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With Bitcoin down, diversify crypto holdings to guard against inflation

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Lindsey Knewstub

Bitcoin has had a rough month of declines, likely driven by the Federal Reserve’s planned tightening of its monetary policies this year.

Will Cong, professor of finance in the Cornell SC Johnson College of Business and an expert on financial technology, economics and investments, has ongoing research on the coming battle of digital currencies and the future of money. He says as the Federal Reserve tightens policies, we could see a reduction in demand for Bitcoin – but adds that investors can still use crypto assets to guard against excessive inflation by diversifying their holdings across the entire crypto sector.

Will Cong

Associate Professor of Finance

“Bitcoin is down for several reasons. Bitcoin does not serve as an effective medium of exchange or unit of account, due to high price return volatility. It is largely a speculative asset with a potential function as a store of value, akin to digital gold, due to built-in anti-inflationary measures.

“Due to first-mover advantage, legacy, and media attention, it had increasing demands over the past several years, but it is still high-risk asset. As the Fed tights the policy and increases rate, we could see reduction in demand for Bitcoin.

“At the same time, let us not forget that inflation in the U.S. is at the highest in recent history. Investors can still use crypto assets to guard against excessive inflation. They just need to diversify their holdings across the entire crypto sector.

“It is likely beneficial to also look at blockchain and crypto projects that improve interoperability and bridge on-chain and off-chain business activities. That's how real value can be created, how we can relate the innovation in the space to the real economy, all while guarding against excessive inflation with the help of algorithmic truth and commitment.”

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