Bitcoin — A deflationary currency in an inflationary world.
The total amount of Bitcoin available is finite. Currently, there are around 18.5 million Bitcoins mined. However, the amount in circulation is even less because coins can and have been lost. If a hard drive that stores Bitcoin is lost or destroyed, those coins are gone forever. If someone loses their private keys or recovery phrase, they can no longer spend their coins rendering them useless.
Bitcoin has a limit to the maximum number that can be mined. In total, only 21 million Bitcoin can ever be mined, and the last coin won’t be mined until the year 2140. This limited nature of Bitcoin makes it poised to gain buying power over time.
Bitcoin is a deflationary currency. Unlike Bitcoin, the money we use today, known as fiat currency, loses buying power due to inflation. Often the rate of inflation is low, typically between 2 and 3 percent. But with all the money printing happening in 2020, high inflation is becoming increasingly possible.
Federal Reserve graph showing the increase in the M1 Money Supply.
The graph above shows a sharp increase in the M1 money supply for USD. With all this extra money in circulation, the purchasing power of our hard-earned dollars is likely to decrease even more.
Bitcoin is a great place to park cash to reduce your inflationary risk. Why store cash in an asset that the US government intentionally devalues over time. Instead, I think it makes more sense to store cash in Bitcoin as it doesn’t suffer from intentional devaluation.