Inflation is a critical economic indicator that affects purchasing power. In Dubai, inflation has been rising in recent years due to the weak dirham and the increasing cost of living. It has had a significant impact on the crypto market in Dubai, with prices for many coins and tokens fluctuating significantly.
Let’s explore how inflation affects cryptos in Dubai and look at some of the factors that have contributed to the current state of the market. We will also discuss how investors can protect themselves from price fluctuations caused by inflation and offer some advice on how to navigate these turbulent waters best.
What is inflation, and why does it significantly impact cryptos?
Inflation is a measure of the increase in the prices of goods and services in an economy. It is calculated by taking the percentage change in the Consumer Price Index (CPI) over a given period. The CPI measures the cost of living and includes a basket of goods and services representative of the average consumer.
When inflation rises, it erodes the value of a currency as it becomes worthless over time. It can significantly impact the crypto market as investors tend to sell their coins and tokens when prices drop. We have seen dramatic price fluctuations in Dubai as inflation has risen steadily in recent years.
Let’s take a closer look at some of the factors that have contributed to the current state of the market.
Firstly and most obvious factor is the weak dirham. The dirham has been pegged to the US dollar since 1997 and has slowly lost value against it over time. It has made imported goods more expensive and put pressure on the prices of locally produced goods. The weak dirham has also harmed investment in Dubai, as the currency’s volatility has deterred many investors.
The increasing cost of living
The second factor is the increasing cost of living. The cost of living in Dubai has been rising steadily for many years, fuelled by rising rents, food and fuel prices. It has put pressure on consumers’ budgets and left them with less disposable income to invest in trading cryptocurrencies.
The third factor is regulatory uncertainty. The crypto market is still relatively new, and there are a lot of unanswered questions about how it will be regulated in the future. It has caused a lot of uncertainty among investors, who are reluctant to invest in coins and tokens that the authorities may not recognise.
So, what can investors do to protect themselves from inflation?
Here are some tips:
Diversify your portfolio
One way to protect yourself from price fluctuations caused by inflation is to diversify your portfolio. It means investing in various coins and tokens rather than putting all your eggs in one basket. It will help minimise your risk if one or two coins experience a sudden drop in value.
Use a stop-loss order.
Another way to protect yourself from inflation is to use a stop-loss order. It is an order that automatically sells your coins or tokens when they reach a specific price. It can help you limit your losses if the market turns against you.
Hold some cash
A third way to protect yourself from inflation is to hold some cash. It will give you the flexibility to buy more coins or tokens when prices start to fall. However, it is essential to remember that cash is also vulnerable to inflation.
Hedge your bets
Finally, you can hedge your bets by investing in fiat currencies and cryptos. It means that you will be protected if one or the other experiences a sudden drop in value.
These are just some of how you can protect yourself from the effects of inflation. However, it is essential to remember that there is no guaranteed way to make money in the crypto market. Prices can go down and up, so you should only invest what you can afford to lose.