Posted 11 months ago | by Ben Armstrong
The Crypto Phase Change is Coming – Alternative Assets Will Shine
When writing about cryptos and precious metals (PMs) the phrase 'alternative assets' is used a lot. We should know – we use it all the time.
It might seem strange to think about why one assets is an alternative to another one...
Aren't all assets just assets?
No – and we need to talk about why – and what that means for cryptos over the longer term.
We can start with the fact that there aren't many alternative assets, as most financial assets are rooted in fiat currency. Stocks and bonds are what give most assets their value – and these assets are highly intertwined with the fiat-based financial system.
Precious metals weren't an alternative assets at all before 1971 – they were money!
The last 50 years have been strange for money and finance – so let's dig a little deeper into why alternative assets may be the only assets left standing in a decade.
Mainstream Assets Have Some Major Flaws
It would be difficult to think of a more mainstream investment than government bonds. The major governments are supposed to have super safe bonds – and in some ways this is true. Central banks print money to cover a government's spending, so you are probably going to get paid back.
However, the government and central bank don't guarantee any level of buying power – so the money you get back in 10 or 30 years might not be worth much. Many large institutions are forced to hold government debt (because its 'safe') so there is an artificial demand for – let's say – US debt.
Stocks Are a Political Asset
Much like fiat currency and unicorns – it isn't a real thing.
The idea is that the FED will step in with EZ money whenever there is a big market selloff. That is exactly what happened this year – so unlike unicorns – it is probably ok to believe in the Powell Put.
We aren't sure when the shift occurred, but today, US equities are 100% political. We aren't talking about party-based politics, we mean the big game – the USA. Stocks can't be allowed to tank for any amount of time – as the USA would look like...wait for it...a failed superpower!
Much like government bonds, many large institutions have to invest in US stocks or stock equivalents (mutual funds, ETFs, ETC...) so there is that artificial demand again.
Most people park some money in equities because Wall St. has a great marketing department – which is working on the suckers 24/7 (see CNBC for more on this – or just buy whatever Jim Cramer tells you to).
You Probably Don't Want to Play this Game
It should be pretty easy to see that the mainstream asset market is totally dependent on central banks, and also fiat currency. Both of these factors should make any investor nervous – given the fact that global markets are no 100% supported by freshly created fiat currency.
While Robinhood traders are going bananas on their smartphones – the pros are looking for the escape hatch. Wall St. is importing tons (literally) of physical gold from London – which isn't common at all (never happened before at these levels).
The Crypto Phase Change Will be Jarring
In physics, a phase change describes a potentially violent change in the state of a substance – say – like liquid water to steam.
To use water as an example – when more energy is applied slowly, say with a cheap hot plate – the change of the water from liquid to gas will be slow. Little ribbons of steam rising from the mass of liquid water...
If – say – the energy used to heat the water was a high-intensity microwave beam that was focused on a black mass in the pool of water – the water would vaporize instantly – and violently.
It is easy to think of all the value that is held in the fiat currency system as potential energy. For the moment, it is contained in mainstream assets – as has been the case for many decades.
When people wake up to the fact that the fiat ship is going down – never to return – they will look for any assets that exist outside of the established financial system. There are two choices – PMs – and cryptos.
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