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Turn on the news, check your social media feed or open a newspaper: what do you see? Stories of political instability and economic uncertainty dominate headlines and leave one rather disillusioned with the world at large. Chaotic policies of governments and central banks threaten not only the financial futures of nations, but individual citizens and investors too.
In Europe, the United Kingdom, the second-largest economy in the EU, is set to leave the Union following June’s shock Brexit vote. In the south, the Cypriot crisis saw deposits of €100,000 take an eye-watering 40% haircut, and in Greece ordinary citizens are facing €60 daily withdrawal limits.
Across the Atlantic, in the world’s biggest economy, rock-bottom interest rates are distorting growth amid increasing fears that another recession in the United States is just around the corner. Not to mention the tempestuous Presidential campaign, which has some basic human rights susceptible to being revoked and has, for all intents and purposes, boiled down to a slewing match of personal attacks and accusations. There’s hardly comfort in either candidate taking the prestigious office come 9 November.
Update: We know how that turned out, don't we?
On the other side of the Pacific, there’s China - the world’s other economic heavyweight. But one that’s struggling to resuscitate commercial activity despite drastic and desperate attempts to do so. The Yuan has been devalued numerous times and stringent capital controls prohibit investors moving their money offshore.
These scenarios all boil down to one undeniable truth. It’s the citizens, the likes of me and you, who inevitably pay the price of political plays with our hard earned incomes, savings and investments. We’re no more than slaves to our governments as they exercise unwavering power over our personal wealth, take as they see fit and we need permission to interact with our own finances.
It’s precisely this restricted access to, and control over, personal finances that fuels growing interest and adoption into alternative investment and currency options. And Bitcoin shines as both.
Bitcoin’s allure lies in two unique characteristics in particular.
This means that there’s no central body, organisation or entity that holds ultimate control over, or profits from, bitcoin. There’s no-one ‘at the top’ with the capacity to restrict or dictate how, where or what you’re allowed to spend your money on. You, and you alone, hold ownership. And that ownership entitles you to spend or invest as easily across international borders as you can down the street; freely, and without requiring any external permission to do so.
It’s not surprising then that at the heights of economic turmoil in Cyprus, Greece and Latin America, we’ve seen steep adoption curves in Bitcoin coming from these areas, pushing the value upwards. This relationship is indicative of the direct correlation between economic and political upheaval and the appeal of bitcoin as a means to hedge and secure wealth when trust and confidence in fiat currency and traditional investments deteriorates.
And with the way the global economy is tracking, it’s only going to be good news for bitcoin’s earlier adopters.
In fact, a recent Juniper Research report claimed that we can anticipate a 300% increase in the total value of bitcoin transactions this year from a recorded $27 billion in 2015, to around a total of $92 billion in 2016. Would you like to guess the main contributors to this massive jump? The United Kingdom’s imminent exit from the EU, colloquially dubbed Brexit, and China’s ongoing devaluation of its conventional currency. The third was the impact of the halving of the bitcoin reward to miners, which occurred in July of 2016 (and I’ll discuss shortly).
While there’s tangible evidence to support the positive impact all 3 situations have had, and will continue to have, on the price of bitcoin, it’s the first 2 that stem from the failures of central authority. Authority, as you’ll remember, bitcoin does without.
For the “Brexiters” and Chinese, safeguarding wealth becomes paramount. These folks realise that they need to urgently seek financial refuge if they’re to hold onto their accumulated funds. A plummeting Pound and a reduced Yuan force investors look outside traditional means to preserve - and optimistically increase - the value of their portfolios. And Bitcoin provides just this. A safe, digital haven for wealth as conventional currencies haemorrhage value.
If we consider the opposite - being inflationary - we know that inflation is one of the primary killers of the value of money. The monetary policies of governments rely heavily on the ability to create money ‘out of nowhere’ and fiat currency is essentially just a debt that gets passed from one user to the next. Debt that erodes capital and ensures that the Pound we put away today is worth mere pennies in the future.
When central banks are instructed to print more money, they’re basically creating a new debt - and one that needs to eventually be paid. This is called quantitative easing, or QE, and governments would like you to believe that this creation of new money will have positively stimulate economic activity. While this may hold some truth in the short-term, the longer view is far bleaker. What these folks are doing is simply kicking the stone further down the road, leaving an entire generation to deal with the insidious destruction the subsequent interest will have - eating into one’s personal wealth and finances. Inflation is by far one of the cruelest ‘side-effects’ of the traditional financial system and one that will hold people hostage until they refute the institutions they’re born into.
Bitcoin is fundamentally different. Bitcoins are created and introduced into supply based on a strict mathematical algorithm, devised to steadily diminish the rate of supply over a period of time. In fact, since its inception, we’ve seen bitcoin rewards to its miners (i.e. the computer operators who secure and process all transactions on the network) halve twice. This periodic and adoption-based reduction in supply ensures that the total bitcoin circulation will never exceed 21 million coins. They are, however, highly divisible and, therefore, we can expect that smaller increments will simply become more valuable over time.
This is a stark contradiction to the manner in which we’re led to believe finances should work, and as such, is often a difficult concept for many to comprehend. It’s entirely possibly for your wealth to exponentially increase in value, by simple virtue of the the fact that it’s architectured to become a rare commodity.
So let’s bring this back to political and economic unrest.
In the introduction, I mentioned several scenarios where personal wealth had been threatened by monetary policies implemented by governments. Floundering governments that continue to focus on short-term objectives, without much in the way of concern for the future financial landscapes they’re creating. Apathetic governments simply trying to ‘save face’ for the terms they’ve administered and doing whatever they can to avoid being tagged as the root cause of an economic meltdown under their watch! Detached governments that hold full control. I’ve also highlighted the unmatched elements of bitcoin that make it the ideal tool of emancipation from politically driven financial slavery. And while there’ll always be some level of risk with breaking conformity, it’s my opinion - and firm belief - that bitcoin at least stands for something a government will never be able to: permissionless interaction and power over our own financial future!