Things are a bit crazy in the economy now and a lot are hurting because of this, and perhaps even starting to panic.
Let's provide a little hope and perspective, because panic is frankly over-rated.
Many have been financially impacted from the increased inflation in the last few quarters. Millions have watched their 401k balances drop and it's no fun to see years of work saving seem like it is sliding away into nothing.
While politicians squabble and blame each other about this - there’s another factor to look at.
That factor is the total supply of the US Dollar.
Our country’s total money supply recently went through the roof, starting in late 2019.
Much of this was the Fed doing its best during the pandemic. There was no ill intent at play by their actions. They only have so many levers available to them to change things. However, the money supply increased a massive 40% in a few years with these changes.
This graph from the St Louis Federal Reserve shows that steep increase well.
During this same time, there were a lot of government incentives and aid sent out, which further increased the money supply, creating a bit of a perfect storm.
While these actions seemed like a lifeline for millions of people and businesses during the pandemic, it has a massive impact we are all feeling now, in the form of inflation and other financial issues.
So what does this mean for investors?
Well, stocks and bonds, held with USD, are worth less, simply due to inflation and regardless of their financial performance. That’s a big ouch.
We don’t normally think this way, because we have become conditioned to view this as “just inflation”, but that’s what is happening.
Because the supply of the dollar can keep increasing indefinitely simply through policies, and a bank’s lending practices, the value of what we own will constantly decrease. This is why it costs more now for the same thing a few years ago.
Increasing the minimum wage or creating more taxes will not fix this pattern in a lasting way. Also, tax cuts or corporate incentives do not help this pattern either. The problem remains because the underlying fabric is flawed.
For example, if you had a 15% annual return on your investment portfolio, but inflation was 8%, your gain is really just 7% on the year.
So what’s different about Bitcoin? Quite a bit.
Bitcoin’s limited supply of 21 million coins is part of the big deal here.
You cannot discover more Bitcoin in a cave (like Gold) or create policies that create more Bitcoin (like the Fed and US Government do). It simply has a limited supply by design - this is what is called “hard money”.
So, if you have an investment in Bitcoin, its increased value over time is not impacted by a decreased value of dollars over time.
It’s still early for Bitcoin and other cryptos, and it’s still a very volatile and rough time now, to be sure.
Bitcoin is not perfect.
However, know that a politician or bank cannot make your Bitcoin worth less through policies or committee meetings. As the value goes up over time, there will not be a corresponding devaluation due to inflation.
You also don’t have to ask permission or wait for banking hours to spend or move your Bitcoin. There is no three day delay or 3% transaction fee to merchants.
Perhaps put more simply, let’s look at $100 over the last 10 years in different scenarios.
This is why I’m still bullish on Bitcoin, as part of an investment portfolio, even with the risk and hard times right now.
And it’s why I recommend everyone to hold (HODL) their coins at least for 24 months and ideally much longer.
And yes, I’m impatient and wish the future of these gains were right NOW - for all of you as well as my own investments!
However, this fabric of Bitcoin is what gives me hope and keeps me excited during these tough financial times. It is different.
Do your best to keep calm and HODL on!