Digital Asset Protection Overview
Against a background of soaring debt, increasingly-common negative yields in traditional asset classes, there’s a clear risk of recession. Goldman Sachs put the risk of a recession next year at 24% — not an impending danger, perhaps, but sufficiently serious to warrant preparation.
How can digital assets help the financial system navigate a recession? Partly by providing a form of value storage and exchange that doesn’t degrade over time. It’s easy to to focus on the volatility of Bitcoin and not see that over time, its value tends to rise; by comparison the US Dollar has lost over 97% of its value since 1900, and a dollar of 1980 money was equal to $2.91 in today’s USD. When stocks and bonds underperform and money loses its value the search is on for something whose
value is stable, which is one reason why digital assets have become such a sought-after store of value.
Stores of value such as gold, which has been the traditional hedge against currency variability, for instance, are popular with institutional investors but not with retail investors. Iain Wilson, Advisor to NEM’s new venture and investments arm Ventures, says, "whether Bitcoin performs [well] in a recession will be heavily dependent on the reaction function of Central Banks. The consumers’ experience to date of zero/negative interest rates has tended to be from higher asset price inflation
(stocks, houses and government bonds), rather than an explicit negative cost to their savings. With many developed countries failing to normalise rates post the financial crisis, we now potentially face entering a Global recession with very limited room to cut nominal interest rates."
"Consumers face the prospect of Central Banks applying aggressive monetary easing," Wilson says, "with explicit costs to holding cash deposits in banks and restriction of high value banknotes in circulation. Assets such as Gold, which has traditionally been held by large investors as an uncorrelated asset hedge, are harder to access as an individual and lack portability. Hence we see this economic environment as being highly positive for digitally scarce crypto assets."
The digital assets space was conceived as a kind of solution to the wider financial system: money, but without banks, governments, taxes, regulations or finance professionals. At the same time, one of the core functions of government is being eroded by digital assets: they want burgeoning economies and rapid, secure value exchange — but without anyone printing their own money. Both sides are going to have to compromise, and treating higher-value digital assets as value stores rather than as
means of value exchange is a part of that compromise. So is accepting that blockchain by itself isn’t enough to be truly secure: governments have decided, for the most part, to regulate blockchain-based digital assets rather than to legislate them out of existence (read: to the black market). The digital assets space needs to willingly accept advice from finance professionals whose years of KYC, AML and professional separation of powers will help slash the risk of hacks and thefts, rescue the
reputation of IXOs and secure the space as a long-term component of the world financial system.
Learn how you can invest offshore in digital assets.
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