Key Points
- Neil Bergquist, Coinme CEO, discusses the contrasting impact of inflation on Bitcoin and fiat currencies.
- Bitcoin’s fixed supply and decentralized nature make it a potential hedge against inflation.
Neil Bergquist, CEO of Coinme, a crypto exchange, has been discussing the divergent effects of inflation on Bitcoin and fiat currencies. Over the last few years, the highest inflation in four decades has eroded the purchasing power of consumers, depreciating the value of cash savings and revealing the disadvantages of holding wealth in fiat currencies.
According to Bergquist, “The hidden cost of living in dollars is inflation. Your bank account balance is worth less over time if you hold an inflationary asset like fiat currency.”
Impact of Inflation on Fiat Currencies
The Federal Reserve has been raising interest rates aggressively to contain high inflation. Despite these efforts, inflation remains high, currently at around 3.5%, significantly above the Fed’s target of 2%.
In this inflationary environment, investors are increasingly looking for assets that could serve as a hedge against rising prices and the devaluation of the US dollar. This has boosted demand for Bitcoin and other cryptos as alternative stores of value.
Unlike Bitcoin’s fixed supply of 21 million, there’s no limit to the amount of fiat currency a central bank can print. The Fed has been creating more dollars to support government spending and stimulus measures.
Bergquist explains, “If the US government decides to print more dollars, which it often does, that increases its supply and decreases the value of existing dollars. Meanwhile, the price of finite assets like bitcoin often increases.”
He adds, “There’ll never be more than 21 million bitcoin. It has a fixed supply, unlike fiat currencies, and no one can change that. No person or government can create a new policy to increase the supply.”
Bitcoin as a Store of Value
In the context of fiat currency devaluation, Bitcoin and other assets with capped supplies are positioned to potentially hold their value better.
Neil Bergquist notes, “When in periods of inflation, real assets generally go up in value. This includes stocks, real estate, and things that are tangible. Bitcoin has really proven to be a tangible asset.”
In the decade-plus that Bitcoin has existed, its price has risen significantly despite intermittent periods of volatility. The recent inflation surge largely took place between 2021 and 2023, with rates reaching as high as 9.1% in the US in 2022. During that same period, the price of bitcoin rose from roughly $32,000 in January 2021 to $42,000 in December 2023.
“If you look back, yes, the price goes up and down, but when it goes into a down cycle, into a trough, its low is almost always higher than its previous low,” Neil Bergquist points out.
Bitcoin truly is a digitally native form of money and has solved the problem of trust in a digitally native world, says Bergquist. If stubbornly high inflation persists, it may push more investors into scarcer assets like Bitcoin.
Coinme is part of this trend, powering Bitcoin ATMs that customers can use to convert cash into crypto, and crypto into cash, at over 40,000 locations in the US. Coinme also enables people to use a debit card to buy and sell crypto within its digital wallet.
Bergquist states, “We’re seeing a lot of user experience improvements where customers don’t need to understand how to navigate the technical challenges of blockchain in order to engage with cryptocurrencies. At Coinme, we handle that complexity for you and make it easy.”
