How to invest in an era of rampant inflation

In the short term, it’s difficult to anticipate whether inflation will take place and how significant any potential fluctuations in a currency’s purchasing power may be. However, the moment you zoom out you are faced with a harsh reality – every major national currency has steadily (and in some cases rapidly) declined in value over time, and there are no exceptions to this unambiguous trend.

This trend long preceded the rampant money-printing triggered by the COVID-19 pandemic, though the past year has indeed given rise to an unprecedented increase in the global money supply. Nearly 21% of all U.S. dollars in existence were minted in the past year, and while the Federal Reserve’s quantitative easing does not involve the actual printing of new physical dollars, the result still comes down to flooding the markets with cash to keep borrowing cheap. The total money in the U.S. shot up from $4.6 trillion in 2000 to $19.5 trillion in 2021, and it’s no surprise that the USD has lost over a third of its relative purchasing power in the past two decades alone.

What does this mean for investors? For one, it’s worth increasing your investment exposure to hard assets. The USD has lost 98.2% of its purchasing power relative to gold over the past century, and generally assets like real estate and previous metals have maintained their market value significantly better than every national currency. However, out of all your available investment options, cryptocurrencies have the most asymmetric advantages and the strongest track record.

Cryptocurrencies are relatively new, and there is a big difference in quality and design between different crypto projects. Many of the same criticisms levied against cryptocurrencies apply to fiat currencies like the USD, EURO, and JPY, but the truth is the leading crypto projects are hard-coded to have a predictable, capped supply. This means that, unlike the USD and other national currencies, the supply of Bitcoin, Ethereum, and other major cryptocurrencies cannot be unilaterally expanded or changed by anyone. Nearly 90% of the total supply of Bitcoin has already been created, and there is no way to change this total supply cap now or in the future. And even though most blockchain projects are open source, you cannot secretly duplicate a cryptocurrency network since a cloned project will not have the transaction history as the original project its derived from. In other words: unlike fiat currencies, your cryptocurrencies cannot be diluted through supply inflation.