Where to Keep Your Wealth in Times Of Crisis

by | May 23, 2022 | Uncategorized @en-us

Crisis is inevitable! 

We might experience long periods of political and financial stability, but eventually, it does happen. Wars, financial meltdowns, and natural disasters are a part of human history.

In the recent past, the globe has dealt with a major pandemic and the war between Russia and Ukraine. Meanwhile, whenever there has not been a major global crisis, there always has been a local political, financial, or natural disaster crisis in a certain corner of the globe those living there are dealing with.

After human life, wealth is the second most important thing to protect during wars, financial meltdowns, and natural disasters. Indeed, without our wealth, we are more likely to lose our lives even after surviving major disasters. However, it turns out that safeguarding wealth is most difficult in times of crisis. 

Different tools have been handy in helping safeguard wealth in different times and societies.   

For thousands of years, precious metals, in particular gold, have established themselves as the most secure and reliable place to keep wealth during times of crisis. Precious metals are scarce, durable, and attractive.

Indeed, precious metals like gold can outlive regimes and even the state itself. The gold that was mined during the Roman empire era is still valuable today. 

In contrast, some fiat money printed today may become meaningless if the government that printed it is out of power tomorrow or the territory it governed is seized or annexed by another. 

Meanwhile, even in the same state and even during the reign of a government, fiat currency can lose its value through a financial crisis. A case in point is the Zimbabwe dollar, which experienced an annual inflation rate of up to 600%. Fiat currencies that seem to be very stable, such as the US dollar, still lose their purchasing power over time. 

The weaknesses of gold 

While precious metals, and in particular gold, have a long history of being the most reliable place to put wealth during times of crisis, they have their own weaknesses. 

The following are two of the weaknesses:

Complex logistics

Precious metals like gold are items that occupy physical space and can also be quite heavy. In addition, whoever has possession of the metal can easily exchange or liquidate it. That makes gold an asset that can easily be stolen or seized.

Indeed, it can be challenging to conceal gold during storage and transportation, especially if you have a significant amount of it.

It is even easier for gold to be taken away from you in times of war if there is a breakdown in the rule of law.  Indeed,  you might not get the opportunity to remove it from a safety deposit box as the government might already have claimed it using state of emergency laws. 

The result: Having precious metals as the place to keep your wealth during times of crisis also means you need to make robust logistical preparations. In particular, you will need to have advanced transport and security, and other logistical particulars prior to times of crisis.

Illiquidity

During crisis times, the financial system may easily collapse. The banks may limit hours to prevent runs, and the fiat currency may lose its value to inflation. That might mean you cannot buy the critical commodities you need to survive.

Having all your wealth in gold poses the challenge of subdividing it into the small amounts you need to buy consumable goods. Since it is crisis time, it is highly unlikely a market to exchange it is open for business. I

In other words, while you might have the gold in your possession, it will not be accessible for immediate use.

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Foodstuff and livestock

Of course, food, clothing, and shelter become the most important things to have during a crisis. Food, in particular, will never lose value as it becomes scarce during such times, unless it spoils and rots.  In times of complete chaos, food becomes more valuable than gold. 

If you have a significant amount of it, you can keep your wealth in it with a guarantee that there will always be demand for it. Indeed, even in the recent past, people have used food and livestock as places to keep their wealth in times of crisis.

For example, during the hyperinflation in Zimbabwe that began in 2007, many citizens chose to put their wealth into livestock as money. While the money in the bank lost value, their animals gained value.

However, keeping foodstuffs and livestock can be challenging, especially during political instabilities. Food and animals need logistics to transport, health care, (veterinary care is very expensive) and you have to secure them. 

You can’t just up and go with them. Also, the majority of foodstuff is perishable. You cannot keep your wealth in foodstuffs for an extended period of time as animals also have a “shelf-life”.

Instruments in the financial markets

The financial markets provide a long list of investment opportunities, which can also serve as a refuge for your wealth during times of crisis. The assets to invest in this category include stocks, mutual funds, retirement, options, annuities, and futures.

However, having your wealth in these assets during a crisis can make you vulnerable. In most cases, the wealth in these instruments is the most vulnerable during times of crisis. These options work well in times of stability, not so much during time of all out chaos.

Real estate

Real estate is mostly an attractive place to keep and grow your wealth. Homes and land generally grow in value over time. However, this can change, especially in times of political or financial crisis.

For example, the 2008 global financial crisis was triggered by toxicity in the real estate market. Homes that were highly valued and served as security for a significant amount of debt became a source of trouble for the entire financial system when many homeowners failed to service their mortgages.

