Why Bitcoin Is Now the Best Insurance Policy for You and Your Family

How a quirky speculative asset suddenly became a hard, real alternative

Even before this very unusual year began, the argument that bitcoin should be purchased as a long-term store of value was theoretically strong, even if it was not universally agreed upon.

In fact, even though Bitcoin had been born out of the 2008 financial crisis, it had yet to prove itself while actually in one, a fact often raised — quite fairly I might add — by its detractors.

After all, this was a concept that couldn’t be easily categorized and was finding its feet. It was half payment system, half speculative instrument and all entirely new to the planet and the species that inhabited it.

But as the arguments continued, particularly between gold bugs and Bitcoin maximalists, the world suddenly changed faster and more spectacularly than either side ever expected.

Coronavirus was simply not interested in any of our rules, borders or financial systems, and plowed through them all without remorse or consideration. The rule book was suddenly redundant.

Whether you believe our respective governments could have done more or done things differently from a financial perspective is largely irrelevant, because the fact is that there was probably not much choice.

That’s one of the great advantages of fiat currency from a ruling organization’s perspective — you can simply fire up the printing presses when you need to. As long as everyone still believes their money has value, it’s not a problem.

Well, it’s not a problem immediately, anyway. It’s a sort of macroeconomic version of the well-worn retail mantra “buy now, pay later” that we’ve all probably fallen for at some point when desperate for a new sofa or TV.

Except, as is now clear, we will be paying sooner rather than that promised later, and for a long, long time; certainly long after that sofa and TV have found their way to the tip.

How would you like to pay, Sir?

Generally speaking, we pay for increased money supply through inflation, which on the face of it doesn’t seem so bad. After all, we hear about inflation on the news all the time, and we all know that prices rise constantly through our own anecdotal comparisons, if nothing else.

My son, for example, used his pocket money to buy a copy of the Beano (the U.K.’s longest running comic strip) for £2.75 last week, just as I did as a kid. Except they were only 6p when I was a child, which meant if I had been receiving his pocket money of £3 a week back in those days, I would have been comparatively wealthy.

But, of course, I received only 10p a week because that was the equivalent value, at least in this measure, at that time. We all have the same stories, just, perhaps, with different childhood themes.

While we accept this position as normal, we rarely think about it, and this is problematic if we are not considering its impact on long-term financial decisions.

The fact of the matter is that all fiat currencies (that is, currencies not backed by anything except the collective belief they have value, for example the U.S. dollar and British pound) are destined to lose value over time through that inflation.

Should a fiat currency become worthless, it can simply be replaced with a new one.

The trouble with devaluation is that is inherently unfair to the people it affects, but it’s also unfair in the way it is unfair. Like so many macroeconomic effects, the less you have to start with, the worse off you’re likely to be. Let me explain.

If you are a typical middle-class person earning a decent salary with a house, a couple of cars on the drive and a holiday or two a year, you may actually benefit from devaluation, at least for a while. How?

First, your house is likely to be mortgaged, so, whilst your debt will remain the same in numerical terms (or gradually reducing as you pay it off) the numerical value of your property will rise in line with the inflation level.

Over time, the debt as a percentage of the property value will fall along with its real value, assuming the property market holds up in the meantime.

And this also applies to other forms of debt you have, so car loans and personal loans over a fixed term also drop in real terms as you pay them off.

On the other hand, if you are debt-free and have savings, the value of the latter will be reduced by a currency devaluation, so you’d need to take action to preserve it.

If you’re in that position, the chances are you know how to do this, and have the connections to make it happen. In short, the rich, while arguably most at risk in this scenario, also have the means to minimize the damage, or even take advantage.

That leaves only the people at the lowest end of the spectrum, a large group in percentage terms in most industrialized societies. These people are more likely to rent properties than own them, have flexible, short-term debt rather than fixed, long-term loans and have few, if any, assets that are inflation-resistant.

They will not benefit from real debt reduction, as flexible borrowing is always done at the current fiat currency rate, and their salaries are not likely to keep up with inflation levels. Even if they do, there’s likely to be a significant lag.

Worse, since rents are usually set annually, the effects of the devaluation will be felt much faster by this group of people at their yearly reviews, and the reality is there will be little they can do about it.

Conversely, mortgage amounts are set for the entire borrowing period, often decades, and even though they are susceptible to interest rate movements, we are in different times now. This time, high inflation is not likely to lead to high interest rates. The middle classes and above will catch another break on that one.

