Although cryptocurrencies have been around for a decade, only 8% of Americans are currently invested in them. In the case of a global economic meltdown, however, cryptocurrency could be the only viable money alternative. Knowing that a financial crisis could occur at any time, is it worth thinking about investing in bitcoin or some other kind of cryptocurrency?
What a Banking Crisis Will Look Like
Some finance professionals believe the warning signs of the next financial crisis have already revealed themselves. First, there has been reduced bank capital. If one or more of the big banks fail, it could lead to economic disaster. There has also been a huge increase in private debt, which also hints at crisis.
On top of that, the federal deficit has been ballooning. Fiscally speaking, the United States is not faring well — as of September 2019, the government’s debt surpassed $22.6 trillion. The overwhelming student debt looming over the country alone is more than $1.4 trillion dollars. Just about anyone can get a student loan, even if they cannot afford to pay it back, and those loans being so readily available has led to asset inflation.
When all these things come together, the value of a currency can drop overnight. Banks can fail and the economy can collapse. In the event this happens, many people are considering leaning on cryptocurrency. It is easy to track, and, in theory, would also be stable in the event of a financial crisis.
Introduction of Cryptocurrency
Cryptocurrency is something that sounds extremely technical and futuristic. However, the four largest accounting firms in the world have already begun dealing in bitcoin and blockchain technology.
Blockchain is a digital ledger that tracks transactions made with cryptocurrency as well as anything else of value. This technology can keep track of other non-money assets, such as real estate, as well. Having the ability to track assets and transactions makes cryptocurrency a more reliable alternative and can help establish new financial processes.
Bitcoin is one of the oldest forms of cryptocurrency. Since its inception, hundreds of other alternative coins (altcoins) have been introduced to the crypto market. This includes other popular coins such as Ripple (XRP), Ethereum (ETH), and Litecoin.
What makes cryptocurrency a good substitute in the event of a financial crisis is you can handle transactions dealing in crypto without the help of a third party (the bank). Because of this, it has become a relatively good investment over the past 10 years. With new cryptocurrencies, like the Facebook Libra, being designed all the time, it is possible that digital currency will completely take over.
The Future of Cryptocurrency
The future of blockchain and cryptocurrency is still very much debated, and there are a number of predictions. It has been predicted that it will likely become widely used in the gaming industry.
Once the nation’s economic upturn comes to an end, cryptocurrencies will begin to soar. Bitcoin was essentially born from the last financial crisis, so there’s no wonder as to why financial experts would predict it would soar after the economy falls.
That’s not to say everyone thinks that way, though. Many financial professionals have expressed great hesitation when it comes to cryptocurrency. There are a number of security issues as well as issues with tracking the currency from a regulation standpoint.
Cryptocurrency is hard to track and many large financial institutions and the Internal Revenue Service (IRS) are looking for ways to regulate it. Due to the digital nature of the currency, it has been extremely difficult to come up with rules and regulations. The threat of regulations hasn’t kept everyone from investing, though.
Merchants, such as Microsoft, Overstock, and Expedia, have started to accept cryptocurrencies. Unless more people begin to accept the possibility of a digital wallet and using crypto in day-to-day transactions, it isn’t likely it will take off. These challenges may keep cryptocurrencies from becoming the alternative to the physical dollar many people are dreaming of.
Should You Invest in Cryptocurrency?
As mentioned above, it is iffy as to whether or not you should invest money into cryptocurrency right now. There are risks to weigh out before you do. There is an obvious risk of potential regulations by federal governments. If this happens, bitcoin and other cryptocurrencies will be just as likely to decline in value like the dollar or any other asset.
Market risk is another thing to consider. Right now, bitcoin and other cryptocurrencies are based on supply-and-demand. It only currently holds any value because of the expectation that it will grow and the need for it will be higher in the future.
Additionally, there is some security risk. Any cryptocurrency transaction is final and irreversible. You have to get a refund from the person you sent money to get your cryptocurrency back. Digital wallets are also more susceptible to hackers. Because it is so hard to regulate, bitcoin and other cryptos are also easy to use in fraudulent transactions. Some scammers have even been able to sell people fake bitcoin. Not to mention, if your computer crashes, your entire digital fortune could potentially be erased.
Finally, the biggest thing to consider when it comes to investing in bitcoin is the fact that your money won’t be insured like it is at the bank. Most banks will insure your account up to a certain dollar amount. Cryptocurrencies deal with no third party (banks) and, therefore, all transactions and assets stored are self-insured.
Whether you decide to invest in bitcoin or another cryptocurrency or not is entirely up to you. It could prove to be a good decision in the event of another financial crisis. Just be sure you weigh all the risks before transferring any assets over to crypto.
About the Author: Magnolia Potter is a muggle from the Pacific Northwest who writes from time to time and covers a variety of topics. When Magnolia’s not writing, you can find her curled up with a good book.