Bitcoin in the global economy: inflation and investment shifts

The Rise of Bitcoin in the global economy

There's no denying the meteoric rise of cryptocurrency. According to recent predictions, the global crypto market is estimated to grow from $51.5 billion in 2024 to $71.7 billion by 2028 at a compound annual growth rate (CAGR) of 8.62%.  

But what is the first thing that comes to mind when someone mentions the term ‘crypto’? For most, it’s almost synonymous with Bitcoin (BTC), the original and most popular cryptocurrency worldwide. The crypto market pioneer was introduced to the public in 2009 by an anonymous person or a group of people under the pseudonym Satoshi Nakamoto. Since then, it has paved the way for the inception of other major cryptocurrencies, including Ethereum (ETH), Tether (USDT), and Solana (SOL). 

In 2009, the first BTC block known as ‘Block 0’, or the genesis block, was mined. There’s a code behind Bitcoin for halving time, dictating when the reward for mining new blocks will be split in half. This Bitcoin halving occurs every 210,000 blocks:

• 2012: 25 BTC

• 2016: 12.5 BTC

• 2020: 6.25 BTC

• 2024: 3.125 BTC 

The most recent Bitcoin halving occurred in April 2024 reducing the reward to 3.125 BTC and the next halving in 2028 will see the reward lower to 1.625 BTC. The final halving is expected to occur in 2140. 

Bitcoin pricing has been a product of supply and demand as well as market sentiments gradually growing over the years, as shown below:

• 2010 - $0.10 to $0.20

• 2011 - $1.00 to $29.60

• 2013 - $13.00 to $1,000

• 2017 - $1,000 to $19,188

• 2019 - $6,612 to over $10,000

• 2020 - $7,161 to $28,993

• 2021 - $40,000 to $69,000

BTC reached an all-time high of $73,737.94 in March 2024 for the first time since 2021 and this market growth can be attributed to the following crypto events:

• BTC Spot exchange-traded funds (ETF) approvals from the U.S. Securities and Exchange Commission (SEC)

• Halving events by reducing its supply by half roughly every four years

• Evolving cultural attitudes towards BTC and its widespread adoption 

• Regulatory approval for certain crypto trading activities 

• High interest in alternative cryptocurrencies (altcoins) like Dogecoin (DOGE), Bonk (BONK), and Shiba Inu (SHIB)

What are the benefits of Bitcoin? 

• Global transactions: Bitcoin allows cross-border payments and remittances without the need for third parties and currency exchanges.

• Transactional efficiency: Compared to traditional financial systems, BTC transactions are processed more quickly, with fast settlement times and minimal costs.

• Enhanced security: Bitcoin’s cryptography and decentralisation reduce the risk of fraud and counterfeiting as well as unauthorised access to funds.

What are the potential drawbacks of Bitcoin? 

• Market volatility: Due to its price fluctuations, BTC is not yet widely accepted as a medium of exchange and store of value compared to traditional fiat currencies.

• Perceived technological risks: Navigating blockchain technology might present a technical challenge to novice users. Other challenges also include code errors, network outages, and potential hacking.

• Uncertainty around regulations: The still-evolving of laws governing crypto transactions can cause uncertainty in various jurisdictions. This doubt can impact investors' and businesses' decision-making around Bitcoin and other cryptocurrencies.

Bitcoin, inflation, and investment shifts

With all that being said, consumers, investors, and businesses can certainly no longer ignore the influence of Bitcoin and cryptocurrency in general on the global economy. This leaves many asking the crucial question: Is Bitcoin the future of money?

Bitcoin has long established itself as a potential inflation-hedging asset because of its programmed issuance rate and recurring "halving" events. At the same time, traditional fiat currencies are typically more directly impacted by inflation. Moreover, Bitcoin has become a competitive alternative to government-backed currency. With changing investing practices worldwide, this digital currency can be a useful addition to any investment portfolio for diversification.

Let’s take a closer look at the role of Bitcoin in the global economy amid inflation and investment shifts:

1. Bitcoin serves as a store of value

Bitcoin is considered by many to be a useful financial asset for those looking to save money and protect their capital. Consider its predictable and restricted supply, not to mention its ability to withstand inflation. 

As a store of value, Bitcoin works as:

• An alternative to traditional assets: Although legal tender in El Salvador and Central African Republic, Bitcoin is primarily a non-sovereign digital asset and offers consumers and investors an alternative to conventional assets, such as stocks, bonds, and real estate. 

• A potential hedge against inflation: Bitcoin is free from government currency depreciation and central bank policies. This financial protection against inflationary pressure is due to its decentralised structure and fixed supply schedule. 

2. Bitcoin is a medium of exchange

Since its inception, Bitcoin has become a medium of exchange for financial transactions. It has become a viable payment option offered by businesses and used by consumers worldwide. 

As a medium of exchange, Bitcoin allows the following:

• Financial transactions: Bitcoin is not only prominent in crypto exchanges, but it can also help users, investors, traders, and businesses execute various transactions. To further cement its position as a medium of exchange, Bitcoin launched the Bitcoin L2 projects for scalability.

• Payment methods: Some retail and e-commerce businesses have started accepting Bitcoin for payments. Similar to Starbucks' Bakkt which allows members to convert crypto into cash. Also, Microsoft accepts Bitcoin payments for purchasing Windows licences for games, movies, and apps. 

3. Bitcoin acts as an investment vehicle

Due to its limited supply, high liquidity, and potential for price growth, Bitcoin has become a popular option for investors seeking exposure to cryptocurrency.

Bert Hofhuis, Founder of Every Investor, highlights the value of Bitcoin as an investment vehicle. 

"Amidst the increasing inflation and the unpredictable economy, it presents a tempting investment opportunity because of its limited quantity and decentralised nature. As traditional assets lose value, astute investors consider Bitcoin's potential as a store of value and hedge."

Hofhuis considers Bitcoin as an investment vehicle:

• Digital investment assets: As the most popular cryptocurrency, Bitcoin offers investors a great opportunity to diversify their portfolios beyond conventional assets. It also represents a new class of digital financial assets aligned with the future of the financial landscape.

• Emerging investment trends: Bitcoin has paved the way for the emergence of DeFi (decentralised finance) platforms and the wider acceptance of crypto assets. It has also changed the financial landscape and opened up new investment opportunities.

What’s next for Bitcoin? 

The cryptocurrency market has risen to a significant stature within the global economy, with Bitcoin spearheading the transformation of the financial landscape. In recent years, crypto has changed the financial landscape, showcasing its utility as a store of value, a medium of exchange, and a vehicle for long-term investments. Many entrepreneurs, investors, and businesses are looking at Bitcoin as a potential hedge against inflation and this trend will likely continue long into the future. 

Disclaimer

This article is distributed for informational purposes, and it is not to be construed as an offer or recommendation. It does not constitute and cannot replace investment advice.

Bitpanda does not make any representations or warranties as to the accuracy and completeness of any information contained herein. 

Investing carries risks. You could lose all the money you invest.

Brooke Webber is a passionate content writer with a love for storytelling. Brooke has 5 years of experience in crafting compelling narratives that resonate with audiences across industries. Total coffee addict. During her spare time, she immerses herself in literature.