The Exponential Age is Coming: Understanding It Will Be Your Most Valuable Financial Hedge

Everything is being sucked into this new financial world, and you’ve got not to be left behind.

I think we’ve entered The Exponential Age: an era where the digital and physical paths finally converge and everything is disrupted- for good.- Raoul Pal in realvision.com

Our brains are programmed to think linearly, and that’s the main reason we have so much difficulty picturing the exponential growth concept.

However, we can grab the example of Kodak to understand more straightforwardly the difference between linear and exponential phenomenon.

Kodak created the first digital camera in 1975. Yet, the company quit developing such innovative creations because it didn’t want to damage its monopoly in the photographic film business.

At that time, it was like inventing electricity, but then quit because you wouldn’t want to interfere with the candle business.

Kodak was slowly eaten in the following decades, being delisted in 1999 from the DJIA index, being there more than 7 decades long.

We can hear many stories about Kodak, but the exponential nature of the digital camera technology and its network effects led to a massive increase in adoption from the mainstream.

The power of technology disruption is exponential.

That’s why we’re entering The Exponential Age, where we can see all sorts of disruptions in different industries, from retail, auto, energy, and social networks. These are sectors where the digitization is so vital that it sucks everything like a black hole.

Two of the most important questions to do right now are How much can a financial disruption interfere with our wellbeing as a global society? Is economic disruption going to give every single citizen different tools to thrive in a more equalitarian system?

There can be an economy only where there is efficiency.

The pandemic was a massive event. Every government and the central bank had to intervene with vast amounts of money to save the economy and help the citizens.

With a liquidation phase never seen in history, there was hope in the vaccines to change the scary trajectory of the virus. And the hope phase came with the vaccination taking place, herd immunity, and the slow opening of the global economy.

However, something unusual happened as well. The real economies never picked up for a while. They stayed precisely as expected. Yet, the markets did the opposite. The year-on-year GDP will be negative, but the markets are soaring like a spaceship.

The hope of an open economy was replaced with frightening structural unemployment. In Florida, restaurants are closing again because they don’t have people to work. Citizens that lost their jobs are at home on subsistence.

Many people in retail are never going back to jobs again. There is a fundamental structural problem coming up.

If things happen naturally, the insolvency phase should make BBB entities like giant corporations run out of cash. That would naturally occur in the households too. The same would happen in the small businesses.

Governments did what they had to do, with instant transfer payments in an MMT style, with fiscal and monetary policies to save citizens and companies.

Unfortunately, this kind of action was what Japan has been done over the years, which doesn’t leave us in the least optimistic perspective about the future.

Don’t get me wrong, it helped many people, but it probably just delayed the insolvency phase that is coming next.

Technically, many firms, many people, many businesses are insolvent, but they’re being kept alive by the central banks and the governments.- Raoul Pal in realvision.com

As the economy settles down and restart working at full speed, we still have significant challenges ahead. Of course, governments and central banks have to do everything in their power to avoid an insolvency phase. They will try everything to prevent rates from going up because they’ll not allow any chance to destroy the economic recovery.

To control rates, governments and central banks have one last tool called yield curve control. They will buy U.S. Treasuries and government-backed debt as necessary to keep yields below a certain level.

However, once they cross that line, it becomes more challenging to find their way back. Central banks will throw out all the stops against the crisis. But if the market has a different idea of where the neutral 10-year yield stands, things can turn nasty.

The lesson from behavioral economics is that people only save if it’s automatic.

With the creation of the future CBDCs (Central Bank Digital Currency), central banks will have the capability to monetize money. There are some qualities on it because it’s programmable money.

Central banks will create programmable money so we all can have different monetary policies or tax regimes.

That means behavioral economics will take place. Central banks will completely control our money, our savings, or our ability to spend. In fact, is precise because of CBDCs that we all need, in the future, a lifeboat, some sort of tool to protect us from total control.

And Bitcoin is, for now, the best choice of all.

Yet, there’s another challenge for governments shortly because debts keep rising indefinitely all over the world. So, this means, theoretically, they are all bankrupt, but in this world of printing mania, the rules are different if central banks can print endless amounts of money, but one question remains.

How do they finance that endless debt?

They will finance it with taxation, inflation, and debasement of the currency.

Taxation is going up everywhere in the world — no doubt about it.

Inflation is something so hard to control that one day, some event will happen, some kind of black swan episode, and it can come sooner than we think.

Deficits are not going away, so prepare for more fiscal stimulus because the debasement of currencies will not be enough to control these vast debts.