What are my options?

In this entirely unique global situation, the reality is that there are not many available. We are, genuinely, in it together, whatever your standing in life to one degree or another.

To some, this will bring reassurance, a sort of “safety in numbers” group-think scenario where we all chip in and get through it the best we can. However, this is a dangerous illusion that may well lead to complacency.

There may be few options, but that doesn’t mean there aren’t any. Where we can’t rely on our government to look after us, that role, therefore, returns to ourselves.

In reality, that’s always been the case, it’s just that these days, it’s clearer to see.

Even so, where do you go?

If you’re wealthy, have the right connections and know what you’re doing, you can transfer some of your wealth to a classic safe-haven disinflationary asset like gold, let that asset move with the new inflated valuations, and offload it at the new price, thereby — in theory — protecting your wealth.

Traditionally, this has been the “go-to” play in times of trouble and with good reason, but it’s not without problems. In fact, in extremely uncertain times, such as the ones we’re in now, governments have been known to call in privately owned gold from citizens to bolster national reserves.

It’s happened several times in the last 100 years in the U.S. (1933), Australia (1959) and, in a slightly different way, the U.K. (1966). Who’s to say it won’t happen again, especially in these unprecedented times?

And, of course, gold is not for everyone. It’s just not that easy for the average Joe, and there are all sorts of regulations and storage considerations involved.

And, besides, gold still has an inherent problem that exists for everyone, no matter where they are on the socioeconomic scale: Gold is still part of the same system.

Don’t just hedge fiat, hedge EVERYTHING

For the first time in our entire modern financial system’s history, it is actually possible to operate outside of the existing system.

Think about that statement for a minute.

It’s one of those things that seem innocuous at first, but the more you dwell on it, the more the possibilities flow into your brain and the clearer it becomes.

Whatever has been going on in the world, wherever we have been on the global economic cycle, there has NEVER been the opportunity for any ordinary citizen to hedge the entire system.

Sure, we can probably all think of examples on a local level at various points in history, but there has never been a way to do it easily and on a global scale.

Until now.

Bitcoin has created an entire, standalone financial system that is outside the control of our corruptible selves. It is real, hard money, created with a finite, disinflationary supply — like an artificial version of gold’s — and is available to almost anyone on the planet at any time who has access to a smartphone.

Now, not only is it possible, it is actually easy to switch between entire financial ecosystems with a single device that you can hold in your hand.

Try explaining THAT to someone from a time even as recent as the 1990s. You probably wouldn’t be able to, the leap is simply too large.

In fact, it’s hard enough explaining it now, even with the broader horizons we’re used to today. In that respect, Bitcoin's biggest strength is also its biggest weakness.

But the fact remains that all of us now have the ability to slip outside the entire existing financial system, by moving from one currency to another as easily as if we were at the bureau de change at the airport.

Put simply, we take our pounds and dollars, pennies and cents, and swap them for bitcoin and satoshis. Then, by holding bitcoin, the only finite money supply on the planet in a sea of ever-increasing zeros, we can simply wait it out.

Perhaps at some point we’ll transfer our bitcoin back out into “U.S. New Dollars” or “Great British New Pounds”, or perhaps we’ll keep it where it is and use it at any of the large number of outlets around the world that accept it in its native form.

Perhaps, if we’re lucky enough and have that option, we’ll simply keep it for our children or grandchildren, who will almost certainly have no chance of ever owning an entire bitcoin.

Of course, this is all just a mix of conjecture and idealism. None of us have any idea how the future will unfold and we can only make decisions based on the balance of probabilities, which are commensurate with our own risk acceptance.

But the fact that we can hedge against the entire financial system at a time when uncertainty about its very foundations is higher than ever?

Surely, that’s the ultimate insurance policy?

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Disclosure: The author of this opinion piece has been heavily involved with bitcoin for several years and holds a substantial cryptocurrency portfolio, including bitcoin. He also has a mining operation running the SHA-256 algorithm based in Siberia and is a published author on the subject of promoting the understanding of cryptocurrency. Jason is an analyst at Quantum Economics. This article was previously published on Voice.com

Disclaimer: Investing in any asset class is risky. The above should not be taken as financial advice, nor construed as so. Always do your own research before investing or consult with a professional financial planner.