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Crypto Performance During Hyperinflation


  • With 10-year treasury rates rising there are increased concerns about inflation.

  • While hyperinflation is far from guaranteed, rising rates serve as a good prompt for considering how crypto would perform in hyperinflation.

  • I describe a two phase process for crypto in hyperinflation.

  • In phase 1 – early onset of inflation – I expect crypto prices would plummet, much like stocks did in Germany in the early 1920s.

  • In phase 2 – while inflation rates continues to increase – crypto may emerge as a shelling point for exchange if traditional financial systems are not functional.

  • I don’t think it is guaranteed that crypto would emerge as a shelling point. It may well be that prices would be quoted in gold or foreign currencies, as in hyperinflation scenarios until now.


As 10-year treasury rates rise, there is increasing talk of inflation. I don’t know if inflation is likely in the near-term, but rising rates serve as a good reminder to always be prepared. Given the rise of crypto, it is worth considering to what extent it offers inflation protection or protection in hyperinflation.

2021 Landscape for Inflation

Here are three inflationary pressures that I see on the US dollar:

  1. The US government’s Debt to GDP ratio is close to post-world war II levels. Increased debt tends to put pressure on a currency in the long run.

  2. The rising ascendency of China as an economic and military power is putting increased pressure on the dominance of the US. Ultimately I see this as weakening the dollar and confidence in US government debt.

  3. Saving has increased during COVID as there are less ways to spend. This saving may turn into increased spending once the economy reopens. There is $1.9 trillion dollars of government spending upcoming as a stimulus to the economy. This will further add to the total dollars of spending in the economy.

Even given the above, I don’t think high inflation is a guarantee in the near to medium term. I think inflation is hard to predict, but it is wise to always be ready for it.

Note: Similar arguments may be applied to the EU and the Euro.

What can happen in hyperinflation? – Germany 1920s as the example

I recommend reading the prologue from Jens Parrson covering inflation in Germany in the 1920s. At that time, the German government:

  1. Had a lot of debt (from the Versailles treaty), but wasn’t paying off much.

  2. Rather, it was spending heavily to rebuild the country by running a big government deficit.

The result was:

  1. The foreign exchange rates of the Deutschmark fell.

  2. Inflation started picking up inside Germany (while it was stabilising in other countries by the early 1920s).

  3. Inflation made it hard for the German government to raise debt, so they had to print money to keep funding rebuilding.

  4. Stocks initially tanked in value, although the price of sold businesses recovered well inflation was over.

Ultimately, inflation only ended when the German government i) started balancing its budget and ii) decreed that the new Deutschmark would have a fixed supply (it eventually was fixed at an exchange rate of 1 trillion to 1 against the old Deutschmark).

What happens to crypto in hyperinflation?

For this question, I’m going to focus on hyperinflation of the US dollar. I’ll also use Bitcoin to represent crypto.

While I don’t know for sure, my guess is that there will be two phases for crypto during hyperinflation:

  1. Bitcoin plummets in value once inflation hits:

I think much of the speculative investment in Bitcoin is similar to speculative investments in stocks. I also think the drop in Bitcoin in March 2020 at the start of COVID is somewhat representative of what happens at the start of an economic shock.

2. Bitcoin potentially emerges as a shelling point for pricing and conducting exchange:

If you go back to Satoshi’s Bitcoin paper, the critical design aspect of crypto lies in the ability to conduct exchange without a trusted third party. In other words, if financial systems melt down, then the benefits of Bitcoin may come to the fore.

In financial system meltdown, the question is what forms of exchange become shelling points. Typically businesses would revert to foreign currencies or gold for pricing contracts. Between relatives and friends, the simplest approach would simply be a credit system (I manually track what I owe you and vice versa).

It is now possible – although certainly not guaranteed – that Bitcoin becomes a shelling point for pricing contracts, and potentially for conducting exchange, if traditional digital payment systems become dysfunctional (which may happen if native currency inflation is high, and governments block access to foreign reserves). Additionally:

  • Unlike foreign currencies, which a government can block by imposing rules on banks, it would be hard to block access to crypto.

  • Like the new Deutschmark after inflation in the 1920s, many cryptos (such as Bitcoin) have a limited supply, giving some level of confidence around inflation expectations.

My guess is the crypto with the largest market capitalisation is mostly likely to to become the shelling point, if indeed crypto becomes a shelling point. For now, that is Bitcoin.

Is Bitcoin a hedge against hyperinflation?

In the short term, no, because I think Bitcoin would plunge like stocks.

Whether hyperinflation is good for Bitcoin’s long term prospects depends on whether it is a shelling point for pricing trades and/or for exchange. Should it prove itself useful when other financial systems are down, that validation of utility could bode very well for the long term prospects of crypto and lead to a phase three where crypto is deployed at the same scale as fiat currency.

Then again, seeing the past as a rhyme of the future, gold and foreign fiat currencies may again prevail during hyperinflation periods of the future.

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