What is the relationship between Bitcoin and inflation?

Hello, regarding the relationship between Bitcoin and inflation, I'll try to explain it in simple terms, hoping it helps you.

First, we need to understand what inflation is. Simply put, it means money "loses its value" or becomes less valuable. For example, last year 100 yuan could buy 10 catties of pork, but this year, due to inflation, it might only buy 8 catties. This usually happens because central banks print more money, increasing the money supply in the market. However, the amount of goods remains the same, so the purchasing power of money decreases.

So, what does Bitcoin have to do with this?

The key lies in one of Bitcoin's core characteristics: a fixed total supply.

Bitcoin's total supply was hardcoded by its creator (Satoshi Nakamoto) to be exactly 21 million coins, no more, no less. No one can "print" more Bitcoins like they print banknotes. This rule is fundamental to the Bitcoin network and is virtually impossible to change.

This creates a very interesting comparison:

• Fiat currencies (e.g., RMB, USD): Theoretically, they can be printed infinitely. When governments need to stimulate the economy or pay off debts, they might start the printing presses, leading to a decrease in the purchasing power of the money we hold (inflation).
• Bitcoin: Its total supply is fixed, so there's no issue of "over-issuance" leading to devaluation.

Therefore, many people view Bitcoin as a "digital gold".

Historically, when people worried about money losing its value, they often bought gold to preserve wealth. This is because gold's reserves are relatively scarce, and it's difficult to mine, so its supply doesn't suddenly increase significantly.

Now, some believe Bitcoin plays a similar role. They trust that when inflation strikes, fiat currencies will become increasingly worthless, while Bitcoin, with its fixed supply, might see its value (relative to fiat currencies) rise. Thus, holding some Bitcoin is like buying "insurance" for one's assets, used to hedge against the risks brought by inflation.

However, this is only the theoretically appealing part; reality is far more complex.

You must also know that Bitcoin is not yet a perfect "safe-haven asset," mainly for a few reasons:

1. Huge price volatility: Bitcoin's price fluctuates extremely violently. It might go up 20% in a day or drop 20% in a day. If you want to rely on it to counter a few percentage points of annual inflation, you first need a strong heart to withstand this roller-coaster-like volatility. Its risk is much higher than gold's.

2. Heavily influenced by market sentiment: Currently, Bitcoin's price often follows the sentiment of global financial markets. For example, when the stock market crashes due to panic, Bitcoin often falls along with it. It behaves more like a high-risk tech stock than a stable safe-haven asset.

3. Limited adoption and consensus: Although Bitcoin is becoming more famous, only a minority of people globally accept and trust it. Its value largely depends on people's "consensus," and this consensus is sometimes not firm.

In summary:

Theoretically, because Bitcoin's total supply is fixed, it has the potential to resist inflation, leading many to call it "digital gold." However, in reality, due to its own massive price volatility and the immaturity of the market, its role as an inflation hedge has not been fully proven, and it carries extremely high risk.

So, you can understand it as: an emerging asset with the potential to fight inflation, but currently unstable, with both risks and opportunities.