A novel bet when everything burns. It remains if governments fail

Crypto is the only way to truly own your wealth, say Jarek Hirniak, CEO and Founder of Generation Lambda, and Marc Dumpff, Chief Strategy Officer of Generation Lambda.

For most of history, there was little that people could say truly belonged to them. Personal property was a privilege bequeathed by the authorities, and this right could just as easily be waived. Until the Dutch East India Company – relatively late in human history – the idea of ​​owned values ​​was the one that could be held.

The invention of cryptocurrency is new beyond its ability to use blockchain technology to create value. It also managed to take the abstract notion of value itself and tokenize it, thereby making it tradable while avoiding the issuance of an authority. Now, if one remembers the seed phrase that unlocks a crypto wallet, one can possibly move an entire country’s GDP across borders without a trace.

You don’t own your money

This is important because crypto offers a way to store and protect assets outside of government-issued currency. At first this sounds unnecessary, even alarming. But recent history has shown how quickly citizens’ assets can be restricted or frozen. A number of opportunities where the ability to store value separate from any issuing authority would be useful.

Even the most self-proclaimed democratic countries are not immune to the forces of history. In 2012, Cyprus’s banking system went bankrupt. Despite being a member of the European Union, Cyprus was not immune to a potentially catastrophic economic crisis. The seemingly impossible became reality and the perceived security provided by the EU never materialized.

This revealed that when a series of misinvestments force regulators to act, they can act with such force that the constraints, even in retrospect, seem unimaginable in a tier-1 economy:

• Cash withdrawals were limited to €300 per day;
• Card transactions were limited to €5,000 per month, however ‘most gracious’ unlimited in the country;
• Transfers over €5,000 required authorization from the central bank;
• Transactions abroad were limited to €5,000 a month; and
• Residents were only allowed to take up to €3,000 in cash abroad.

The money certainly did not belong to the account owners, despite bank statements that say otherwise. It was the government’s to issue or withhold at will.

Not only that, but after all this was said and done, depositors in the banking system above a specific wealth threshold were “bail-in”, a euphemism for having their money stolen and replaced with shares in the banks whose bad debts they now had. overall paid off.

When financial institutions are too big to fail, consumers pay the price

The restrictions lasted for years, despite depositors being told they would last for a week. Simply put, when the going gets tough, even supposed tier-one economies belonging to major regulatory bodies like the EU are not immune to expropriation and severe capital restrictions to protect their best interests – interests that often diverge from theirs. residents.

The banks know this for a fact. When an entity’s business is large enough, they become “too big to fail.” It is in their best interest to act as risky as possible to increase their profits. They are not ultimately responsible for any negative consequences, but they get to reap all the benefits if their efforts pay off. This is such a well-studied phenomenon that it is known as “moral hazard” and is taught to students in their entry-level economics classes.

Crypto is a hedge against government-backed currency collapse

What does this have to do with cryptocurrency? Crypto is a hedge against government overreach and potential default, whether you’re in Cyprus or Venezuela. It is in these besieged countries and in unexpected scenarios where crypto’s pragmatic uses really shine.

Even a decade ago, during the Cypriot crisis, many people moved their wealth to Bitcoin in an attempt to escape the regulator’s reach. In fact, the flight to safety was so intense that the new Bitcoin surged 176.2% in March 2013 alone.

The rise of communist governments, a war in Europe, widespread hyperinflation and widening economic restrictions have also made Venezuela one of the top ten economies for crypto adoption. This is according to blockchain analysis company Chainalysis in their 2021 Global Crypto Adoption Index. Political volatility breeds crypto’s essential ease of use.

The reason crypto excels in such circumstances is that it works independently of the wishes of any authority. While the world of Web3 fixates on discussions about specific cryptocurrencies to invest in, the basic principle worth highlighting is decentralization. Decentralization is crypto’s insurance against counterparty risk, be it a central bank or irresponsible government actions.

Beyond that, it is worth considering that for crypto to function as a currency, it must have the trust of a community. Money cannot exist without a large enough group of people willing to exchange value in that specific form. At the moment, it is impossible to completely readjust life to be “on the chain.” Most (if not all) day-to-day spending is carried out in state-backed currency. It is not prudent to go all-in on an ever-evolving and recently volatile asset class.

Instead, cryptocurrency can be seen as insurance. How many percent of one’s wealth can one really call their own? And how does this percentage change, given the instability of current political conditions?

Crypto is a new bet when everything else is burning

That is the core promise of cryptocurrency. It is not fantastic returns, which exist at the forefront of finance, or something completely unprecedented. It is truly revolutionary. Beyond all pretensions, the truth that industry can offer to all people is this: For the first time in history, people can truly own their wealth, and no king or government can take it. They can’t even touch it.

About the authors

Jarek Hirniak, MInf, CQF, CEO and founder of Generation Lambda: Jarek is a certified quant with over 20 years of experience in software development. He spent six years working on trading systems at Citadel Securities and UBS bank, where he developed a series of new trading systems and trading-related software platforms.

Marc DumpffChief Strategy Officer i Generation Lambda: Marc has over fifteen years of experience in traditional finance as a senior financial expert, advisor, consultant, strategist and hedge fund and asset manager. He started his first hedge fund when he was 20 and then branched out into consulting. He has managed portfolios of multinational companies and ultra-high net worth individuals with assets in the billions of dollars (USD).

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