Using Bitcoin in Times of Financial Crisis

Nik:

Welcome, everyone. I’m Nic.

Yuri:

And I’m Yuri. You’re watching Moon Tower HQ.

Nik:

And let’s talk about Bitcoin in times of crisis. Do you want to give us a little bit of an understanding of what you feel that Bitcoin has when there are certain types of economic paradigms that we’re all faced with?

Yuri:

Well, definitely. I think the main economic paradigm we’re faced in is the central banking system that we have right now which essentially introduces some uncertainty to people’s minds, which we’ve talked about as well. And Bitcoin provides a little more certainty with its supply cap of 21 million Bitcoins and the protocol itself allows people to transfer value across the globe in an uncensorable way.

I think that gives a little more credibility to the Bitcoin system based on math rather than to the system based on political whims. That’s in my mind, the most important aspect of it.

Nik:

And I think that aspect really comes into play when you’re talking about times where the currencies are getting devalued very, very quickly. I feel like if Venezuela, or if you look on the opposite spectrum where the funds are actually tied up completely, such as in the case of Cyprus, you actually certain see certain types of reactions by the public when they are faced with these particular conditions.

There are certain levels I believe, of reactions that come as a result of financial difficulty when we speak specifically towards the devaluation of a particular currency set. When you have a certain amount of devaluation, what ends up happening is that of course people, they don’t want to hold their nation’s currency.
Because if I sell a service or if I produce a good and then I’m able to trade, really what I’m doing is that I’m essentially getting a certain sum for it. But then maybe in a couple of days, that sum has been eroded by percentage points or even hundreds of percentage points in certain situations.

When you’re faced with that type of economic paradigm, what do you do? Well, it seems that what you can do as an option is to try to move into an asset class that is not as highly dependent on the inflationary monetary system of today. Bitcoin is a good use case of that.

What you see is that in times of the first stages, I would say of unrest due to economic instability, you start to see people move to a medium of exchange that’s more kin to barter. And Bitcoin, you could argue in this respect has a very interesting parallel to gold. When you have a certain monetary crisis, then you’re only going to be able to barter hard goods and you’re also only going to be able to use sources of currencies that humans have found valuable for the last couple thousand years and more, which is gold. Bitcoin is the newest one.
In situations such as what we have seen in terms of Bitcoin, in particular, is that the reaction from there has been, okay, let’s move on to something that can at least store value or has less volatility than what we’re currently dealing with in terms of their own home currency.

What do you think in your opinion in terms of the volatility of Bitcoin versus the volatility of an inflationary currency and even though both of them are quite, I would say variable? Why do you think people still utilize Bitcoin in the case of Venezuela for that first time?

Yuri:

Well, it’s precisely for that reason that Bitcoin is actually less volatile than some Fiat currencies out there. Great examples are from Africa or Zimbabwe, for example is a great example with its $1 trillion in a banknote. And Venezuela just went through the same thing. Argentina is going through a dire situation right now as well with its currency.

When it comes to that, you can compare how Bitcoin is less volatile to the local currency. And you actually choose to use it, especially when it comes to transferring money in and out of the country. Because for a lot of Venezuelans, they have a relative South side of the country, for example in the United States, who work and send money back to Venezuela. In Venezuela, banking is not stable right now so you can’t really send a bank transfer, but you can easily buy Bitcoin in the US either with an online app or through a Bitcoin ATM and you can send that Bitcoin back to Venezuela to your family. And they can sell it for either local currency or what I think is more preferable for them is to sell it actually for US dollars because US dollars are a lot more stable than the Venezuelan currency.

That’s what we actually see a lot happening in Venezuela right now. If you watch Peter McCormack’s documentary on Venezuela, you can clearly see that while Bitcoin plays some niche role in Venezuela for cross-border transfers and for some speculation and even savings, then the more widespread currency is actually just another feared currency of the United States door.

Why? Well, it is the reserve currency of the world currently. It is the most stable, even though it loses its value over the years, it’s still far, far more stable than Venezuelan currency.

You will see a lot of speculators on the streets and the United States doors, sell at a premium in Venezuela of course because they are in high demand. But you are correct in saying that Bitcoin is also used in Venezuela. It’s just mostly by more sophisticated people, maybe a little more upper-class people who understand technology a little bit better and who have the time and desire to think with technology and actually understand how it works.

