The world today is entering a new era of political, economic and social instability. The report shows that most countries, including the United States, have fiscal deficits. As economic uncertainty increases, capital markets are becoming more and more Unstable.
Despite the current economic turmoil and bleak prospects, investors are redefining their investment strategies by looking for alternative investment vehicles. While traditional banking systems are experiencing difficult times, investment alternatives such as bitcoin and gold are growing stronger.
The fiat currency (often referred to as the national currency) will be the first victims of increasing global uncertainty for the simple reason that they are controlled by the government and their value lies in the policies set by governments. Except for the collective trust of the people in legal currency, most legal tenders have little tangible value support.
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This may explain why investors and market experts are adopting a conservatively independent stance as investors become more interested in gold and bitcoin.
In fact, we humans find that the value of gold is a bit strange. Gold is not only chemically unattractive, its value (like the French currency) depends on those who choose to believe it. However, unlike legal currency, gold is very rare and cannot be replicated.
As the price of gold is at its highest point, the global economic crisis has become more apparent. Novem Gold CEO Andreas Kalteis said: "The economic uncertainty has once again prompted people to seek a safe and independent way of storing wealth, which has led to an increase in the price of gold and cryptocurrencies."
In fact, gold is chemically stable, which means it can last for thousands of years without experiencing dramatic chemical changes. Moreover, unlike legal tender, the value of gold is not controlled by any single jurisdiction, so the value system of gold is decentralized.
Encrypted currencies such as Bitcoin mimic the characteristics of gold. They operate on a decentralized peer-to-peer network and do not require an intermediary such as a bank to remit money, effectively reducing costs and bringing the most profit to users. Since most people have little or no access to credit from traditional financial institutions, cryptocurrency has become a popular alternative.
2. Positive impact on gold and bitcoin prices
Therefore, we have determined that the economic crisis may be driving people to move to safer ways of storing value without being affected by governments around the world. But why do investors who are looking at the economy hold more cryptocurrencies and gold?
Credit Suisse technical analyst David Sneddon said, “There are more solid indications that the dollar has started to weaken significantly.” As the Dow lost its key support from the 200-day average, an important bearish “wedge” was completed. Type "reversal, this should provide a new and important catalyst for the expansion of gold. ”
Other reports also show that as the dollar weakens and global uncertainty increases, investors who have previously been bullish on gold and cryptocurrencies are now weighing risks and opportunities.
For example, the increased uncertainty of Venezuela’s macroeconomic outlook has prompted most citizens to abandon their national currencies and turn to the dollar. The dollar is also weakening today, and the rest of the world is using gold and bitcoin as a safe haven.
3. Factors that lead investors to maintain a conservative and independent position
3.1. Trade disputes
According to the Washington Post, "France has already hit Google, Apple, Facebook, Amazon and other US companies. The Trump administration may respond with tariffs after investigating whether it violates international rules.
If European countries continue to target US companies, trade disputes may exacerbate tensions. Due to the higher import tariffs (which are characteristic of sweater wars), ordinary people can only fight against the harsh financial environment. Prices have risen, productivity has fallen, and the quality of various products has declined.
In cryptocurrency transactions, users are immune to these effects, because in a turbulent economy, the restrictions imposed by fiat money do not apply to cryptocurrencies.
3.2. Currency War
Currency war is a secret war that is as effective as a real war. They are characterized by a state deliberately reducing the value of its currency. With currency depreciation, a country's exports will be cheaper in foreign markets, which increases the cost of the basic commodities and commodities that make up most of these countries' exports.
The currency war has benefited the country, which has reduced monetary value by lowering export prices, leading to economic growth. On the contrary, imported goods are more expensive, stimulating inflation and further damaging consumer rights.
As concerns about the evolution of the US and Chinese sweater wars into currency wars have increased, cryptocurrency and gold offer a much more stable option. Unlike fiat currencies, these two currencies cannot depreciate in exactly the same way.
The rate at which prices of goods and services rise over time is called inflation. At the current high inflation rate, the value of legal tenders continues to decline with the number of goods that can be purchased.
Even if the purchasing power of these currencies declines, in most cases wages remain the same, and consumers can feel the pressure. Non-legal currency means that traders do not have to worry about the stability of cryptocurrency or gold, and its ability to withstand inflation without being affected.
3.4. Changing economic policies
Since cryptocurrencies are not restricted by regulators such as banks and governments, any change in economic policy is difficult to influence the supply and demand cycle of money. However, for fiat currencies, changes in economic policies have far-reaching implications. The report shows that regulatory reforms will become more prevalent in the foreseeable future.
4. Where will ordinary investors find a safe haven?
Although Libra positions itself as a cryptocurrency, because it works very much like Bitcoin, there are significant differences between them. Libra is a more stable currency that can be exchanged with the national currency to make it less volatile than most cryptocurrencies.
A cryptocurrency like Bitcoin is decentralized, meaning that no government or business manages or supervises it. Libra, on the other hand, will be managed and controlled by a consortium of companies, including Facebook. The most worrying thing is that these custodians may also become enemies of people, creating oligarchy similar to Bitcoin.
In the 19th century, the East India Company entered China in a big way, importing opium to China and exporting tea to the UK. They sent spies to learn how to grow tea in China and bring back the seeds so they could grow their own tea, thus reducing the cost of Chinese tea deals.
Facebook’s disgraceful history of user data has increased people’s distrust of the transparency of the project. Even some US congressmen have publicly expressed their reservations about this matter. Facebook has more than 2 billion users, and some people worry that Facebook's Libra will become the world's version of East India.
Author: Sunday Adenekan
Translation: Bitker Institute
Disclaimer: This article was compiled by Bitker Research Institute. The Bitker Institute focuses on theoretical exploration, technology development, and secondary market analysis in the blockchain industry.