Is Utility Coins an efficient hedge against inflation in the long run?
We stumbled upon an article from Coin Telegraph titled “Bitcoin is not an inflation hedge, Bitcoin skeptic claims.” which led us to wonder is Bitcoin and other utility coins in general really a hedge against inflation. All utility coins in general were created to combat the flaws created by our current financial system. It was meant to be a currency but it is now assumed the role of an investment tool that most people used to create wealth or hedge their assets against inflation or economic crisis.
First of all, What is hedging?
Hedging in general is using financial instruments to reduce the financial impact of any crisis or recessions on your assets. The best way to think about it is as a form of insurance, this doesn’t prevent all negative events from happening. However, if a negative event does happen and you’re properly hedged, the impact of the event is reduced.
Why are utility coins in general not a good hedge against inflation or a store of value?
When we think for the long run, people’s priority is more inclined towards safety of their assets. although you do want the value of your assets to keep growing at the same time. That’s why people prefer to hedge their assets on bonds, index funds that are relatively safe but also providing growth that is sufficient to combat inflation.
Utility coins in general don't have any correlation whatsoever to the economy, while you are benefited if an economic crisis happens and your net worth grows 10x but what if the opposite happens.
Can Utility ultimately become a hedge or a store of value?
There is no denying that cryptocurrency in general is an amazing innovation, backed up with a technology that will ultimately change the world. But utility coins in general don't usually have an intrinsic value themselves so they will have to keep depending on the market confidence to boost the value up. That's why it resulted in an extremely volatile market unlike its other financial counterparts like gold, index funds or bonds which have their own book value. There is no denying that investors who have joined the ride since beginning have but there is no certainty as to how long that will last?
We in Nagaya Technologies believe that it is essential that you can acquire an asset that can hedge your investments from crisis or recession while still growing in value overtime to combat inflation. That is why we choose to hedge all our coins with gold which is a hedging tool from time to time while also running projects that will help boost its gold and coin value.
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