Bitcoin Could be Your Saviour When Crisis Strikes Again
As you read today’s Money Morning, the first day of the first Ashes test for this year will have concluded.
The game is being played at the Edgbaston Cricket Ground in Birmingham. It’s a raucous ground. We’ve been there a few times before, most recently for the Australia versus England World Cup Semi Final.
It’s certainly what you’d call a ‘hostile environment’ for the visiting Aussies. Nonetheless, it’s an Ashes series and what a venue to kick it off at.
The rivalry and competitive test matches between England and Australia stretches back to the 1870s and 1880s. During these years, test cricket teams from both countries would play against each other.
And seeing as this was before the invention of commercial flight, often it required long boat trips half way across the world. So if you thought Edgbaston on Day 1 of an Ashes series is hostile, imagine a 10-metre swell in the middle of the Indian Ocean en route to England for a cricket game…
Today’s players have it easy.
‘England’ cricket had a head start on Australian sides. The England side began to play as a unit around the 1850s under the helm of William Clarke. Clarke died in 1856 and George Parr from Nottinghamshire took over as manager and captain.
Parr took the ‘All England Eleven’ on their first overseas trip touring the US and Canada. It’s said they were so good opposition often fielded 22 players to even the contest.
The first English tour to Australia would come in 1861. But it wasn’t Parr’s full strength side. They wanted more than the £150 payment for the tour. After negotiating a 75% pay increase, Parr would lead England back out to Australia in 1863.
It wasn’t until 1882 at The Oval in England that the rivalry would really kick into overdrive. Australia won the match, their first test victory on English soil. It’s reported that English Cricket had died that day and its body was to be cremated and taken back to Australia.
Eventually, a touring English team was presented with a small urn said to contain the ashes of Australian cricket. In reality, it’s believed to be the ashes of a wooden bail. But this to-and-fro between the two was a jovial poke at each other that’s now developed into one of the fiercest sporting rivalries in the world.
Today, winning the Ashes is one of the greatest cricketing achievements for both English and Australian cricketers.
But it’s origins in the 1850s, ‘60s, ‘70s and ‘80s, was amongst a period of great uncertainty and difficulty in the world.
When Parr’s side toured North America, it was off the back of one of the greatest financial crises to hit the world. The panic of 1857 sent markets spiralling out of control. Stock markets crashed, there was a run on America’s biggest banks. Financial institutions, mutual funds, insurers and trust companies failed.
It was all out financial Armageddon.
This panic is believed to have a number of difference causes ranging from the impact of the end of the Crimean War through to simple irresponsible lending and poor understanding of financial management.
But what was for certain, at this time, was the issuance of money had far exceeded the deposit instruments held by banks. Hence when there was a run on the banks, they weren’t able to cough up the funds and at one point put a suspension of specie payments (redeeming notes for the deposits of gold and silver held).
Added to this was loose lending to fuel the speculative rise of railroad assets and land assets off the back of the boom in American agriculture and railroads. Either way, loose lending, fractional banking system and a run on the banks amid market panic sent global finance into a spiral.
The Long Depression through the 1870s, ‘80s and into the ‘90’s, also impacted global economics and finance. Numerous banks failed, such as the Glasgow Bank in Scotland due to fraud and poor speculative investment in Australian agriculture and mining investments.
Then in 1890, the UK went through the ‘Baring Crisis’ when Barings Bank London failed again due to excessive risk, this time in Argentina. The Bank of England bailed them out guaranteeing their debts and averting a deeper crisis and depression.
It’s believed without that bail out the entire private banking system in London would have been on the brink of collapse.
Imagine that, at the turn of the 20th Century the world’s biggest and most credible financial hubs on the brink of utter collapse.
This little history lesson of both cricket and finance is to point out that in roughly 150 years not much has changed with markets, finance and money.
We still have banks that partake in fraud and deception. There is still loose lending fuelling speculative assets and excessively risky investments in questionable regions around the world. The central banks are quick to put protections in place to ensure the utter collapse of financial markets is a last resort. And there’s ongoing supply of ‘money’ without the assets to actually back it.
The way we think about money is wrong
Fractional banking has been around for over a century and a half. While there’s fair argument for this kind of monetary system going forward, and the argument of credit being necessary to support economic growth, there’s also a counter argument that says this system simply can’t continue.
That the way in which we think about money, lending, credit, finance, banks…it’s all quite possibly wrong. It’s just so deep seeded in our minds, our education, our lives, because it’s had 150-odd years to sink its teeth in and it’s not about to let go.
Therein lies the challenges of today, the financial system we know is a bumbling mess held together by a bit of gaffer tape. It’s certainly not as stable as the authorities would have you believe. In fact, it’s a system that’s once again spiralling out of control.
You’d think 2008 was a chance to reset and rebuilt for the better. Instead, the lessons from 150 years prior and the brink of devastation have taught those in power nothing at all. And the same thing continues again.
What it’s leading to is another crisis. That’s coming, we know that’s coming. Never in history has there been a period of much more than a decade without some form of financial or banking crisis. And we’re about 11 years past the last one.
When that hits, what are you going to do about it? Are you prepared? Do you have the right systemic financial Armageddon risks built into your portfolio? Are you diversified? Do you have gold, bitcoin in your portfolio?
We also know markets never die and from crisis often comes immense opportunity. And seizing that opportunity is key. But we also know if you’re at least partially prepared for calamity tomorrow with the right assets you can also generate wealth while others bleed it.
We’re just saying that there’s places to make money now while markets are good, and also tomorrow if markets aren’t. Primarily we see that coming in cryptocurrency, more specifically bitcoin.
It’s the ultimate hedge against crisis. It didn’t exist when Parr’s men took the boat ride to Australia. It didn’t exist when the North and South went to war in the US. It didn’t exist during the long depression, any world war or even during the debt crisis of 2008.
Bitcoin does exist today. And it could be the saviour we all need when crisis strikes again.
Editor, Money Morning
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