Inflation: A Feature of Fiat Currencies

Inflation is an inherent characteristic of economies using fiat currencies like the U.S. dollar (USD). Unlike commodity-backed currencies, fiat money derives its value from government trust and is managed by central banks, which can expand the money supply to influence economic conditions. While moderate inflation encourages spending and economic growth, excessive inflation reduces purchasing power over time.

The U.S. dollar, for example, has lost approximately 97% of its purchasing power since 1774 due to cumulative inflation, meaning that what could once be bought for $1 now requires significantly more. This is a natural outcome of an economy where money supply increases faster than economic output.

The Declining Purchasing Power of the US Dollar

Historically, the USD has eroded in value, as seen through:

• The cost of everyday goods rising over time (e.g., the price of housing, education, and consumer products).
• Wages struggling to keep up with inflation in certain periods, reducing real purchasing power.
• Government spending and money printing increasing the supply of dollars, further fueling inflation.

While inflation is expected and even necessary for a functioning fiat economy, it also means that holding cash results in a slow but steady decline in wealth over time.

Information provided from RIVER Finance

Bitcoin: A Fixed-Supply Alternative

Bitcoin operates on an entirely different economic model. It has a fixed supply of 21 million coins, making it resistant to inflation. Unlike fiat currencies, no central authority can create more Bitcoin, which enforces scarcity and long-term value retention.

As a result, Bitcoin’s purchasing power has significantly increased over time.

• The 10,000 BTC Pizza Example (2010) → In 2010, one of the first recorded Bitcoin transactions involved purchasing two pizzas for 10,000 BTC. Today, that amount of Bitcoin would be worth over $1 billion.
• Bitcoin vs. USD Over 10 Years → While the USD has lost purchasing power due to inflation, Bitcoin’s value has grown exponentially due to its fixed supply and rising demand.

Data via RIVER displaying how BTC is anti-inflationary.

Why Bitcoin Has Increased in Value

The key reasons behind Bitcoin’s outperformance against inflationary fiat currencies include:

• Decentralization → No government or central bank can manipulate supply.
• Scarcity → Only 21 million BTC will ever exist, ensuring limited supply.
• Adoption Growth → Increasing institutional and retail adoption drive demand.
• Store of Value Narrative → Bitcoin is often referred to as "digital gold" due to its deflationary properties.

There is a clear contrast between a fiat currency such as the US dollar and BTC.

The Long-Term Investment Question

Given these contrasting economic models, the question becomes:
Would you rather hold a currency that loses value over time due to inflation (USD) or one designed to increase in scarcity and purchasing power (BTC)?

While Bitcoin remains volatile, its long-term trend suggests that, for those looking to preserve and grow their wealth, it offers a compelling alternative to fiat currencies

Bitcoin is becoming less volatile as more institutional investors enter the space. Data via The Block

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