By Joseph Saw on The Capital
As I was attending university I had felt a sense of unpleasantness because I believed that I had missed out on the gold rush in the 1970s, the great internet and tech boom in the 90s, or the mortgage boom of the early 2000s.
But in recent times, I’ve come to learn that every generation has its own unique opportunity and with the exponential advances in technology, that is starting to seem like every decade.
I’ve come to realize a very simple investment philosophy, understand the problems of today and invest in the solutions of the future. And right now we are living through one of the biggest monetary shifts since the 70s and 40s, which also means there is a huge opportunity ahead.
In fact, the uncanny resemblance of the economic environment from the 1930s to today is scarily similar. Zero per cent interest rate, a huge wealth gap, and now, the potential loom of a great depression.
The current boom in the S&P 500 and the NASDAQ is nothing short of bewildering when the unemployment rate is at a staggering 13% as of writing, a significant recovery from 20% but still a large number nonetheless.
This huge boom in asset prices leads me to the first reason as to why cryptocurrencies will remain as the best performing asset class:
The Debasement of Fiat Currency
I am sure by now you have heard of Venezuela and Zimbabwe and their ongoing war with hyperinflation.
Their central banks have printed so much money that it now takes 1 Trillion Venezuelan Bolívar just to buy a loaf of bread. And just like their loaf of bread, their stock market is up at least 10000%.
Just look at those zerooos!
Even Zimbabwe’s stock market is having the time of its life.
Yet, economists and investors aren’t excitedly pouring money into their economies because they understand how worthless (reduction in purchasing power) their currency is.
Unfortunately, Venezuela and Zimbabwe aren’t the only countries with hyperinflation, there are countless similar charts like this all around the world, some worse than others.
And what truly scares me is that the Federal Reserve is employing the very same tactics (money printing) these failing countries have employed and not only are they getting praised for it, the people “demand” that they do some more.
If you have any understanding of money creation and the economy you should understand how unrealistic our current market projection is.
In fact, Warren Buffet recognized as the greatest investor of all time has recently been criticised for “chronic underperformance”¹ simply because he does not want to put his money into, what he believes, a house of cards scenario.
Warren isn’t alone in this belief, the chairman of the Federal Reserve, Jerome Powell, acknowledges this as an unsustainable problem.
“Debt is growing faster than the economy, and that’s not sustainable” — Jerome Powell
This testimony was pre-corona virus before trillions of new dollars (debt) flooded the system.
Huge dollar printing is happening in the U.S. along with other major countries (Europe, China, Japan, India) following suit by flooding their own economies with freshly-printed money.
The dollar, yen, yuan, or rupee sitting in our bank accounts will continue to be worth less than yesterday at an increasing rate. And with a world of zero (and inevitably negative) interest rates, putting your money in a bank simply doesn’t seem very attractive anymore.
This is where Gold & Bitcoin comes in. Gold has been used as the base of every major economy throughout history for centuries, but Bitcoin seems to be challenging that narrative as a new form of safe-haven asset.
Whether you believe in Gold or Bitcoin, there is no debate that the objective of hard assets is to bring back sound monetary policy by disallowing ANYONE from issuing more Gold or Bitcoin on a whim. My personal belief is in Bitcoin, particularly due to its, predictable monetary policy based on mathematics and cryptography. It cares not who is president, whether we are in a pandemic or if a new gold mine is discovered.
Historically, it is this sound monetary policy and hard money that people will turn to during economic turmoil.
Every other asset class vs Cryptocurrency
But if the debasement of money leads to increased asset prices, why will cryptocurrencies, in particular, outperform every other asset class? Shouldn’t they all rise respectively?
Yes, if the debasement of fiat currency continues to happen we should see an increase in all asset prices. But cryptocurrencies, in particular, will have the most significant rise, in percentage terms, simply due to its low market cap at the moment.
At this time of writing, the entire market cap of cryptocurrencies is only at a mere 250 billion dollars.
That is absolutely nothing compared to gold, standing at 10 trillion dollars. For you to double your money in gold (100% increase), we would need to see a 10 trillion dollar increase in its market cap to a total of 20 trillion dollars; which is actually nothing if the world governments were to decide to return to the Gold Standard — but that’s a topic for another day.
