Crypto investors have come to realise that digital assets aren't immune from the impacts of rising inflation and the subsequent hikes in interest rates.
Tracking similarly to risk assets like high growth tech shares, most cryptos, including Bitcoin (CRYPTO: BTC), sold off during the first 6 weeks of 2022.
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Inflation looks to be enduring rather than transitory
And inflation doesn't appear to be nearly as transitory as we were told to expect last year. Not even in Australia.
In his media comments yesterday, Reserve Bank of Australia (RBA) governor Philip Lowe said, "Inflation has picked up and a further increase is expected."
Noting that Australia's inflation levels remain lower than some nations, Lowe said:
Inflation has increased sharply in many parts of the world. Ongoing supply-side problems, Russia's invasion of Ukraine and strong demand as economies recover from the pandemic are all contributing to the upward pressure on prices.
With rising prices and interest rates in mind, The Motley Fool reached out to Josh Gilbert, crypto analyst at multi-asset investment platform eToro, and Daniel Sekers, managing director of crypto trading platform YourPortfolio, to find out which crypto they believe will hold up best in an era of higher inflation.
Why this crypto is the most resilient to inflation
"In my view, it has to be Bitcoin," Gilbert told us.
"The altcoins outside of Bitcoin tend to be more susceptible to rising interest rates, due to lower liquidity within the assets and their higher risk nature."
Gilbert pointed to Bitcoin's outperformance over most cryptos this year:
Over the past three months, Bitcoin has demonstrated immense resilience against a number of headwinds, such as rising rates, geopolitical tensions, and recession discussions. A large percentage of the top 30 cryptoassets by market cap is still down by 10-30% year-to-date (YTD), yet Bitcoin is in positive territory climbing above USD$48,000.
With Bitcoin sliding today, it's now down some 4% year-to-date, but still outperforming most of the top 30 cryptos Gilbert alluded to.
Sekers also tipped his hat to Bitcoin as the crypto currently best positioned to weather rising inflation.
"Not all cryptos are built equally," he said. "The flavour of the month is Bitcoin with many businesses treating it similar to a gold standard. This is due to a number of factors, but mainly driven by the anti-inflationary aspects of the digital currency."
Sekers explained:
These include that the supply is controlled (and not by a government) with current mining adding only 1.8% per year to the overall supply. This is further negated by a 'halving' event that occurs every 4 years which halves the amount that miners are able to mine.
Lastly there is a cap of 21 million Bitcoin that can ever be mined, which means eventually supply is limited. With these features, Bitcoin seems to be well placed to stand up to rising inflation and interest rates.
Investing in crypto and worried about inflation?
If Sekers and Gilbert have this right, Bitcoin looks well placed to hold up better than the rest.
