Can Bitcoin Be an Asset Protection Vehicle?

Executive Brief

As a digital currency Bitcoin has made significant headway into the marketplace, and established itself as a viable form of payment and secure, cost efficient funding transfer right around the world. However, as we see the signs of global monetary uncertainty growing once again, could Bitcoin be a useful tool to protect funds from localized recession or other fiscal issues should they recur? The search for an asset protection vehicle to keep funds as isolated as possible from any asset devaluation that can occur during a recession is an important one, and with its relatively short history, this would be the first time a cryptocurrency would present an option under those circumstances. Can Bitcoin protect our funds?

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Bitcoin has exploded in popularity and its user base has grown rapidly in the last few years. With everything from Bitcoin ATMs making it easy to buy and sell the currency to the ever growing number of businesses and services that accept digital currency natively, it has grown into a useable currency remarkably quickly right across the world. Many people have found it an excellent vehicle to transfer funds across national borders for low fees as well, and the focus of development and expansion has so far been largely in these two areas. Trading the currency around the world and of making the use of Bitcoin as a currency more convenient, an area of possible benefit has not really been explored with the same vigor.

This is a subject recently tackled by David Andolfatto, vice president of the Federal Reserve Bank of St. Louis, where he examines the case for digital currency in terms of asset protection during difficult economic times. The concept of asset protection is a vehicle that protects from economic turbulence, rather than is specifically designed to grow in value. The level of safety that any given instrument provides is of course affected by the influence they suffer from local monetary policy. For instance, the removal of the gold standard in 1971 led to investors exiting cash based assets as they saw the likelihood of turbulence in its value over the medium term.

In this respect Bitcoin actually meets many of the requirements, it is highly secure due to the underlying technology, and as a fiscal structure is largely immune to local monetary policy, as a global currency it remains relatively stable and disconnected from local issues. Indeed, the financial issues with Greece over the last few years has actually seen a significant increase in Bitcoin use there. As fiat currency withdrawals and transfers through the banking system were restricted, Bitcoin remained immune to the local downturn and users had access to their funds outside of governmental control restrictions. The Greek situation perhaps best highlights why, should we enter a new period of financial uncertainty, Bitcoin could be a safe haven for funds that would otherwise be at risk.

The views expressed by the authors on this site do not necessarily represent the views of DCEBrief or the management team.

Author: Thomas Moore

Thomas Moore is a writer and researcher with a love for the eclectic, family and the world we inhabit. He spends his spare time photographing the varied wildlife that surrounds us daily and contemplating why Firefly never made it past season one.

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