CRYPTO or GOLD

CRYPTO or GOLD

It’s the start of a new year and a new decade! I am feeling great because I am back in my twenties again!

As I recall my twenties and early banking career, I realize how my thinking has changed. During those young and fun filled days I overlooked some important questions. How do I increase, preserve and protect the wealth that I am creating for my future?

When I think of this today, I realize that everything is against us as we try to protect our wealth creation. Let me explain to you what I mean.

The earliest record of coins dates to the sixth century BC. Fast-forwarding to the 17th century AD finds the British Pound Sterling an example of a reserve currency equally backed by the value of precious metals. This meant that there was never more money than there was gold in the banks. This gave way to the current fiat system in which national currencies are no longer backed by gold, but are simply accepted because the government deems it legal tender.

This is a good time to ask: why hold Fiat when most reserve currency central bankers want to devalue their currencies and are engaged in the unsustainable overproduction of money?

I question what will be the best storehold of my wealth. How can I protect myself from the governments, politicians, economists and bankers who are aiming at my wealth?

My answer is to look into the future and past at the same time.

Crypto Future

Looking ahead, crypto is a clear option for future wealth preservation.

The challenge is to give people what will work for them. The next 100 million people who enter cryptocurrency will do so out of want and need. They will use it to play some game, social networking, earn a living, and to pay for applications, its need and want.

In banks and financial institutions, I expect crypto growth to continue in 2020. Eventually almost every financial institution will have a cryptocurrency operation of sorts. I am encouraged in part by the Survey of Endowment Funds (www.globalcustodian.com/wp-content/uploads/2019/04/The-institutional-crypto-backers-How-endowments-are-allocating-to-cryptocurrency-investments.pdf) and the State Street Survey indicating 94% of their clients hold digital assets. I expect traditional asset managers will continue to have an increased interest in adding crypto during 2020.

I expect volumes on crypto exchanges to grow strongly, especially those that cater to non-U.S. traders. This will increase due to retail activity in ecommerce and payment companies accepting crypto’s. It also affords crypto holders to earn interest and to borrow using crypto as collateral. Opening fiat banking accounts and payment services will remain an issue for crypto companies.

Two other crypto areas that will add to this are Central Bank Digital Currencies (CBDCs) and Stablecoins.

A number of Central Banks have announced potential centralized digital currencies that mirror the country’s Fiat. These are substantially different from Stablecoins in that the recordkeeping for individuals and businesses is with the central banks. I believe this will lead to a basket of digital currencies for price stability possibly from the IMF itself.

I expect stablecoins of major currencies will gain traction as a regulated, open money movement rail for those currencies. The regulated fiat-backed stablecoin market will experience strong growth rates. They will become the regulated money transfer rail that runs on open networks for any crypto wallet to send and receive.

As cryptocurrency moves from for trading and speculation to real world utility, the 2020s will see a great increase people using, holding and storing cryptocurrency. Every investor, portfolio and saver will have some crypto to fight against inflation. This will enable them to preserve the wealth they have worked hard to create.

Gold Past

In looking back, history shows that the most dependable storehold of value is Gold.

The concern that inflation is coming is completely valid. Inflation is a big problem and the traditional solution is GOLD. During the last year, the price of Gold has risen over 30%. WHY?

This is where it gets interesting. Natural resources go through BOOM and BUST periods. When gold prices are high, mining companies are out for new discoveries. Once they start mining, the amount of gold increases and Gold prices fall. As the price falls, the miners’ profits fall, causing investors to lose interest causing production to be reduced. This causes supply and prices to fall, and the cycle starts again. Except now it’s different. The mining executives, the biggest players in Gold, are saying the worlds supplies of Gold are declining. Unlike oil and food, there is no synthetic substitutes or alternatives for Gold.

The World Gold Council reported that central banks bought a record 668 tons of gold during 2019, which breaks the 2018 record. This year, the key drivers in gold demand this year stemmed from central bank purchases. Central banks buy gold to protect their currencies' purchasing power in the event of an inflation. This offers an inside look into the minds of central bankers.

As we know, everything old is new again. The days where the dollar was the reserve currency are numbered and we're going back to basics. Gold was money in the past and it will be money again in the future. Central banks are reading the writing on the wall and are now increasing their gold reserves.

The adoption of crypto assets mixed with moving from Fiat to Gold is the new old direction for preserving your wealth. In crypto the question is whether to go Bitcoin or stablecoins. My eyes say Bitcoin, but my head sees stablecoins. Either way, I would tell the twenty-something “ME” to protect my wealth with a new old vision of Crypto and Gold.