by Dominik Stroukal — Economics Expert at SatoshiLabs
Governments and central banks are stronger than before. The system becomes more fragile and dangerous. And that’s exactly when it makes sense to buy bitcoin. Bitcoin is a hedge against the system.
Covid-19, the new coronavirus hit us much harder than the mortgage market collapse and subsequent financial dominoes in 2008. And governments and central banks have taken more drastic measures to support the economy. The borders were closed, citizens are being surveilled, companies are being nationalized, money is being given out, central banks are pumping liquidity into banks, and they are buying up everything they see.
The fundamentals on which Bitcoin is built have never been more important than today. And that’s when you should think about Bitcoin.
Bitcoin exists exactly because of what is happening now
Bitcoin was created after the financial crisis in 2008 and now the situation is repeating. The world was looking for an alternative to a collapsing house of cards, and Satoshi Nakamoto offered one. Digital decentralized private money. Independent and with a huge emphasis on privacy.
It was an experiment that surpassed any original expectations. Bitcoin has established itself in the media, gained respect in academic circles, and earned plenty of fans among prominent entrepreneurs, thinkers and even some politicians.
While betting on Bitcoin after the financial crisis was a huge step into the unknown, we now know that Bitcoin is here to stay. The price will fluctuate, but the idea of an alternative, free, and decentralized money will persist.
In the current recession, banks and the financial system have not collapsed. It shows in full the strength of our governments and the ease with which they can lock us up at home and deprive us of income. Today (hopefully), they are doing it to save lives (do they?), but they show us what they can do. Track our phones, restrict our privacy, and even watch our card payments. South Korea keeps track of where you pay with your credit card to monitor the movement of infected people.
Milton Friedman once said “Nothing is so permanent as a temporary government program”. What about you? Do you really think that governments will voluntarily relinquish these new powers?
Power is tempting, and easily corrupts even the purest of souls. Once in place, it’s hard to find enough modesty to let it go. Are you willing to bet your freedoms and rights on the moral standing of the politicians in your region? I wouldn’t!
If you doubt that, look for alternatives. For safer private communication, but also for safer private payments. Bitcoin is ready for that. And it is prepared for that much more than it was ten years ago.
It is not a choice between whether the money flow should be transparent or whether we should value privacy. Bitcoin offers both. If you want to be transparent, you can show even much more than banks allow. If you want privacy and security, you can have it. You have full control over your money. And that is the miracle.
What is stronger than a bazooka?
Interest rates at zero. Quantitative easing at a whole new level. Central banks buying everything they can buy, and even opening Pandora’s box and experimenting with helicopter money, of course rebranded as the “Main Street Lending Program”.
We should be afraid of these instruments for two reasons. First, for what they are now. Because central banks use these instruments to increase income inequality (Who is more likely to live from asset bubbles and who is not glued to a fixed income? The rich or the poor?), support government debt by artificially flattening the yield curve, create moral hazard and inflate asset bubbles. That in itself is scary.
And second, we should also be afraid of what central banks will do in the next recession. Central banks used to shoot with guns. The current measures can be compared to a bazooka. What will be the next weapon? Of course, central banks have an endless supply of ammunition, but each time they have to shoot with a greater caliber because the market expects what has already been tried and wants more and more. After the bazooka, will we see tanks, then atomic bombs or even Death Stars? Eventually, markets will no longer be fooled by the weapons. Yes, our current central banking system will be able to withstand a few more recessions, but it is doomed in the long run.
And right in front of your eyes you have proof that we can manage money differently. And that we can do better.
We’re at the beginning. Bitcoin’s market capitalization is still “just” $ 130 billion, only one tenth of Microsoft’s market capitalization. Bitcoin is much larger than we would have expected eight years ago but still relatively small. We’re just at the beginning.
The best time to buy Bitcoin is now
We live in extreme times. Central banks around the world try new tools and push old tools to new limits. Governments claim new powers and fear of them should be at least comparable to our fear of the new disease. Closed borders, surveillance, nationalization… All of this was a nightmare in the free world, but now it has become a new norm.
Nobody expected that. But there are people who were prepared for anything. And one of the tools of a proper prepper is Bitcoin.
So far, the fundamental arguments for Bitcoin might have seemed just like a hypothesis. What do we need privacy and security for when everything is as it should be? Bitcoin has always been, and still is, Plan B. Above all, absolute ownership of money, privacy, security, decentralization, and immutability are in good times mostly a toy and at best a tool for speculation. We need Bitcoin in bad times. And if this doesn’t look like bad times, then what does?
Plan B has already come in handy in countries plagued by hyperinflation, oppressive regimes, capital controls, over-surveillance of citizens and uncertain property rights. All of us around the world are experiencing a bit of all of these.
Investing in Bitcoin means leaving the system, looking at it from a different perspective and hedging against abuse of power.
Bitcoin is not ready to replace fiat money. At least not yet. It does not have the capacity and infrastructure to do so. You cannot have exaggerated expectations. However, cryptocurrencies change every day for the better. The technology is evolving, and privacy and security are getting better every day. A bitcoin hardware wallet like Trezor is a good idea to start with. Let’s compare what the Bitcoin ecosystem looked like in 2010, 2015, and now. In addition, a crisis like the current one attracts people to seek alternatives and accelerates the development.
Hedge yourself. There has never been a better time to do so. It has never been more important.
But don’t hurry. Give it a try. One transaction will show you much more than hours of articles and videos. You’ll instantly see how it feels to hold value. To take full control of it. The absolute ownership of money is addictive. Then decide if you want to enter this new world with more.
Disclaimer from SatoshiLabs: This is an opinion piece that expresses a point of view of the author and not an investment recommendation.
The views represented in this commentary are those of its author and do not reflect the opinion of Traders Magazine, Markets Media Group or its staff. Traders Magazine welcomes reader feedback on this column and on all issues relevant to the institutional trading community.