rising body of experts agree that inflation is currently a major threat to the economy as U.S. inflation rates hit a 40-year high in February1.

In his State of the Union address on March 1, President Joe Biden acknowledged this consensus, stating that "too many families are struggling to keep up with the expenses. They are losing the gains they may otherwise get due to inflation.

These inflation concerns leave people with many important questions: What's causing inflation? Is it only temporary? If not, how am I going to change my spending plan? How am I going to change my savings plan?

Here are some of the opinions on inflation from investors, industry professionals, and average Americans over the dinner table, along with how the topic of cryptocurrencies is starting to gain some interest.

What's the source of inflation?

There are numerous factors contributing to price increases, many of which have the COVID-19 epidemic as their source. Over a two-year period, the U.S. money supply grew by 40% as a result of expansionary monetary policy during the pandemic. Due to ongoing supply chain issues, customer demand was high and occasionally exceeded supply. Just as many Americans were beginning to leave their homes and fill up their gas tanks, the Russian invasion of Ukraine raised oil prices as if that weren't enough. Officials like Jerome Powell of the Fed formerly said that inflation was only temporary. The Fed acknowledged that the term "transitory" was no longer an accurate way to describe inflation in December 2021, because the increasing pressure on prices now seems to be more than just transitory.

Americans are taking notice and adjusting their behavior by spending less money. Sixty-three percent of Americans have cut back on eating out, 56 percent on entertainment, and 51 percent on travel in the past year. Nearly half of Americans have also been compelled to make cuts to necessities like groceries and clothing as they hunt for methods to reduce their spending on bills in addition to these changes in discretionary expenditure. When those payments finally arrive, Americans are delaying paying them; due to rising inflation, over one in five people have put off paying a credit card bill in the last year.

 

How is crypto part of the inflation conversation?

During periods of high inflation, changes to expenditure are undoubtedly a crucial factor to take into account, but spending alone cannot win the war. The other half is thinking about the most effective ways to invest and save money in order to create value. Even while the amount on your balance sheet is increasing, if the growth of your investments is less than the rate of inflation, you are actually losing purchasing power.

 

That's where crypto comes into the conversation.

 

Investors sometimes turn to gold during uncertain times because it has a limited supply and inherent worth (governments may be able to print more money, but there is only so much gold available). But there's a new player in town these days when it comes to looking for "store of value" investments: bitcoin.

Institutional investors "appears to be returning to Bitcoin, potentially perceiving it as a better inflation hedge than gold," JPMorgan said in a note shared with investors in October 2021, according to Fortune. Additionally, according to research by Goldman Sachs in January 2022, bitcoin has already taken 20% of the "store of value" market.

Is bitcoin the new gold?

The analogies to gold draw attention to one crucial connection between bitcoin and the pricey metal: both have a fixed supply. There is a maximum of 21 million bitcoin. (Other cryptocurrencies have an endless supply, which may be why experts frequently mention bitcoin particularly when discussing using cryptocurrencies as a store of wealth.) It has no boundaries and no central authority.

Some experts are quick to point out that there are numerous instances in which bitcoin differs from gold. For starters, the price history of bitcoin has been significantly more erratic. According to a UBS analysis, incorporating bitcoin into a portfolio between 2016 and 2020 would increase returns but also significantly increase volatility. Investors on their own would need to assess the level of volatility with which they are comfortable.