Can Cryptocurrency Protect Your Savings from a Looming Financial Crisis?

If "cash is trash", where do we go in the face of another potential financial crisis?

Is another 2008-like crash coming?

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For long, speculations have been ripe. Several experts, including Robert Kiyosaki, the best-selling author, believe a potential financial crisis is in the offing. And his advice? Invest in God's money, Gold and Silver, and people’s money, Bitcoin.

Undeniably, Cryptocurrency has gained fame and has captured the pulse of modern investors. With growing crypto exchanges around the world, investing in this new and profound digital asset has become easy and profitable for many. CoinSwitch Kuber, India’s largest crypto exchange, alone has boarded more than 1 crore new users in less than 18 months.

But the real question is - Is the global economy on the brink of another financial crisis? If so, can cryptocurrency be a good bet during the crisis?

Financial Crisis in the Making?

What is a Financial Crisis? A situation where the value of financial assets in an economy - cash, stocks, mutual funds, bonds, etc. fall rapidly.

The strongest sign for a meltdown has been the increasing debt across the world borrowed to offset the economic distress caused by the pandemic. According to the Institute of International Finance, the global debt touched an all-time high of $281 trillion as of 2020, 355% more than the global GDP.

Added to that, Janet Yellen, the treasury secretary for the US, warned recently of a possible default on debt from the world’s largest democracy due to lack of cash, requesting the federal government to further raise the debt ceiling. Either way, a default or increase in debt is not sustainable which could potentially be the reason to tank the economy.

Moreover, Cassandra, an advanced financial crisis warning model indicates that six economies - the US, Japan, Germany, Taiwan, Sweden, and the Netherlands, are vulnerable to a financial crisis in the next 12 quarters. Developed by the Japanese bank Nomura, Cassandra, has correctly predicted two-thirds of all 53 crises since the 1990s based on 5 parameters - the ratio of private credit to GDP, real equity prices, real property prices, the debt service ratio, and the real effective exchange rate. As witnessed during the Global Financial Crisis of 2008, a domino effect on the rest of the world is assured if major economies like the US and China are in trouble.

In the words of Rudi Dornbusch, the renowned economist, ‘a crisis takes a much longer time to come than you think, and then it happens much faster than you would have thought.’ Though the precise timing is unknown, economists agree the possibility of a near-future crisis is high and the smart thing to do would be to brace up.

Cryptocurrency: A Good Bet For Investors

Despite the looming threats to the world economy, stock markets are at their all-time high with NIFTY and SENSEX touching 18,000 and 60,000 respectively. And there is no better time to take Warren Buffett’s simple rule for investing seriously - “Be fearful when others are greedy, and be greedy when others are fearful.”

Ray Dalio, the American billionaire and hedge fund manager, warned investors against keeping it as cash. ‘Cash is trash, so don’t keep it in cash,’ he noted. Not stocks. Not cash. Holding it as physical metals and in real estate comes with its own feasibility issues and may not be everyone's cup of tea. So, where do you put your money in the face of a financial crisis?

The answer may not be as straightforward as it seems. When it comes to investing, to each his own. Every investment decision is personal and has to come with its share of research and reasoning. However, cryptocurrency, the new digital gold, has fared fairly well even amidst the economic lull caused by the pandemic.

Bitcoin: The New Digital Gold

In its short history of over a decade, Bitcoin and other cryptocurrencies have shown tremendous resilience to global shocks. In 2020, despite the high volatility, Bitcoin gained by nearly 300 percent amidst the economic downturn due to COVID-19, outperforming gold by more than 10 folds. Soon, the largest cryptocurrency was considered the new gold, albeit digital, and a reliable store of value.

Bitcoin, born out of the 2008 financial crisis, did benefit from the next big shock the world experienced. While economies were gasping for breath, funds began flowing from stocks to Bitcoin and gold. Besides the investment opportunity, Bitcoin is considered as a trustworthy hard money that can protect people’s savings from monetary hyperinflation.

Cryptocurrency’s Success is Inevitable

“No force on earth can stop an idea whose time has come” - Victor Hugo.

The global mass adoption of crypto and the fast-evolving cardinal use cases for blockchain technology has made cryptocurrency’s success inevitable. From surging NFT (Non-Fungible Tokens) trades to popular DeFi (Decentralized Finance) projects, from Metaverse to Web 3 innovations, the future of technology revolves around cryptocurrency.

Rest assured, investing in the future is certainly a means to offset losses during a financial crisis. Finding the right cryptocurrency project and investing in them could reap good returns. Popular exchanges like CoinSwitch Kuber provide access to over 100 altcoins, each of which has the potential to become the next Bitcoin. However, when it comes to investing in cryptocurrencies, due diligence and patience are a must.