Is cash going to be worth anything in the future?
Money is simply an asset that facilitates the transfer of value from one party to another. In order for money to have value, it must exhibit the following qualities.
Money must have durability, portability, divisibility, uniformity, limited supply, and acceptability.
I argue money in today’s world, which is also called fiat currency, no longer exhibits one of the most important qualities of money which is a limited supply.
As the federal reserve has resorted to what’s called “Quantitative Easing”, that’s code for creating more and more money that’s no longer backed by a proxy which represents an asset with limited supply (Gold). Governments are resorting to “Helicopter Money” in order to keep the economy afloat. For example, sending people checks in the mail or trillions circulating in the financial system.
Why is this a problem? The history of fiat currency ends in tears. Think the Roman Denarius, Chinese Flying Paper Money, German Papiermark (World War I), and the French Francs (18th Century).
As the currency continues to debase, inflation which is simply a phenomenon that affects the purchasing power of money takes over and your ability to trade it for goods and services deteriorates.
Consider a gallon of milk. In 1997 a gallon of milk cost $5, in 2020 that same gallon cost on average $7.43. That equals 1.73% inflation per year. Average household income rose 0.9% during the same period. If you apply the same principle to other goods and services you’ll find the quality of life has deteriorated.
Inflation is sinister because it represents the transfer of wealth from 99% to 1%. During a period of inflation, those who own assets increase in net wealth because prices go up and earnings increase as a result. Corporations, Banks, Governments all benefit from inflation. Debt holders benefit and those hoarding cash get hurt. The net cost of servicing debt goes down. The cost of purchasing goods and services goes up and these costs are typically passed down to the consumer.
Back to money… I wrote this post because I wanted to argue the future of money seems to be Bitcoin. It exhibits all the formidable qualities of the perfect store of value. More importantly, there will only be 21 million bitcoin mined ever and that coin is slated to be mined in 2140.
Large corporations like PayPal and Square have already begun buying BitCoin and holding them on their balance sheets as a hedge against inflation. Elon Musk, as of this writing, just invested 1.5 billion of his treasury into Bitcoin. Companies like Michal Saylors MicroStrategy have invested their entire treasury and recently did an equity raise to purchase additional Bitcoin. Institutions like hedge funds are just starting to buy BitCoin. The price of Bitcoin topped out recently at 48,925 (2/11/2021) a coin. I think Bitcoin can potentially surpass 100k this year if this wall of money continues to flow into it.
Cathie Wood, the manager of the successful Ark Investments, said Bitcoin could be worth up to $400,000 if the S&P companies put just 10% of their treasury into it. Currently, Bitcoin is the 7th largest asset by market capitalization in the world.
I’m not saying sell everything and buy Bitcoin. But I am saying, you should put 5–10% of your portfolio in bitcoin or a proxy in order to buy insurance on the debasement of the currency. If you can’t afford a whole coin you can buy what’s called Satoshi’s which are fractional ownership of a coin.
If you’re not convinced about Bitcoin you can always continue to buy Gold. Gold has been considered an inflation hedge for 100’s of years. I don’t imagine that changing. However, I think BitCoin will also benefit from becoming real money that is used for transactions in the future so I like it better.
Who knows the future of Bitcoin but the prevailing winds are blowing in its favor.
