This guest post discusses the fact that banks have been hoarding gold recently. Moreover, the article discusses whether crypto hedging is the next big thing.
Gold bullion is, despite all predictions just a decade ago, turning into a hot commodity on the international banking scene. In a debt-based global financial system, the idea that central banks would be going out of their way to purchase gold in dozens of tons seems completely illogical. After all, the second decade of the 21st century should be well into the Cashless Age. Yet, while plastic and online bank accounts are seemingly phasing out paper money, they are not doing the same for gold. At least not on the level of central banks.
Nations including India, China, and Russia have been giving their central banks a green light to purchase gold bullion. They do it on a massive scale. As tons have been rolling into Fort Knox equivalents all over the globe in the previous months, some are pointing out that this process is actually a boon to the cryptocurrencies.
Here, like always the strongest signals are coming from the Bitcoin network and its BTC token. The prices have not so far drastically moved on the account of gold purchases. However, the paradigm of what is safe and secure in the financial arena is shifting.
On less of a macro level, Bitcoin is gaining legitimacy. This is thanks to efforts of some bright minds in the community. The latest one that we can refer to is getting the bitcoin logo as an official sleeve sponsor of the English Premier League club Watford FC. This was an initiative by one of the most popular bitcoin gambling sites called Sportsbet.io who are also displayed on the front of the shirt.
Why are numerous banks buying gold? The simple answer is that they are dumping USD for the same precious metal. For decades, the US dollar has been the benchmark fiat currency. Not only for national reserves, but also for foreign debt and many other governmental financial parameters. Central banks, including in those nations that are not NATO members or even in the traditional Western sphere of influence, all held and continue to hold USD.
On the other hand, currencies like the euro have been on the rise, but it is important to underline that this fiat is very new. With less than 20 years since its introduction, the euro already had a big crisis, like the one in Greece several years ago.
That means that it did not replace the USD in most nations outside of the eurozone. Russia, China, India and all other nations in the world keep a USD reserve. However, the prospect of a growing trade war between the US and China has many central banks worried. China already devolved the yuan (CNY) several times and the US accused it of currency manipulation. As most financial analysts ponder what the US will do if the trade war escalates which puts additional pressure on the dollar, central banks are hedging their bets.
This means that they want to secure their holdings in the case of a drastic drop in USD value, no matter if it is intentional or if it crashes. To create a hedge, they are going after one stable entity that has served this purpose since ancient times – gold. But, the underlying issue is very clear: central banks are worried about the USD’s ability to hold its value in a stable manner.
In the previous weeks, some in the crypto community speculated that in this rush to hedge against the weakening dollar, many funds and even banks themselves could reach out to crypto. After all, with even a stake of one to five percent in a fund made out of stocks, bond and a tiny bit of crypto, Bitcoin could easily be the best-performing asset. However, there is an insane amount of issues with any big traditional financial entity buying crypto all of a sudden.
While it is theoretically completely possible, the amount of regulatory and legal concerns that lie between crypto and crypto hedging on one side and institutions on the other is huge. So, that possibility is currently not that likely. But, the level of insecurity related to fiat currencies is real and felt by ordinary citizens as well. Here, they are the ones who could be the game-changers. At least when it comes to the levels of crypto adoption both of Bitcoin and other major cryptocurrencies.
Seeking Value outside of Fiat
It is relatively easy for central banks to buy gold bullion. For ordinary individuals, the process is also available and many do hold physical gold in their possession, but rarely as a currency. Often, gold comes in the form of family heirlooms and includes jewelry. While you can change this for money, you can’t easily buy anything directly with gold.
Here crypto and crypto hedging comes in as a great alternative to fiat currency and its potential loss of value. Crypto also includes most of the elements of regular currency. Things can be bought and sold using crypto. Its handling is all digital and its value completely disjointed from the traditional financial sector. All of this makes crypto a good option for private individuals who want to build some kind of hedge. For them, buying some bitcoin or ethereum tokens is no big deal if they want to invest some time and effort into finding an exchange and setting up a digital wallet.
Once that is complete, anyone can invest as much fiat as they want and get their crypto hedging. It is not hard to imagine a scenario where even a modest amount of crypto hedging with tokens could make a huge difference for a person and their family if the USD or some other global fiat currency takes a turn for the worst. That is a somber scenario, but it does highlight that in a situation of fiat uncertainty, cryptocurrency adoption rated to grow. The same thing can be expected this time around with bitcoin and other crypto tokens.
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