-worse inflation hedge?
- BenoitEssiambre 6y ago
  Buy all the non perishables, non obsoletables you're going to need for the next decade. Buy them in discounted bulk for and extra return. Bonus: capital gains tax free!
  - dec0dedab0de 6y ago
    So invest in toilet paper?
    - gus_massa 6y ago
      Tuna cans. The $/volume ratio of toilet paper is horrible, and in case of a real big emergency the other end is more important.
      - kijin 6y ago
        Spam has more calories and lasts just as long. If you want carbs as well, add canned fruits and vegetables. Any kind of dry bulk food will also work as long as you take proper measures to keep mold and insects out. Bonus points if you can also keep oxygen out. (Grains often contain a surprisingly large amount of lipids that can go rancid.) In the kind of emergency where you'd be seriously worried about the "other end", you could very well exchange a bag of rice or sugar for a handgun or a bottle of motor oil.

ROARosen 6y ago

While your point is correct, I live in NY and true, it's heartening to see that someone is looking out for obvs fraud. But it's really annoying that I can't (straightforwardly) open an account at most crypto exchanges, and I'm banned from investing according to my choosing and to my knowledge. If I decide to hedge inflation with some obscure or even mainstream "coin" that should be my choice why should gov be able to deny that right?

easymodex 6y ago
So much for freedom right?

BenoitEssiambre 6y ago

On top of that, any asset for which demand comes mostly from being an "inflation hedge" is a bad inflation hedge since prices will rise when people want more inflation hedging and drop when they want less hedging, meaning the majority of people inflation hedging will buy high and sell low. Gold has had that dynamic for a long time, which is one reason it is not considered a good investment most of the time. Buy assets that are productive and you will be much less subject to that. Real inflation hedges look like stockpiles of goods, inventory or production capacity thereof.

kipchak 6y ago
Could that make such inflation hedges a good pre-inflation hedge? For example buying gold with the expectation that people will soon want more hedging than they do now, though this relies on getting in earlier than others.
- pas 6y ago
  This is how derivatives trading (and speculation, and investing itself ultimately) works. It's all about mentalizing how others will trade. The big question is to pick the optimal asset for hedging.
- dkersten 6y ago
  So, just price speculation then?
- vkou 6y ago
  Yes, but at that point, you should just borrow money, and do something useful with it, because being in debt is a simple, straightforward inflation hedge.
boredpandas777 6y ago
This proven logic is drowned by people's instinct to follow the herd... and buy Bitcoin.

antonios 6y ago

Cryptocurrency "in general" obviously isn't deflationary, given that one can create a new cryptocurrency with a simple code fork. But Bitcoin is, no?

hiq 6y ago
As commenters hinted at in a previous thread, the price is a measure of the combination of demand and supply. The mechanics of Bitcoin only address the supply side. OP hinted at the demand side: if a new cryptocurrency were to become more popular, then Bitcoin could lose value.
throwaway4good 6y ago
Which Bitcoin?

yabudemada 6y ago

This is why I think the proper crypto currencies are backed by another functional use instead of "just coins." (e.g. Ethereum vs. Bitcoin)—one is a useful Turing-complete machine; the other only exists to send coins. Bitcoin will probably always outshine the other "just coins" because it was the first. Why get another coin if this one works fine for monetary transactions? Similarly with the functional ones: Ethereum will probably always outshine the other "Global Turing Machines" because it was the first. We don't really need another one—assuming it can adapt to changes in efficiency with hard-forks as needed. The rest of them really ought to provide another service underneath to become valuable.

ad31mar 6y ago
> Ethereum will probably always outshine the other "Global Turing Machines" because it was the first. We don't really need another one—assuming it can adapt to changes in efficiency with hard-forks as needed. We didn't need the first one.

maaaaattttt 6y ago

I used to say "a house will always have the price of a house" (it has issues of course cough 2008 cough) to illustrate what you're saying here as I never managed to explain it properly like you did.

gph 6y ago
But it also has property taxes and maintenance costs, which will likely be higher than inflation. So it's not a great passive investment unless you expect the value minus costs to gain faster than inflation. Otherwise you gotta live in it or rent it to make back your money, and that's no longer passive.

RC_ITR 6y ago

>Inflation is an increase in asset prices Inflation is an an interaction between the supply of any non-dollar "thing" and dollars. Sometimes that means certain assets like equities become more expensive in $, sometimes that means commodities like oil, sometimes it means labor. But to be clear, rising Consumer Goods Inflation (what people most commonly talk about when they mean inflation) can lead to significantly lower asset prices, depending on valuation methodologies.