Stagflation is one of the most complex and dangerous states of an economy. It occurs when slowing economic growth or a downturn is combined with high inflation and a decline in the purchasing power of the population. During such periods, pressure is felt not only by traditional financial markets but also by the cryptocurrency market.
The term “stagflation” itself is formed from two words — stagnation and inflation. In other words, it refers to a situation in which the economy is barely growing or is shrinking, while prices continue to rise rapidly.
Stagnation is usually indicated by the following signs:
a decline in the pace of production of goods and services;
no GDP growth, a slowdown in its dynamics, or contraction;
rising unemployment.
Inflation, in turn, is manifested through:
higher prices for goods and services;
a reduction in the real incomes of the population;
the depreciation of savings;
rising business costs for raw materials, logistics, and wages;
a decline in the purchasing power of the national currency.
The main danger of stagflation lies in the fact that it combines two problems moving in opposite directions. Under normal conditions, fighting inflation requires one set of measures, while supporting economic growth requires another. Under stagflation, these tasks conflict with each other, which is why regulating such a situation is especially difficult.
Inflation and stagflation as drivers of demand for bitcoin and gold
Ordinary inflation most often develops in conditions of a stable or growing economy. This is usually associated with an increase in the money supply, growing demand for goods and services, and, as a result, a rise in the general price level.
Against the backdrop of accelerating inflation, some investors begin looking for scarce assets that may help preserve the value of capital. In 2020–2021, when the world’s central banks were actively stimulating the economy, bitcoin was often viewed as “digital gold” and a possible tool for protecting against the depreciation of money.
It was precisely during this period that interest in cryptocurrency noticeably intensified among large investors. Reuters noted that the thesis of bitcoin as a hedge against inflation supported institutional demand, and in February 2021 Tesla announced the purchase of $1.5 billion in BTC. At the same time, MicroStrategy continued to increase its reserves and, by February 2021, owned about 72,000 BTC.
A similar logic also applies in the gold market. Thus, in August 2020, the price of gold exceeded $2,000 per ounce for the first time. Reuters linked this to the fact that investors were looking for ways to preserve the value of capital amid unprecedented stimulus, accelerating inflation, and fears of possible stagflation.
Causes and signs of stagflation
The causes of stagflation are usually divided into two groups: global and local.
Global, or external, causes include factors that affect the world economy as a whole.
One of the best-known examples is the 1973 oil crisis. After the introduction of the oil embargo* by OPEC* countries, oil prices rose about fourfold. Such a jump became a powerful supply shock and intensified inflation against the backdrop of worsening economic dynamics.
* An embargo is a government ban or strict restriction on exports, imports, or other trade operations with a particular country. An embargo is imposed for political, economic, or military reasons in order to exert pressure on another state.
* OPEC is the Organization of the Petroleum Exporting Countries, an international association of states that produce and supply oil to the global market and coordinate their oil policy. As of March 2026, OPEC includes Algeria, the Republic of the Congo, Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, Saudi Arabia, the United Arab Emirates, and Venezuela.
A similar situation was observed in late February to March 2026, when the escalation of the conflict between the United States and Iran led to a sharp restriction of shipping through the Strait of Hormuz — one of the most important routes in global trade in oil and liquefied natural gas. Against this backdrop, the market faced a classic supply shock, heightening the risk of stagflation. According to Barclays, in the event of a prolonged disruption of supplies, losses could have reached 13–14 million barrels* per day, and by March 26 the price of Brent* had risen above $104 per barrel.
* A barrel is the standard unit of measurement for the volume of oil and petroleum products on the world market. One barrel equals approximately 159 liters. It is in barrels that volumes of production, exports, consumption, and global oil supplies are usually measured.
* Brent is a benchmark grade of oil that serves as one of the main global price references. The price of Brent is used as a basic indicator in pricing a significant share of the oil sold worldwide. When people say that Brent has risen to a certain level, they usually mean a general increase in global oil prices.
The economic consequences of such shocks are not limited only to higher raw material costs. Expensive oil leads to higher prices for fuel, transportation, fertilizers, and industrial production, which are then reflected in a wide range of consumer prices. As a result, inflation expectations worsen, and pressure on the economy increases. That is why the OECD (Organisation for Economic Co-operation and Development) has already downgraded its forecast for the global economy for 2026: expected global GDP growth was reduced to 2.9%, while the inflation forecast for the G20 countries was raised to 4.0%.
In financial markets, stagflation increases the likelihood of tighter monetary policy. Representatives of the U.S. Federal Reserve have already pointed to increased inflation risks due to the energy shock, and market expectations have shifted, with the probability of a key rate cut in the United States in 2026 decreasing.
The cryptocurrency market also faces pressure under such conditions. At the end of March 2026, bitcoin briefly fell below $69,000, while Ethereum and XRP declined even more in percentage terms, as investors viewed the oil shock and accelerating inflation as negative factors for risky assets.
Local, or internal, causes of stagflation include decisions made within a specific country.
One of the key internal causes is considered to be monetary policy mistakes. For example, in the 1970s, the U.S. Federal Reserve kept conditions too loose for too long, which intensified inflationary pressure. When the regulator later moved to sharply raise rates in order to restrain price growth, this led to a decline in business activity, rising unemployment, and the recession of the early 1980s.
In addition, authorities often seek to curb inflation through administrative measures. In 1971, the Nixon administration introduced a wage and price freeze and an import surcharge. However, such measures produced only a temporary effect and did not eliminate the underlying causes of rising prices and increasing stagflationary risks.
How stagflation affects the economy and the cryptocurrency market
A clear example of the consequences of stagflationary risks was the period of the pandemic that began in March 2020. Restrictions and lockdowns sharply changed consumer behavior: people began actively spending their savings and buying essential goods in bulk. Such a surge in demand triggered shortages of a number of goods, rising prices, and stronger inflationary pressure.
At the same time, investors began withdrawing from risky assets, including cryptocurrencies. This led to a sharp liquidity outflow from the market. In March 2020, amid global panic, bitcoin lost more than 30% of its value in five days, Ethereum fell by 27%, and XRP by 21%. Reuters then noted that the sell-off affected the entire cryptocurrency market and cast doubt on the thesis that bitcoin is a “safe haven.”
At the same timAt the same time, subsequent dynamics highlighted the dual nature of the crypto market amid inflationary shocks and the threat of stagflation, by the end of 2020, Bitcoin had risen by more than 170%, as some investors once again began to perceive it as an asset potentially protected from inflation. On the other hand, the March 2020 crash clearly demonstrated that, in a phase of acute uncertainty, cryptocurrencies more often behave like high-risk assets rather than a full-fledged defensive instrument.