If we are right, the next few years are going to be very turbulent, at least when it comes to the economic situation. There are many questions we have to deal with: Bitcoin (BTC) or not? Altcoins or not? Gold instead of bitcoin or bitcoin instead of gold? Or only cash? And speaking of an unstable financial world: would we rather have a bank account, a currency account or rather stablecoins?
We have already written several times that bull markets end in deflation, not inflation. That means your euros and dollars should initially increase in value if something serious is going on in the financial sector. A good example for people who haven’t been active in the financial world for a long time is the crash during the first lockdown in 2020. Then almost everything fell except the dollar. A similar situation can be expected in the next crisis.
Bank accounts are not so safe during a crisis
In our first Deep Dive, we described how liquidity the driving force is behind the financial markets. Virtually all of this measure is made up of debt, and rising financial markets generally mean an opportunity to add to that debt even further. We’ve written about bubbles before, and we don’t think it makes much sense to repeat how dangerous they can be. We would like to mention an important point from a previous Deep Dive: bank risk.
In a western country like the Netherlands or Belgium, you might not think about this because Western banks are not known for failing or that they deceive your customers. in many poorest countries that is much less obvious. Happy banks in the Netherlands and Belgium are under strict supervision† However, a major accident can cause problems.
Banks borrow that is, it is still a multiple of the money deposited in the accounts, even between eight and thirteen times. In a crisis, a bank runs the risk that loans are no longer paid and that people withdraw their money from the bank, for example, to pay their own loans. If people realize that there is a real risk that they will not see their money back as quickly, this risk becomes even greater.
II regularly hear the argument ‘yes, but we have the deposit guarantee system’. This is a scheme that assures all Dutch people that an account of a maximum of 100,000 euros is protected against bank failure. If a Dutch bank fails, customers will receive an account at another bank with the same amount, with a maximum value of EUR 100,000. I think it’s a bit more complicated. If the deposit guarantee system becomes active, the banking world will face enormous problems. Today, banks are closely linked as one bank helps another to provide liquidity, especially if it is an investment bank. If a bank is in trouble, there are virtually guaranteed more.
This means that if this arrangement is implemented, the world will be very unstable and a good way will have to be found to make the banking sector more stable. That requires a lot of planning. and legal work, since new banking structures must be created that are capable of to survive financial difficulties. It takes time. If this happens, you want access to your money. According to the ING conditions, it takes a maximum of one week to recover the money, but during the first confinement we realized how much can happen in a week.
In the aforementioned Deep Dive, we described that, for example, physical cash and cryptocurrencies can form a solution. You can then make investments at a time when few people have access to your money. Liquidity is more important during a crisis. The problem with cryptocurrencies during a crisis is that many are likely to fall as much as other financial products. After all, even gold falls into a crisis. However, physical cash is also an issue. As a big investor, it is almost impossible to withdraw a few tons or more of physical euro notes from your bank account; those bills just don’t exist.
It may be helpful to read your bank’s terms and conditions. For example, ING’s terms of business state the following:
8.4 ING may, for business or security reasons, designate accounts to which you may not transfer money or only on a limited basis. We may also impose additional conditions on transfers to certain accounts. – Conditions and other regulations for private account holders, ING.
It means that the bank can legally make your money less accessible, such as during a crisis. Time frames for these measures are not mentioned.
Much the same applies to forex accounts. In fact, brokers are closely linked with the rest of the banking system. Often a broker is just from a bank, especially when it comes to Forex trading. Also, every broker needs a market maker, a party that connects the different buyers and sellers.North acts as a party willing to take the risk that there is no buyer and no seller. That means a regular trading account with a broker is just as vulnerable as a regular account. You also need a custodian, the company that actually has the financial products for you, that’s just a bank.
Stablecoins are a godsend
The bottom line is that ING will do everything possible to ensure that the bank survives a difficult period, also logical. Unfortunately, you can suffer from this, but luckily there are solutions. Stablecoins, for example, can be a solution. For example, if you have more money than the deposit guarantee system reimburses, or if you just don’t want any trouble.
It is important to note that there are many bugs with some stablecoins. We have regularly expressed our skepticism about Tether or USDT, the world’s largest stablecoin with a current market value of $78 billion. However, it is clear that not all USDT have dollars as their underlying asset. Instead, most of it has been invested in commercial paper, or even in Junk bonds† These bonds have a higher yield than investment grade debt securities, but they are also much riskier. As a result, during a crisis, the value of one USDT cannot remain the same as one dollar.
A better alternative is for example USDC. This stablecoin of the dollar is being put into circulation by the American fintech company Circle and the Coinbase exchange, and is distinguished by every USDC also give a dollar as underlying value — at least, that’s what Circle says now emphatically†
USDCsymbolic it’s a promissory note, which means you basically have a right to claim the underlying, you can exchange them for the same value at a participating bank. That’s no different than how the regular financial system works, because if you own shares, they are also notes with the custodian and broker. The advantage of USDC is that you can move it to your own wallet address as it is active on the Ethereum, Stellar and Algorand blockchains. and there you will find less small print.
In short, a crisis will most likely make you want to hold euros and dollars at first. That can be quite difficult for you. Fortunately, stablecoins can be a serious solution. However, you need to be very careful which stablecoin you put your money into.