A Financial Recession on the Horizon, Can Cryptocurrency Provide an Anchor for Stability?

The US National Debt Clock strikes $22,249,003,804,323 for a millisecond before jumping up faster than the blink of an eye, so by the time you are reading these words the debt will have only expanded further. How much larger can this number get? Representing the amount of unpaid borrowed funds by the United States Federal Government, the US debt will continue to increase at the rapid rate the government is spending.

As sovereign debt skyrockets, fears of another financial crisis abound, and diversification of assets is essential to help people preserve their savings and investments. This reality highlights an opportunity for stablecoin cryptocurrencies to offer a new financial standard and more predictable monetary system that will protect the financial standing of individuals, businesses, and governments.

A Financial Crisis on the Horizon

 According to Fortune, a Government Accountability Office report of April 10, 2019, said the “federal government’s current fiscal path is unsustainable,” and “the longer action is delayed, the greater and more drastic the changes will have to be.” To help alleviate this spiraling reality, the Congressional Budget Office (CBO) has calculated that by 2020, more than half of our income taxes will be used to service the national debt.

Greece implemented a similar strategy to help their own debt crisis by increasing taxes to pay back the government’s debt. This strategy has not been deemed successful as the country has yet to pay back its deficit, with payments scheduled beyond 2060. While increasing taxes can be a bandage for the problem, and an extremely unfavorable one for most citizens, US borrowed funds will continue to grow. Additionally, consumer spending, which contributes to more than two-thirds of the U.S. economy, has slowed to only 1.2% growth in the first quarter of 2019. These various economic factors are indicative of another economic recession around the corner.

How can we safeguard our financial holdings to ensure we don’t end up in the same financial turmoil of 2008 and protect our savings and investments from its dire, rippling effects?

What is the Solution?

One perspective, which belongs to Kristina Hooper, Global Markets Strategist at Invesco, is that in the midst of a future economic crisis, the increasing US debt can lead the government to be unwilling to help stimulate economic growth. As the US debt grows, the Federal Reserve will print more money, causing inflation and ultimately depreciation of the US Dollar’s value. In light of the consistently declining value of the US Dollar, the solution resides in a non-flationary baseline. A stable financial standard is the key to safeguarding purchasing power and retaining value.

Safeguarding Investments with Stablecoins

While most cryptocurrencies are extremely volatile, stablecoins that are built on a system of decentralized networks and are not pegged to depreciating fiat currencies, such as the US Dollar, stablecoins are going to vital piece to preserving one’s wealth during the next economic recession. In contrast to fiat, cryptocurrencies run on decentralized infrastructure so they cannot  be controlled by any single entity. This is a major breakthrough, offering an alternative economic system as we approach the next potential, yet inevitable financial crisis.

In theory stablecoins offer an ideal solution, however in practice, using stablecoins to safeguard our savings and investments would require a stable financial index as you cannot have a stablecoin without a stable peg of value. Unfortunately, most stablecoins to date are either pegged to the dollar, which has lost over 50% of its purchasing power over the last 25 years, or pegged to another cryptocurrency, which remain incredibly volatile.

Both global crypto and fiat markets face the same issue, which is that neither have a stable financial standard. With a potential financial crisis on the horizon, the adoption of a stable store of value will be crucial.

Contributed article by Daniel Popa, Founder and CEO of Anchor