Furthermore, during political instability, the demand for real estate for purchase or letting might decline significantly as potential investors take a wait-to-see position. In the worst-case scenario, a huge section of the population might move out of a city or town, thereby reducing real estate values. 

That means you might lose your value through deflation in the market. Indeed, you might lose the real estate itself to destruction or seizure due to change in the political dispensation.

Blockchain assets

The blockchain ecosystem is still a relatively young investment market. It has been around for slightly over a decade. However, the list of options of places to keep your wealth in times of crisis it offers is growing every day.

The following are some of the options you have if you choose to keep your wealth in crypto during times of crisis:

Cryptocurrencies

These are digital assets on the blockchain designed to function as currency. The most known of the cryptocurrencies is Bitcoin. There are thousands of other cryptocurrencies in use. The list also includes Litecoin, Ripple, and Monero.

You can buy these digital currencies on exchanges and HODL them in wallets.  

Stablecoins

These are digital assets on the blockchain backed by or whose value is pegged on other assets. The most popular stablecoins are backed by the US dollar. The most used stablecoins are Tether, USDC, and DAI.

The stablecoins are available on exchanges like cryptocurrencies. They can also be held in the wallets used for cryptocurrencies. 

Utility tokens

Today, many applications and platforms are built using smart contracts on the blockchain. Most of these applications and platforms have utility tokens built into them. The utility tokens are digital coins designed to perform particular functions. 

Examples of utility tokens are ETH, which one needs to buy gas on the Ethereum blockchain, and BAT, which you need to facilitate campaigns on the Brave browser

Non Fungible tokens

Unique digital assets such as images, videos, game characters, and art can be stored and traded on the blockchain as non-fungible Tokens (NFTs). They are bought and sold based on their scarcity as well as sentimental value. The NFTs are the virtual versions of the physical paintings, which have also been a place to keep wealth for thousands of years. 

Compared to the other options you have, blockchain assets provide certain critical advantages.

Advantages of using blockchain assets

It is the best place to keep your wealth during crises for the following reasons.

It is peer-to-peer

You don’t have to depend on institutions to hold or spend blockchain assets. You also don’t have to worry about institutional censorship. Indeed, you can move your wealth with little restrictions from anyone.

You can have your wealth on a piece of paper or even a memory in your mind, walk across borders, and spend it whenever you find yourself. You just need to find someone willing to accept it for goods and services or in exchange for other forms of currency. 

It is discrete 

Whether you find yourself in a refugee camp or a foreign country, nobody will ever know how much you have with you unless you disclose it to them. All you need is a wallet on your mobile device, a passphrase written on a piece of paper or memorized. 

This means your wealth cannot be confiscated even when the situation around you deteriorates significantly. 

It is liquid

You can quickly spend your bitcoins as it is readily available. You can pay for groceries or buy new real estate. You don’t need to find an institution to help you access it. 

As long as you find someone willing to accept it, you can readily spend it. You also don’t need a lot of logistics to split it into units you need for immediate use. 

It cannot be censored

We have seen payment services censoring certain regions or countries for political reasons. Even if you are an individual with little influence on politics, you end up not being able to access your wealth. 

However, if you keep in crypto, you cannot be censored from using it as long as you can access the internet.

Limitations of blockchain assets

While blockchain assets have numerous strengths as places to keep your wealth in times of crisis, they also have a few limitations. The following are some of them:

Low acceptability by merchants

Crypto is still a currency that not everyone is willing to accept. In particular, many merchants don’t accept them either because they don’t know about them, they don’t know how they work, or they are wary of legal ramifications. 

However, with innovations like the Club Swan crypto debit cards, this is a challenge that can be overcome. With a Club Swan debit card, you can spend your blockchain assets in millions of shops around the world.

Reliance on internet

You need access to the internet to spend and move your crypto. In times of serious political instability, access to the internet might be limited. This can hamper your access to and use of your crypto. 

However, startups are working on solving this problem using other technologies, particularly satellite and radio communication technologies. For example, Blockstream, a Canadian blockchain solutions startup, has set up a system through which radio waves from a satellite in space can be used to process Bitcoin transactions.

That means soon, someone might need a hardware wallet that sends and receives radio signals, and they will be able to spend crypto in areas where the internet is cut off. 

Some of the blockchain assets are already deeply intertwined with the traditional centralized financial system, making them susceptible to risks that affect centralized finance. For example, the value of stablecoins is pegged to that of the US dollar. When the US dollar loses its value to inflation, the stablecoins do too.  

While blockchain assets are not perfect as the place to keep your wealth during times of crisis, compared to the other options, they offer the most security.

Image courtesy of Flickr.

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