In a world filled with payments using credit cards and dead presidents on pieces of paper, why choose digital code for currency when it isn't backed by anything?
To understand the rationale behind investing in cryptocurrencies, we must first dissect the broader macroeconomic picture.
The world's economy runs on a fiat-backed monetary system equivalent to quadrillions of USD. However, only $36.4 trillion USD of it is in physical form, also known as "narrow money" that includes bank notes and coins deposited in checking and savings accounts. If you consider the "broad money" (which includes the totality of assets that households and businesses can use to make payments or to hold as short-term investments such as currency, funds in bank accounts and anything of value resembling money*), the total is around $90.4 trillion USD.
But we're just getting started.
The money invested in derivatives is at least $544 trillion USD with some estimates at $1.2 quadrillion USD. The stock markets, in comparison, contain a measly $73 trillion USD. Furthermore, commercial real estate investments are nearly $30 trillion USD.
On top of that, total global debt totals about $230 trillion.
Let that sink in.
In contrast to the quadrillions held in the fiat monetary system, the cryptocurrency system is in its infancy at around $250 billion at the time of writing.
Current money is inflationary
These astronomical numbers for fiat currency will only increase from here on out as central banks around the world continue to print more and more currency in addition to the currency that is issued in digital form. This tactic is used to cover the overwhelming amount of debt and keep the fiat economy running. However, the rate of expanding debt is much higher than the rate of inflation. If central banks truly wanted to print enough to cover the debt, the world would enter hyperinflation to the likes of Venezuela and Zimbabwe.
Hard assets have a limited supply
The reason why many intelligent and wealthy people store their money in hard assets such as precious metals, real estate, commodities and energy is because these assets have a limited supply and thus serve as a hedge against inflation. Oftentimes, these assets have a fixed supply or combine limited supply with utility.
Asset 2.0
But there is a new asset on the block and the name is cryptocurrency. This new and improved asset was conceived in 2008 in the form of Satoshi Nakamoto's famous Bitcoin whitepaper responding to the financial crash of 2008. Cryptocurrencies are a new breed of asset class that offer a limited supply, quick and cheap transactions, transparency, fungibility, and liquidity. Unlike other asset classes, you can store these on your most basic mobile device or even on a piece of paper, while maintaining tangible ownership of the real digital asset.
Banking the unbanked
There is no doubt that crypto-assets are a disruptive financial technology. In fact, it may arguably be the greatest financial innovation of all time - certainly the most revolutionary since Isaac Newton's idea of a gold standard back in the early 18th century. But those most affected by this revolutionary innovation are not those living in first world countries - at least, not initially. The beauty of cryptocurrencies is that it is really intended to aid those who are in situations where storing their money in banks is not an option. They now have an easy alternative to store their hard earned money. Individuals essentially become their own bank, without the need of a middleman taking a cut. We are in the process of seeing the greatest wealth transfer of all time to those who need it the most and I'm so excited to be right in the thick of it.
*Source: https://www.investopedia.com/terms/b/broad-money.asp#ixzz5KszfgEOY
