Inflation impact on stock market: Inflation, the rise in prices of goods/services, is the dynamite hitting stock prices out of nowhere — sending the S&P 500 down nearly 2% over the past 2 days. Inflation’s expected to jump to its highest level in over 8 years.

Inflation impact on stock market

Too much inflation is seen as a negative for stocks and can arise during periods of economic expansion. Over the past year, inflation slowly increased due to:

• Rising prices of goods and services, from supply chain issues and increasing consumer demand.
• Record amounts of money printing, resulting from the highest level of money supply growth in history.

During times of high inflation, certain asset classes are believed to perform better — gold, historically being one of them (see other asset classes to protect yourself from inflation).

But in a 2020 survey by deVere Group, 67% of Millennial investors preferred Bitcoin over gold…

Bitcoin: the new asset class of protection

Many Bitcoin believers argue Bitcoin is replacing gold as the favorite inflation protection asset. Unlike fiat money, which can be printed in “unlimited” quantities, cryptocurrencies, like Bitcoin, are designed to have a limited supply.

• With fiat money, if the government chooses to print more money, the less your existing money will be worth — which decreases the value of your cash during inflationary periods.
• With Bitcoin, no central authority can choose to create more Bitcoin — the Bitcoin network is designed to create a specific quantity over time.

But Bitcoin also has its downsides compared to gold:

• High volatility — According to Bloomberg, Bitcoin’s losses tend to be 3x larger than gold.
• Safety Risks — including government regulation, fraud, hacks, and other threats.

Also check out: In April, the CI Galaxy Ethereum ETF (TSE:ETHX

, was launched in Canada. This makes Bitcoin and Ethereum the only cryptocurrencies with their own ETFs.

For investors: Too early to tell…

While gold has been around for centuries, Bitcoin hasn’t been around long enough to see through periods of high inflation.

For the past decade, inflation in the US has been low, but that’s about to change with higher inflation expected over the next few months — putting the Bitcoin inflation-hedge theory to test.

Look out for: April’s inflation numbers are coming out today at 8:30 am — if they come in higher than expected, markets could be in for another fall.