2020 has no doubt been the most interesting year not only for traditional finance (Stocks, Bonds, Funds etc.), But for cryptocurrency and everything within the world as well. Economies around the world suffered tremendous causalities with a wide range of factors, The noble Coronavirus ( Covid-19) caused thousands of small businesses to shut down drastically and some even went bankrupt. The virus is also spreading at a drastic rate with no talks of a vaccine coming out anytime soon causing new social distancing parameters and mandatory masks to be worn at all times. Due to police brutality, riots and looting began to surge across the United States as if it was a hot trend that should be followed, and of course the record breaking wildfires in California forcing hundreds of people from there homes and the record breaking floods in China causing food shortages throughout the country. In this article, we will be covering the ways to help preserve your wealth during these economical hard times.
New World Of 1971
Before diving into the events that happened in 1971 and their significance, it is very important that you checkout a 10 part video series called “Hidden Secrets of Money” by Mike Maloney. The videos explain the movements of money and are most definitely very important if you don’t know anything about the current financial system and its history. Mikes website https://wtfhappenedin1971.com/ also provides great metrics of the current economy.
Before 1971, the United States Dollar was tied to a monetary policy that involved gold. The Legislation was called “The Gold Reserve Act”. This act in short, Signed by President Franklin D. Roosevelt in January 1934, the Act was the culmination of Roosevelt’s controversial and skeptical gold program. Among other things, the Act transferred ownership of all monetary gold in the United States to the US Treasury and prohibited the Treasury and financial institutions from redeeming dollars for gold. More about this act can be found here at https://www.federalreservehistory.org/essays/gold_reserve_act for a deep understanding of the rules and regulations for the act.
In 1944, at The Bretton Woods Conference, the world’s richest nations came together to regulate the international monetary and financial policies after World War II. It was decided that the U.S. dollar was going to be the world reserve currency and would be pegged to the price of gold (At this point America held approximately two-thirds of the world’s gold supply). All other currencies would then be pegged to the U.S. dollar.
When President Nixon cut the gold peg in 1971, it was the first major crack in the foundations of the global economy, the effects of which can still be felt now. The new legislation was referred to as the Nixon Shock. The Nixon Shock effects that we feel today, is a world of mostly free floating, market-traded currencies. This system has advantages, especially in terms of making radical monetary policy like quantitative easing possible. However, it also creates uncertainties and different circumstances and has led to a massive market based on hedging the risks created by currency uncertainty.
So, many decades after the Nixon Shock, economists are still debating the merits of this massive policy shift and its eventual ramifications. Some say it was a scam, Some say it saved our reserve currency.
With the art of inflation taking place, the amount of fiat being added to the money supply is at an exponential rate. This affects not only the costs of products and services, but stock prices as well. When inflation increases, purchasing power declines, and each dollar can buy fewer goods and services. … Similar to the way interest rates impact the price of bonds—when rates rise, bond prices fall—dividend-paying stocks are affected by inflation: When inflation is on the upswing, income stock prices generally decline. Inflation is an important factor, but due too inflation and corrupt financial systems, it can be used to manipulate and “prop up” certain assets.
Cryptocurrency V.S. Stocks
In the previous few years, but especially in the last 12 months or so, investors have been asking one central question: Should I invest in cryptocurrencies or in traditional stocks?
Firstly, crypto’s main appeal is the relative volatility of the market. In no time, investors can double or even triple their investment, something that traditional stocks really do not have the ability to do. If you are successful in the stock market, you could make a 5-15% ROI. However, investing in Bitcoin 12 months ago would yield approximately a 144% return. The numbers really don’t compete! Between volatility and leveraged derivative exchanges, It is very eye-catching to the money hungry traders. Secondly, unlike traditional stock trading, it’s very hard for an individual to recognize, analyze, and capitalize on trends in the greater stock market. This is not the case with cryptocurrencies, and crypto price increases and decreases are much more tied to one another, as the market hits peaks and valleys more or less with one another. This can be used as a big advantage for cryptocurrency traders, especially experienced ones who can effectively predict movements in the market, whereas stock traders tend to be somewhat at the whim of external and unpredictable forces.
Stocks to begin with, even when the value is based on the idea of the currency or the stock, in the stock market you actually invest in the company. Stocks are heavily regulated, and most have to go through yearly audits in order to continue to be traded on the market. Because of the heavy scrutiny that comes with making your own stock, it’s highly unlikely that the stocks that you invest in will be fraudulent. This makes it a “safer” option for a newbie investor, yet the gains per quarter are very limited. However certain stocks have potential of 50x-100x your investment, most have low returns and low risk.
It has been suggested by economists that we were to anticipate a financial crash in 2019, yet the numbers surpassed most economists’ predictions positively. With recent market success, some are asking what the difference is this time. Is the stock market going to crash again? With GDP so low to levels we haven’t seen before and companies slowing down production, It seems likes it is just a matter of time.
We are living in an unprecedented situation, printing unimaginable amounts of money on large scale to keep businesses afloat whilst our economies shut down. There are several key factors to consider such as the looming ‘second round’ of the virus that could send stocks plummeting once more, plus an upcoming presidential election.
There were also rumors about the effect of the stock market after labor day, with some influencers predicting a crash. The general feeling across the crypto YouTube space is that the stock market could continue to rise until election day. After that is anyone’s guess, the FED has a lot of power and many ways to prop up the market in an attempt to prevent a crash due to unfavorable election results.
If you want to learn more about the history of money, blockchain technology, or cryptocurrencies and how these can help you preserve your wealth, be sure to join our newsletter and checkout https://academy.ivanontech.com for in depth understanding.