Markets are down across the globe. It’s not just crypto that is taking a plunge, although losses in this sector have been a lot deeper than the traditional financial sector due to the comparatively small market cap which allows more volatility. With investors looking to find gains somewhere, is their wealth better off in the bank, or in crypto?
In traditional finance circles, the investing wisdom during bear markets has always been to put your money into safer stocks that are guaranteed to survive a bear market. Gold has always historically been a safe haven for part of your portfolio, and finally, a large cash position is recommended so that investors can take advantage of bargain basement prices as stocks bottom out.
It may well be argued that this strategy still holds weight, but it might also be said that times have changed, and that this strategy is likely to be much more ineffective in the current economic climate.
The dollar has lost 96% of its value since the Federal Reserve came into being, and this privately run organisation was given free rein to enact monetary policy that was skewed in favour of the banks and other large financial institutions.
All fiat currencies, not just the dollar, are in a race to zero. Each currency devalues as more of it is printed, and each country tries to make their exports cheaper than any other country. The alarming thing about fiat currencies is that not one of them has ever survived going to zero in the entire world history of money.
So where are we today? As at May of 2021 the Federal Reserve had printed 40% of all dollars that had ever existed in just the course of one year. It will always point to the pandemic as being the cause, but grave issues were permeating the banking industry well before this.
Given this gargantuan influx of currency into the system, inflation has taken off, and the last reported figure of 7% is the highest since 1982. Of course, the way the consumer price index is reported nowadays is a world apart from how it was originally reported back in the 80s. Using the original figures, supplied by the Shadow Stats website, inflation is currently at 15%.
If you hold dollars in a US bank savings account currently, you would be receiving 0.01% on your money. And if you really wanted to turbo boost this amount, the US national average savings accounts rate is 0.06%.
Of course, in the short term, fiat is a liquid asset that is very useful for buying hard assets that are currently priced lower, some of them, like silver and gold, it could be argued, artificially so.
However, at the end of the day, investors should ask themselves whether they are investing for the short term or for the long term. Most macro investors would agree that long term is always better. Take Amazon, or Apple as an example of this.
Cryptocurrencies are often pilloried in the world media as being “too volatile”, or they are said to be fronts for money laundering or terrorist financing. In these kinds of articles, there is rarely a mention of how young this industry is, and how the volatile price swings are a result of such a small market cap.
Neither is it mentioned that these cryptocurrencies run on top of the blockchain, and that this is the most transparent and trackable technology that has existed to date.
Granted that governments are scared that private currencies will disrupt the fiat monetary system, and that they can lose some of their control, but if the present system was trusted and had longevity, then there really would not be a use case for some of the payments cryptos.
Looking into the future it seems beyond any shadow of a doubt that fiat will continue to be debased, leading to people around the world having less and less purchasing power, while on the other side of the coin, the big banks, and large institutions will just get bigger and larger as more and more printed currency is thrown their way.
Cryptocurrencies are a risky play right now. However, most of them have suffered retraces of more than 50% since early November of last year. This is not to say that they won’t go down another leg or two, but eventually, sound money such as Bitcoin must surely be bought back up as investors look for a solid hedge out of the crumbling fiat monetary system.
Keeping dollars, or any other fiat currency in a bank account is tantamount to losing 15% of your purchasing power every year. Averaging into the best crypto technologies could see phenomenal gains as these become the foundation of a future monetary system.
According to former congressman Ron Paul:
“What we are witnessing today is the end stages of a grand experiment,” Paul said as he addressed Chairman Bernanke. “That forty-one year experiment in fiat money is failing. It is no different this time than it ever has been in history. All fiat currencies eventually go to zero value, and usually they do it in less than forty years. We now are in year forty-one.”
Dollars or crypto?, your choice.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
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