Nik:

And you know, that’s actually a really good point that you mentioned, is that there is a certain subclass of individuals who tend to take upon these types of solutions first and foremost in a crisis situation. But realistically, and as you alluded to, I think very Yuri is the fact that once it gets to a certain level, for lack of a better term, all shit is broken loose.

And as a result of that, something like even Bitcoin is not usable. Not only just because it doesn’t make sense from a fiscal standpoint because of the perceived volatility or the need to be able to exchange it, but it’s also actually from a systemic and a core fundamental principle. And that’s simply, well, you’re worried about where your next meal is coming from. You’re dropping down now to a level below what you would call kind of economic transactions and you’re dropping down purely into barter.

And this is where smaller communities are going to start to form and become much tighter and you’re kind of putting yourself back and into, I would say the economic environment of saying the 1700s or the 1600s where you had certain encapsulated areas that very much we’re dependent on their neighbor.

So the trade was done within those small communities and you had maybe a connection to some of the bigger areas, but they were very limited only they came on a particular set schedule. For the most part, you had to handle and deal with your neighbors.

In a real crisis situation, as much as people would like to believe that short pay, say banking is shutdown, for example, in this situation, a Cyprus or if you have a currency such as you mentioned in Zimbabwe, getting evaluated into absolutely nothing, it would be nice to say that, yeah, I can just open up my phone and then we can do our transactions in Bitcoin.

But the reality of the situation is is that at that point in time, it’s so far gone into a particular downwards trajectory that you really are trying to focus on your core essentials. You’re trying to really establish just your daily life and I believe as you mentioned in that documentary, that’s actually what’s going on in Venezuela right now.

The average individual is very much focused on where their next meal is coming from and how to acquire that, whether it’s going to be through doing services and getting paid in bread for example, which would be the barter transaction or what have you.

If you really want to take the topic from a very high perspective, is Bitcoin a good use case in a crisis? I would say it is at the beginning, but when it really starts to get into it, that can save you. And if you actually look at a little bit closer as to gold and how this reacts, a lot of people think that gold, well it’s a natural hedge, it’s a traditional hedge. And if you look at the 2018 financial crisis and you see the period of actual collapse where the banks were on the verge of bankruptcy and they’d had to inspect affected the global economic system, that gold tanked almost 30% in the same time that the traditional markets did. That does not look like a hedge to me.

But what is interesting about gold, and I think this is where kind of Bitcoin fits in also with the narrative of one of the first tiers of calamity and its use case, is that when there’s perceived instability in the markets or in the global economic system, and the keyword I think is perceived is that that’s when a lot of people start to move into gold. Because gold, just like Bitcoin in this scenario, it’s used by a certain subset of people. It has certain economic advantages and when the economic systems are still relatively functional, that is a great thing.

And that’s why you’ve seen recently, gold has a very nice surge as a result of the current economic instability. But if this were to truly go into the levels of a global catastrophe, guess where’s gold’s going to go? Guess where Bitcoin was going to go?

Guess we’re using those assets is going to go? It’s going to go to anything. And not to the price of nothing but any in terms of actually being able to utilize these things for transactional purposes. You’re not going to be worried about that. You’re going to be worried about the elements, I believe of true wealth.

What would you believe in your case would be the elements of wealth in your life?

Yuri:

Well, definitely Bitcoin, [laughing] but at the same time, you have to diversify. And I’m not saying diversify into other cryptocurrency or anything like or even stocks right now, but you have to have assets that can sustain your life long-term. And assets like real assets, land, for example, food production facilities or a farm or some agricultural facility or maybe you live near a forest where you are allowed to go hunting, things like that. I consider more long-term sustainable solutions for a person or a family or community to survive. Access to the water of course is pretty important.

Definitely, you should care about monetary instruments because after each crisis, the system sort of resets, and you still have to establish trade relationships and for that you need monitoring instruments. And if you already have them, then why not?

Bitcoin is probably the one that will survive all these crises. So why not, uh, stack some sets. But at the same time, definitely consider accumulating wealth in its other physical forms and so on.

Nik:

Yes, absolutely. You know what? I think that you nailed it right in the head when you said it really accumulates wealth in multiple forms. And that’s the message that we’d like to leave you off with today is, you really should try to focus on not only the economical aspect of wealth, but also on the fundamental aspects of wealth and life, which is food, water, love, family, and the future.

So, thank you guys for joining with us and catch us later.

Yuri:

Thank you. Check out moontower.co and see you later.

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Written by Moontower

July 14, 2020

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