The next financial crisis will come for sure; the only questions are when and how to protect? Cryptocurrencies might at least provide an answer to the second question.
Prince Michael of Liechtenstein, Europe’s “Prince Michael,” warned a global financial crisis is coming. He believes we only delayed the previous crisis, but we didn’t solve the underlying issues.
His views are very much in-line with some of the leading economists, who also believe the actions taken after the previous crisis only lifted the overburdening debt from private banks to the governmental level.
Prince Michael explains that for years, central banks have solely been using monetary stimuli to keep the economy going. “At the moment, we are very efficiently kicking down the can along the road,” he says in a podcast with Blockchain Journeys. “That can go on for a while.”
He believes the European Central Bank will continue to do “whatever it takes” to keep financial institutions and governments afloat. “We had a monetary policy for more than 20 years to avoid a crisis,” he says. “So I see a crisis coming up.”
Cryptocurrencies as an alternative monetary system
As a result of years of loose monetary policy, interest rates have gone into negative territory in many countries around the world, including Europe. Prince Michael says negative interest rates “are long-term risks to destroy the value, or at least to harm the value of the euro.”
Negative interest rates mean account holders have to pay money to keep money in the bank, as opposed to receiving interest, how it would usually be the case. Thus, they put a tax on savings, which could have negative long-term effects on the economy.
“At zero to negative interest rates, banks cannot make profits anymore and cannot build up equity so it defeats the purpose,” says Prince Michael.
That’s also where he makes a turn to cryptocurrencies. “Certainly its a case for cryptocurrencies or other private currencies,” says Price Michael. “We will see. Sometimes you have to go into an adventure like cryptocurrency.”
Prince Michael also believes cryptocurrencies could stimulate competition in the banking system. He explained how a speech of US-Treasurer Jeck Lew at the World Economic Forum in 2014 inspired him to look into cryptocurrencies and blockchain in the first place.
“He used more than half his speech to tell the public how dangerous Bitcoin is and what has to be done to block Bitcoin off. When I heard that I thought it must be interesting and I started to look at cryptocurrencies – which I hadn’t done before,” says Prince Michael. “It’s still a work in progress but I’m interested in it and I also know that we will need changes in the monetary system.”
Non-correlation makes cryptocurrencies an effective crisis-hedge
Cryptocurrencies have become more prevalent during 2019 as a way to diversify traditional multi-asset portfolios. As they are uncorrelated to traditional asset classes, they won’t be negatively affected by a worsening in real economic conditions, thus, providing an excellent crisis hedge.
Despite the warning signs, however, the Prince doesn’t see any reason for panic. “We always had crises, and we always will have crises. We need crises to improve our systems.”
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