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Crypto Clarified: Why is Crypto a Hedge for Inflation?

October 01, 2021

Watch Time 3:09 MIN

In this episode of Crypto Clarified, Head of Digital Assets Research Matthew Sigel explains inflation and why cryptocurrencies can be a hedge.

We should consider what inflation is, and how much of it we wants, and that’s a very different answer for each individual. It may help to start with some history. The Fed has a dual mandate to pursue maximum employment and stable prices. And that mandate was established in 1977 with the amendment of the Federal Reserve Act signed into law by Congress, and it’s interesting to measure how that mandate has evolved over time. In 1977 it cost $0.82 to buy dozen eggs and $0.13 for a first class stamp, today those prices are at least 5x higher, the average inflation rate since that 1977 law has been 3.4%. So does that count as stable? I think reasonable people can debate that, but a substantial portion of the population doesn’t think so, especially those who are trying to buy goods & services that everyone wants, like a college education, quality healthcare, organic eggs, equities – the prices of those goods have surged even faster, and contributed to wide levels of inequality that politicians are having a hard time sorting out. There’s also a good argument recent Fed policy of zero rates is actually exacerbating inflation by giving very low rates to banks that are deemed “too-big-to-fail”, by widening the 1977 “price and employment” mandate to include a period of “catch-up” inflation which the world is now confronting, that mandate to include climate change or race relations But these happen with no specific formula, behind closed doors.

And then we see a policy by a country like Italy, in late September who, in the face of these higher energy prices has now announced a 3 billion euro program to subsidize and cap surging energy prices with tax payer money, even as that same taxpayer money is used to force more constrictive ESG rules on the allocators of capital. It really speaks to a larger government role in setting prices, and the central bank’s unaccountability in deciding those rules.


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