With this said, it’s difficult to be optimistic about the future when facing a severe technological disruption, the aging population and the baby boomers retirements coming soon, and all the globalization phenomenon from the developed countries.

My biggest concern is not about the quantitative easing or even the yield curve control resilience to save the global economy. My biggest concern is the inequality gap that has been created.

This monetary policy is getting hold out the middle class because wages are being destroyed, and with that, millennials cannot afford to buy houses or access assets compared to those who are benefiting from this policy- the richest.

Bitcoin will do to banks what email did to the postal industry.

Bitcoin was created to serve the highly political intent, a free and uncensored network where all can participate with equal access.- Amir Taaki

Bitcoin can be the foundational stone of what we need to build a new financial system. The most important reason why is that we’re completely destroying the system we’re in.

With this system, nothing collapses as the Fed keeps printing 120 billion dollars every single month.

The strange thing about this policy is that these numbers don’t show up in the bond market or in the CPI. The actual numbers appear in the less financial power citizens, who are forced to buy, over time, assets with their fewer dollars. And because of that, their savings structures are getting worse and worse. And because of that, their savings structures are getting worse and worse.

Another financial system is being built with refined collateral- the Bitcoin.

What do I mean by that? Right now, strange as it may seem, the US Treasuries are the collateral for the all market. Yet, you can create more of that. It’s not finite. So, it’s a strange game to play when you have rules constantly changing.

With Bitcoin, a 21 million units protocol, you can’t create more of it. As a collateral tool, it’s theoretically more unhandled.

Bitcoin is also a great store of value because of the limited supply and the robust network.

Whatever you believe in the old system or in the new one, the most trusted one will win.

The technical side of the Ethereum’s efficacy is 100% an engineering exercise.

The present potential power of the Ethereum network is of its capability to swallow the entire financial system, which is something overwhelming.

But what is the Ethereum network, after all?

Ethereum is an open-source, blockchain-based, decentralized software platform used for its own cryptocurrency, ether. It enables Smart Contracts and Distributed Applications (ĐApps) to be built and run without any downtime, fraud, control, or interference from a third party. (…) One of the big projects around Ethereum is Microsoft’s partnership with ConsenSys. — investopedia.com

Ethereum is a platform on which you can build, deploy, and use decentralized applications that don’t have a home in a singular computer but are distributed through the entire network, meaning the Internet. Every developer has to verify each other, which makes the system with high levels of trustworthiness.

Having Microsoft building something on top of the Ethereum platform means things are already changing.

The best and more straightforward example I can remember is like thinking of Windows 15 years ago. Microsoft Windows was the platform that has enabled many companies to take advantage of tools to maximize their businesses.

Yet, the Ethereum is a 100% decentralized platform. Any developer can build, share, or use the platform to create new applications for all to see clearly and transparently.

Final Thoughts

The behavior incentives for Bitcoin and Ethereum to thrive are outstanding. Because of that, people involved in these technological innovations are going to be the first beneficiaries.

The power of Bitcoin and Ethereum was a purely behavioral economics-driven model.

For example, in Facebook, behavioral economics by Metcalfe’s law made you invite your sister, your uncle, your grandma, and everyone you know into a specific network. Yet, with all the business brought into the Facebook network, the only ones who get rich were the shareholders, not the users.

All the Silicon Valley models were basically the same as Facebook’s.

With Bitcoin and Ethereum, a network was created and driven by behavior economics, but the big difference is that every participant gets rewarded by inviting outside people in.

The behavioral incentive from Bitcoin and Ethereum participants is extraordinary.

In a world dominated by big banks, the only way to dematerialize money would be with a decentralized system with a solid behavioral economic structure.

And here we are, with Bitcoin having a one trillion dollar market cap and Ethereum above 400 billion dollars.

They are sucking all the energy, time, and network effects of the financial world.

With the debasement of Fiat currency at a 15% yearly pace since the 2008 Great Recession, it gets challenging to find ways of preserving wealth. That’s why so many people are looking at Bitcoin as a trustworthy solution.

Ethereum will keep force big companies to build their structures upon it, and that will happen because more and more business owners see it as the future of the Internet and the global network access.

The Exponential Age is already around us, growing roots around all industries. May we be aware of it, trying to understand how it is evolving.

To have the early adoption advantage, we must keep digging into these concepts with an open mind, trying to find bridges between what we believe is inevitable and new systems growing around us.

Keep an open mind; it’s the only way new things can get in.- Colleen Hoover

This article is for informational purposes only, it should not be considered Financial or Legal Advice. Consult a financial professional before making any major financial decisions.

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