For cryptocurrencies to see that same return, we would just need a measly 250 billion dollars to double its current value.
If you are like me and you learn better with visuals, then you should check this out https://www.visualcapitalist.com/all-of-the-worlds-money-and-markets-in-one-visualization-2020/.
So now the question is, can we see the cryptocurrencies market increase by another 250 billion dollars, or even more to its existing market cap?
Well, I believe so, but for that to happen it will probably need more than just another safe-haven narrative and fortunately, it does.
Cryptocurrencies, at the end of the day, are just computer code. And with any other computer code, improvements are made, new ideas are formed, and new forms of utilization are introduced and adopted.
Let’s take a look at one major problem we currently have.
If you have ever tried sending or receiving money from abroad you should have some understanding of how incredibly frustrating it can be.
Here is a personal experience from me when I tried sending money from my home country’s bank account to a recipient in the U.S. I waited two WEEKS not knowing where my money was and when I had contacted the banks to trace it down, I had to pay $50 and had to wait ANOTHER two weeks just for that money to be refunded to my home country’s bank account. The whole ordeal lasted a month, I had to fork out $50 for absolutely no reason, and the recipient didn’t even receive the money. An outdated financial system that can’t even get the one thing it’s supposed to do right, sending money.
It’s absolutely bonkers how we can send emails, images, videos, and even physical items within a day to the other side of the world but we can’t send money instantly and we have to pay up to 7% of the entire amount as fees (mainly hidden & FX fees).
7% may not seem a lot to you but for a foreign worker from the Philippines, Mexico, Bangladesh, Indonesia, Sri Lanka, Cambodia, etc. who, even at a best-case scenario only makes $200 a month and sends some of this money back to their home country every month, that is a substantial amount.
Our financial and economic system has time and again fucked over the poor, in fact, in the U.S. “supposedly” the most developed nation in the world 1/4 people remain unbanked, denying them of crucial banking services that could help them escape poverty.
Just as how the internet has democratized the spread of knowledge and information, cryptocurrencies will democratize finance (solutions for many banking problems are now more commonly known as “decentralized finance”).
This Remittance problem isn’t only financial, it is political. Current remittance infrastructure is built upon the SWIFT network. Since the dollar serves as the world reserve currency, there is a high likelihood that if two countries outside of the U.S. intends to trade with one another, they are most likely using U.S. dollars, and it is that SWIFT facilitates the international dollar system.
Because of how the underlying technology of the SWIFT payment network works, these transactions will most likely pass through banks located within the U.S. This gives the U.S. government tremendous financial power because those banks must comply with U.S. law and government whims, even if the transaction has nothing to do with the U.S.
The most notable abuse of this power was when it passed sanctions to Iran and cut-off its banks’ access to the SWIFT network², with the intention of crippling their economy.
Obviously, no other country in the world likes this tremendous power the U.S. holds and has sought ways via trade agreements to bypass the U.S. dollar altogether³. And with the introduction of Central Banks Digital Currency, the narrative of dollars as the world reserve currency might even shift.
Honestly, this is just one problem that cryptocurrencies are trying to solve. To dive deep into all the existing problems we have in our banking and particularly, monetary system, I could probably write a book on it.
But the main thing you need to understand is that there are a ton of problems in the financial system and with cryptocurrencies being potential solutions, I have no doubt that trillions of dollars will eventually flood the ecosystem as those solutions take-off.
And on a side note, If you want to have an understanding of why there are people who believe Bitcoin is a safe-haven asset, or why the rich and Central Banks hoard gold, you would need to understand how money is created, for that, there are a couple of videos below that does a fantastic job in explaining just that.
- Warren Buffett’s ‘chronic underperformance’ is frustrating investors and analysts | Markets Insider
- What SWIFT is and why it matters in the US-Iran spat
- Currency Agreement for Japan and China
Why Cryptocurrency will continue to be the best performing asset class this decade was originally published in The Capital on Medium, where people are continuing the conversation by highlighting and responding to this story.
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