- March 23, 2020
- Posted by: Lara Tlass
- Category: Blog
The global recession appears almost inevitable with the COVID-19 virus pandemic and oil prices experienced rapid decline impacting the financial markets and economy, while Wall Street witnessed its worst day in over 11 years, several other industries such as aviation, tourism, automotive, entertainment and tech industries have been hit hard. As the world awaits to counter this financial blow and hoping to avoid a rerun of the 2008 financial crisis, we ask ourselves “Have we learned from our mistakes that led to the previous recession?” “Do we trust the traditional financial system that have been put in place and ultimately “is there a new system in place that can protect everyone from foretasted financial blunders?”
The United States has one of the highest national debt $19.23 trillion (Source: – worldpopulationreview.com)Russia’s debt ratio is one of the lowest in the world at 19.48% of its GDP this means that the United States federal government has a mismatch between spending and revenues, so something went wrong somewhere, in fact, it takes many factors to reach to this point such as ‘repo lending’ which is a way for the Fed to expand credit within the banking system. Repo interest rates are the interest rates that banks charge each other for borrowing cash. However, we have started to see repo rates spike upward, pointing to an indication of supply issues from banks issuing short-term cash to other banks and an increasing demand from banks and companies that need short-term cash.
In 2007, we witnessed that when liquidity dries up, banks fail, markets fall, unemployment grows leading to economic chaos. The reaction by the Fed was to fill the banking liquidity gap by printing dollars under the name of “quantitative easing.” After a decade of providing the markets with easy money, the Fed moved in the opposite direction in 2018, raising interest rates and selling bonds to clean up their balance sheet. Cutting off the supply of free money combined with raising rates has sent banks panicking for liquidity which effected the markets several times over the last fifteen months.
With a brink of yet another bank bailout to be implemented and the chancellor planning to pump over a trillion dollars, people are asking questions about the traditional financial system that seems to take us back to the crisis due to its faulty and out of date structure. The same people are asking to move on to a modern financial system that they can trust and that protects everyone. Most of these people know that the system exists and was invented in 2009 due to the financial crisis. The concept is “Blockchain” technology and the name is “Satoshi Nakamoto”.
Satoshi who developed bitcoin, authored the bitcoin white paper, and created and deployed bitcoin’s original reference implementation. As part of the implementation, Nakamoto also devised the first blockchain. In the process he was the first to solve the double-spending problem for digital currency using a peer-to-peer network and was active in the development of a solution to end global financial crisis and protect the public from the greed of the big banking system that had brought much of the world to its knees and to stop the global economy that has seen collapses almost every decade.
The ecosystem of cryptocurrencies and blockchain technology can be the solution to the ongoing crisis if fully adopted by people and businesses, we can go on for days of the list of advantages it brings to the economic climate. The limited supply of cryptocurrencies can bring stability to the current downward spiral, there are no central banks “printing money” to solve problems short term but causes inflation long term. Crypto-coins are limited to use and are mined therefore neither political forces nor corporations are able to change this order, there is no possibility for the development of the inflation in the system. Another benefit is anti-fraud; Cryptocurrencies are digital and cannot be counterfeited or reversed by the sender, as with credit card chargebacks. Identity Theft; When you give your credit card to a merchant, you give them access to your full credit line as Credit cards operate on a “pull” basis, where the store initiates the payment and pulls the designated amount from your account. Cryptocurrency uses a “push” system that allows the cryptocurrency holder to send exactly what he or she wants to the recipient with no further information. Immediate Settlement; Purchasing real property typically involves a number of third parties (Lawyers, Notary), delays, and payment of fees. Blockchain-based cryptocurrency Smart contracts can be designed and enforced to eliminate or add third party approvals, reference external facts, or be completed at a future date or time for a fraction of the expense and time required to complete traditional asset transfers. There are many other advantages that the traditional system does not provide, to name a few more; Transparency, anonymity, highly Secured, lower fees and extremely fast transactions.
To conclude, everyday people are tired of the uncertainty and incompetency of the financial systems in place, they never seem to work long term, a major overhaul is surely required, and the solution is right in front of us. Could cryptocurrency and Blockchain be the right solution, at least cryptocurrencies are backed by math while the USD is backed by decisions of a handful of emotional people. Crypto works for everyone thanks to “smart-contracts” and millions of people who are fed up with the traditional systems in place have shifted towards the modern approach and have incorporated blockchain and crypto to their business modules and personal lives, New Zealand deserves an applaud, by legalizing salaries to be paid by cryptocurrencies by any employer along with several countries adopting the trustworthy blockchain a method of payments, signing contracts and crowd-investing. The 820 Billion Dollar Cryptocurrency Market-Cap in 2018 proved the adoption and system works. Could this current economic situation be the final hurdle as we can finally move on to a modern approach that proved that it works and has for over a decade? especially after watching the NYSE over the last 10 days triggering the circuit breakers to prevent stock markets to crashes which are not very fair to people who want to cash out Luckily, if you trade cryptocurrencies, the exchanges are open 24hrs a day 7 days a week with no influence from 3rd party to shut down exchanges to satisfy their agenda. To end this summary, the word on the street is “Central banks belong on Wall Street. while Crypto belongs on all streets”.