After the economic plunge in October, the economy is looking like it might finish out 2018 down 1.2 percent. A loss on the year would make 2018 the worst year for the S&P 500 in a decade. Investors are desperate for any signs of improvement, but 2019 does not look promising either. A troubling geopolitical climate paired with massive corporate debt and rising interest rates could further drag down the economy in the new year.
The current instability has investors scrambling to find somewhere safe to store their wealth, but where? Stock outlooks are poor. No one is suggesting bonds. Peer-to-peer lending is labor intensive and can be messy. Real estate is still a seller’s market and has a high entry barrier. Crypto has been on a downward spiral…
Where do you put your money in the face of economic turmoil? When the global economy is carefully watching trade wars with China, and Brexit is causing stress and economic unease in Europe, where do you turn?
Surprisingly, crypto may be the answer.
The old saying goes, “buy when there is blood in the streets,” and crypto’s streets are running red. However, that does not necessarily mean it is time to line your virtual pockets with various tokens. Investors bought Bitcoin at $9,000 after the crash from $20,000, certain the token had bottomed out, only to find BTC trading around $3,345 (at the time of writing).
Crypto’s volatility and declining price have historically made it a terrible store of value, but if the market stabilizes in 2019, the properties of digital tokens could provide a safe haven for wealth, relatively isolated from the global economy.
The main argument for crypto is the same one that is often used for traditional commodities used to store wealth, like gold.
Cryptocurrencies are finite. There is only a limited supply of a given token that will ever be available. For example, in total, there can only be 21 million Bitcoins in existence. This protects against inflation and helps hold value over time. Because there is a limited supply, if the market is there to support it, demand should increase over time.
Being digital, cryptocurrencies are also immune to deterioration, helping protect their value. 2018 saw the beginning of mainstream adoption of crypto, and if the trend continues, demand for digital tokens should increase as they become more commonplace.
Cryptocurrencies like Bitcoin and Ethereum are also open source. This means they are not tied to the fate of a corporation like a stock. Their independence makes them less susceptible to fluctuations in the global economy and could provide an island of stability if the global economy falls into another recession.
Earlier in the year, experts predicted institutional money would pour into the crypto space in 2019, however, if the economy continues to decline, this will not be the case. Crypto is currently a high-risk investment, and large institutional investors will not be willing to add sizable risks to their portfolio if the economy is in decline.
Millennial investment could counter the lack of funds from Wall Street, as young, tech-savvy investors bet on crypto and take advantage of low prices. While it would take an enormous wave of investment from smaller players to stabilize the market, millennial investors have both the numbers and mindset to make crypto stabilization a reality. If crypto keeps dropping, only the most hardcore HODLers will be left, laying the foundation for the next stage of sustainable growth, led by millenials.
Further improvements and development of blockchain technologies should help bring young investors to crypto. The companies deploying blockchain solutions will be adopted first and fastest by digital natives, spurring greater interest and investment. 2019 should see more secure crypto storage solutions, cutting-edge services and greater ease of use as companies roll out blockchain products that have been under development for the last several years. The more people know and are exposed to crypto, the more likely they will be to get their feet wet.
Crypto is here to stay. Distributed ledger technology provides the means to solve trust issues and increase transaction speed while providing a storage of wealth for the digital age. If crypto can finally bottom out and stabilize, it will provide a safe haven for wealth in the face of economic and political turbulence. The greatest generation won big on bonds. Baby boomers made their fortunes via stocks. Crypto is the new investment platform for the digital age, and if the market finally calms down, it could provide shelter from the brewing storm.