Is Busting Inflation Bitcoin's Killer Use Case?

Bitcoin adoption is growing, thanks to a specific global narrative that is forming around it.

Has Bitcoin finally found its killer use case?

Over the years, the crypto community has put forward many potential applications for Bitcoin, with numerous different use cases actually put into practice. It was originally conceived as a P2P payment system. It has been, and still is, a darkweb currency, a form of censorship-resistant cash, a vehicle for speculators, a platform for digital ownership rights (aka Ordinals), an emerging smart contract platform and, of course, digital gold.

Crypto 101: What Are Bitcoin Ordinals?
Ordinals are NFTs hosted on the Bitcoin protocol - but there are some big differences to Ethereum-based NFTs.

It's this last use case, as a store of value, that appears to be going mainstream.

The Insidious Problem Of Inflation

In the western world, inflation has been running at its highest levels in a generation. No one looks forward to the value of their cash savings being eroded at the rate of 5-10% per year. At even 5% inflation, $1,000 would only be worth the equivalent of $500 after just 14 years.

But there are countries where the same occurs in the space of just a year, or even less.

The chart above shows adoption rates for any kind of crypto, including stablecoins. USDT and other dollar proxies are popular in places like Argentina, where inflation is so high it makes no sense to hold money in the local currency for long. People save in dollars, even if they spend in Pesos.

However, Bitcoin specifically is making headway in the country. A number of mining companies have set up their businesses there in recent months, and at the end of last year, the country's foreign minister confirmed that Argentina had "ratified and confirmed" that contracts can be set in bitcoin.

Low Time Preference Preferred

While inflation of any form, hyper or otherwise, is a tailwind for bitcoin adoption, it's not suitable for everyone. Specifically, bitcoin's volatility in the short term makes it risky to hold as an asset you might need to spend at any time.

Over the longer-term, though, it has never disappointed. As analyst Willy Woo points out, bitcoin has never returned less than 30%, annualized, over four years.

Even if you buy at the top of a market cycle, it has always been worth it within four years (although, of course, buying low is the ideal).

This is the narrative that is slowly taking hold, both at the grassroots level in countries like Argentina, and in the TradFi world in the US with the launch of ETFs. Bitcoin is digital gold but, unlike physical gold, it appears to be able to keep pace with inflation in this market.

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