Saving for Recession 2020 has become essential due to devastating impact on everyone’s life by COVID-19 panic & unfortunately the struggles are getting worse as the economic struggles are on the rise whereas the purchasing power is decreasing exponentially.
With Unemployment rate reaching to an all time high of 24.60% in May 2020 the worst hit was the Urban Population where Unemployment rate reached to 26.09% as compared to 23.92% among Rural Populous.
Also Indian economy experiencing its worst contraction in decades, with Gross Domestic Product (GDP) declining by a record (-) 23.9% in the April to June quarter as per the data released by the National Statistical Office, we are undoubtedly headed for a major financial crisis.
Root Cause of every Recession
In August 1971, with inflation on the rise and a gold run looming, President Richard Nixon enacted a plan that ended dollar convertibility to gold and implemented wage & price controls.
This move soon brought an end to the Bretton Woods System which was a system of payments based on the dollar, which defined all currencies in relation to the dollar & itself convertible into gold.
Hence, U.S. currency turned effectively into standard world currency, a benchmark to measure value of all other currencies as we know it today.
This move was termed as Nixon Shock & has been the sole contributor in aiding financial crisis & recessions since Depression of 1929. Primary reason being shifting of the economy from a currency with an intrinsic value to the one driven by fiat currency.
In general terms, fiat currency is the paper money whose value is determined by the amount of circulation in the economy.
For instance, during the 2008 Housing Crisis US government began to print more currency in order to balance the debt due to Mortgage Backed Securities (MBS) which resulted in US Dollar crashing once the world countries started selling MBS Bonds back to United States.
Therefore, whether you have Rs.500 or Rs.5 million, its value is as good as the present demand for it.
The High Value of Gold & Silver
Gold and Silver have been used as a currency standard since 6000 years.
These precious metals are valuable because they are rare, limited & can be used efficiently for goods exchange.
This is why their value keeps on increasing as no country’s government can print or produce it, which increases its intrinsic value exponentially.
To put in simple words, gold and silver is the payment instead of a promise to pay.
Invention of Bitcoin
As the years passed by, technological developments started gaining velocity leading to the invention of new currency that marked the 21st century as the century of decentralisation.
This was the birth of very first cryptocurrency in 2009 i.e. Bitcoin.
Inventor’s name is still a mystery but one thing is for sure that he was an epitome of genius.
Bitcoin’s uniqueness is not only in its anonymity & advanced technology like Blockchain but also how it was designed as a financial tool.
Developed just after the housing market crash, Bitcoin (BTC) is one of its kind peer-to-peer technology to facilitate instant payments which are processed by independent individuals and companies on the blockchain known as Miners who are motivated by rewards in terms of the release of new bitcoin and transaction fees paid in bitcoin.
These Miners own the governing computing power and participate in the Bitcoin network, are comprised of nodes & can be thought of as the decentralised authority enforcing the credibility of the Bitcoin network.
New bitcoin is being released to the miners at a fixed, but periodically declining rate, such that the total supply of bitcoins reaches 21 million.
Thereby making it rare, limited & can be used efficiently for goods exchange just like precious metals. The value skyrocketed to such an extent that the price of 1 BTC rose from Rs.1,150 to Rs.13,00,000 i.e. an appreciation of mind boggling 100000% within 8 years.
Asset for Saving for Recession 2020 ?
Gold vs Silver vs Bitcoin
Considering above data it becomes an obvious choice to invest in Bitcoin as its value will only increase as it reaches closer to the 21 million mark, however beware if you move forward.
Reason is Bitcoin’s uniqueness is also its single point of failure making it just like fiat currency on the basis of demand. Bitcoin derives its value from the demand in the market instead of its intrinsic value unlike Gold & Silver.
This can be explained simply by the case of world’s first ever financial crisis in 1637 i.e. Tulip Mania where the price of single Tulip flower rose to an estimated $8 million (Rs.5.6 crores).
The value here was derived by the price the other person is willing to pay for the Tulip just like Bitcoin. In reality, Bitcoin in itself has no intrinsic value & due its decentralised nature, have no trusted authority to monitor & regulate it like fiat currency.
Precisely, this was the reason why the Bitcoin Boom was termed as Bitcoin Bubble by majority of economists & financial institutions.
Below is the graph to show you a fair 10 year comparison between the value of Gold vs Silver vs Bitcoin for better understanding :
What to look for when choosing Asset ?
- Baseline Value
Needless to say whether its Gold or Silver, these precious metals are the benchmark by which a country’s government hedge its risk globally against Fiscal Deficit & is the measurement of any country’s stability.
As of July 2020, India’s Gold Reserve was 657.70 tonnes & is constantly increasing.
Therefore, one can imagine the extent of increase in demand Gold & Silver if there is a recession.
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Bitcoin doesn’t serve well in this as even though it is highly respected due to its ability to provide access to a decentralised banking structure, its unsure how the general populous would behave during a situation of panic.
Especially in a country like India where only 500 million people have access to Internet inspite of having a population of 1.3+ billion.
2. Transparency, Safety & Legality
Gold & Silver established system for trading, weighing and tracking is well known globally. It’s nearly impossible to steal it, to pass off fake gold or to otherwise easily corrupt the metal.
Same goes with Bitcoin owing to its encrypted, decentralised system & complicated algorithms but still safety assurance remains a major concern.
This was proven in the event of Mount Gox Disaster in which a popular exchange went offline & around $460 million worth of bitcoins were lost.
Primary motive of an investment strategy during a recession is to eliminate volatility & this is where bitcoin is thrashed by gold & silver.
Being fairly new, bitcoin still has a long way to earn trust in India & world alike. One can clearly observe in the above comparison graph of Gold vs Silver vs Bitcoin how the value of drastically declined since 2017.
Conclusively, this year has absolutely demoralised everyone emotionally as well as financially therefore it is high time now for you to take the situation seriously & develop a bulletproof investment strategy by Subscribing with us to cope from Recession 2020.
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