Bitcoin as a Hedge against an Unstable Economy

Bitcoin as a Hedge against an Unstable Economy
If you first heard about Bitcoin from someone who was lucky to buy low and sell at a peak over a short period, chances are that you see Bitcoin as a get-rich-quick scheme. If you are totally put off by the current bearish trend or contemplating getting your feet wet and eventually making some quick profits too, here is another unique use case for Bitcoin you might want to consider. This blog post discusses how crypto can be also used as a hedge against the financial system and not just as a get-rich-quick scheme.

Bitcoin is More of a “Get-Filthy-Rich Slowly” Scheme

Before getting into the main issue at hand, let’s address the notion that Bitcoin is a get-rich-quick scheme. While it is true that some people have been able to perfectly time the markets and have made huge gains through day-trading, others have also had to stomach loses in the short term. Albeit it is possible to get rich off Bitcoin in a short period, it is more accurate to say that one can gain considerable wealth by holding on to the coins for longer periods. Price statistics from the inception of the largest cryptocurrency confirm this.
Bitcoin (BTC) Price Year Over Year (%)
10/05/2010 $0.06
10/05/2011 $5.03 8283.3%
10/05/2012 $12.34 145.3%
10/05/2013 $121.49 884.5%
10/05/2014 $305.81 151.7%
10/05/2015 $238.24 -22.1%
10/05/2016 $609.45 155.8%
10/05/2017 $4265.13 559.8%
09/30/2018 $6576.97 54.2%
Every year since October 2010 has seen positive returns on Bitcoin with the exception of the year ended on 5th October 2015 (-22.%). Interestingly, even though the Bitcoin price has been plummeting in 2018, anyone who entered the market about a year ago in October 2017 is still up by 54.2%.
Based on the Bitcoin price performance over the years, it is safe to conclude that investments in the cryptocurrency are exposed to extreme price volatility and high risk in the short-term but relatively safer over longer periods. It is, however, important to note that past performance is not necessarily a guaranteed indication of what the future price would be.

Problems with Existing Financial Systems and How Bitcoin can be used as Insurance


Having established the fact that Bitcoin has performed well over the years as a long-term investment, we can now zero in on how individuals can use it to insulate themselves from possible dire economic conditions.

The problems and flaws in the current financial system that drove many early adopters to use bitcoin still exist. Governments and central banks still print money in an unrestrained manner to fund wars and other ventures. This had led to the loss of the value of most fiat currencies. The dollar, which is known as the world’s reserve currency, is said to have lost about 97% of its value in the last 50 years. Citizens have had to watch their wealth reduce over the years by no fault of theirs.

The situation is worse in emerging markets and the developing world where mismanagement of resources, corruption and unfavorable foreign policy deals with the developed world have left locals powerless in their quest to drag themselves out of poverty. Countries like Venezuela, Zimbabwe, Pakistan and now Turkey are real-world examples.

In fact, most developing countries have watched their local currencies perpetually depreciate against the U.S dollar. If the trend continues, there could be no end in sight for the economic problems of such countries who are heavily dependent on imports.

Sadly, there has been very little the average joe can do when his/her country suffers harsh economic conditions. Older citizens could lose years of savings to inflation whiles the young struggle to make ends meet due to the unemployment that follows the collapse of businesses due to the high costs of imports for instance.

This is where Bitcoin comes in. Having a percentage of your wealth stored in the secure cryptocurrency would go a long way to “insulate” you from the shock of economic crisis.

Several research reports have revealed that millennials have embraced cryptocurrencies as a form of long-term investment and are more likely to store funds they don’t plan to use in 5 to 10 years in crypto. However, as mentioned earlier, when an economic crisis occurs, the older citizens are at risk as well. It is therefore expedient for the older generation (both tech-savvy and non-tech-savvy) to take time to learn about cryptocurrencies and how it can be useful to them in this case.

The world is yet to see how Bitcoin would perform in the event of a global economic crunch but it has seen how it performs in countries experiencing economic problems. The fact that cryptocurrencies are doing well in Iran and Venezuela are well known.

If you are a resident of Argentina, where there have been recurrent exchange rate and debt crisis, you probably understand this message. If you are watching hyperinflation wipe away your wealth in Venezuela, you understand too. Even If you live elsewhere, you might agree that it is wise to put a percentage of your funds in Bitcoin as a form of insurance. The good part is that you could get rich while doing it.

In a nutshell, beyond day-trading to make short-term gains, Bitcoin can also be used as a tool to protect individuals from the harsh conditions that come with economic crisis.

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