Bitcoin: A Solution to a Problem you don’t know you have
By Unemployed Atlas on The Capital
As I stood in line at the ATM in Buenos Aires Argentina, I couldn’t help but feel bad for the local people in line with me. Typically, a trip to the ATM is not something that would stand out in one’s mind however, in my time in Argentina these almost daily trips were the one thing that has stuck with me. I had been traveling for about six months prior to arriving in Argentina and had become extremely proficient at currency exchange and understanding how to get around financially in a foreign country. After spending three months in Europe and three months in Southeast Asia, it had become almost second nature to me. At the time I was traveling in the summer of 2018, the dollar was very strong compared to most other currencies. (Actually, in the fall of 2017 the Euro was actually stronger, which was in itself a lesson for another time.) If you have ever travelled internationally having a strong dollar is a godsend, the amount you get for every dollar spent is truly incredible.
By the time I had made it to my two-month stay in Argentina, I was ready to go about my business, in the same manner, I had the previous six months. I had developed a system that went something like this: 1.) Land and get to the apartment 2.) Find a grocery store 3.) Find a gym and 4.) Locate a co-working space. The truth is, up until Argentina I never really worried about finding money. I had a Schwab debit card that I kept a small amount of USD on, approximately $5,000, that I would use and refill as I needed in case it got stolen. (The card actually refunded all the ATM fees I incurred throughout the year, I highly recommend it to anyone traveling.) I also carried about $500 in cash on me at all times just in case. This had worked great so far as in every country up until this point, access to local currency had been a breeze. Sure, there were small differences in every different location but for the most part, ATMs were easy to access and Visa Credit was accepted everywhere. Enter, Argentina.
On my 24 hour flight from Kuala Lumpur to Buenos Aires, I had plenty of time to think about my last 6 months of travel and the travel I had in front of me. I had never been to South America and to say I was excited was an understatement. When we finally landed I followed some friends to an ATM to get some Argentinian Pesos. Little did I know this would be the beginning of my 2-month lesson in inflation and government-issued fiat currency problems. As we walked toward the ATM we were approached by an official who informed us the ATM was out of Pesos and we would have to find another one when we got to the city. Slightly annoying sure, but in the grand scheme of things, not anything to get upset about. Off to the apartment and a good night's rest, I’d figure this out in the morning.
Argentina is an absolutely beautiful place. Mountains, rivers, open fields, and the countryside that would make Bob Ross come back from the dead for one last painting. It is hard to not like a place with that much natural beauty. Unfortunately, for how beautiful the countryside was, I soon came to find out the negative aspect of the inner workings of the country’s financial system far outweighed the positive experience the country’s nature provided. Living in the United States, it can be hard to empathize with what is happening in the rest of the world. Everything just works here. We don’t worry about not being able to get money out of the ATM, we don’t worry about our banks failing, we just don’t have those concerns. We don’t have those concerns yet, anyway. Sure we are frustrated with our government but at least we know our United States Dollar will always have value, right? I wouldn’t go so far.
Back to the people in line at the ATM. What I soon found out in my almost daily trips to the ATM’s was that the Argentinian Peso had been on a wild ride far before I ever became aware of its existence. Political instability in Argentina has resulted in massive swings in the value of the Peso in comparison to the US Dollar and other currencies. In general, the Argentinian government has recklessly been printing Pesos for a very long time to avoid whatever the political problem of the day is. Honestly, I could write an entire section about the history of Argentina and provide specific examples of what they have done to get to this point but for the point of this article just know this: When I arrived in Argentina in April of 2018 the value of the Peso was something like 20/1 vs the US Dollar. By the time I had left in May of 2018 the value of the Peso was something like 35/1. What this means is that if you were paid in Argentinian Pesos, within a two month period (don’t hold me to this exactly it may have been a 3–4 month period but nonetheless it just as drastic) your net worth was cut in half. Let that sink in. Imagine you had $10,000 USD in the bank and in a less than 6 month period the value of that $10,000 USD was cut in half. Why? All you did was the prudent thing and save, right? Well, it turns out, if your government is printing money at such a pace that inflation gets out of control, your hard-earned money becomes worthless. In this case, it was nearly a 50% decline. If any of this sounds familiar, it should, this is exactly what our government has been doing since we went off the gold standard in 1971.
Because of inflation, the government had initiated capital controls on money. What this basically boiled down to was that you were only allowed to take out 2,000 Pesos at a time at the ATM, don’t forget, there was a 200 peso fee to withdraw as well. This is if you were fortunate enough to actually find an ATM that had Pesos in it! Not only is the value of your money basically evaporating right in front of you, but your access to that money is also severely hampered by strict government-imposed capital controls. I saw the same people in line every single day. It was not uncommon to start our morning with a 30–45 minute wait at an ATM line. Oh, I almost forgot, very few places accepted credit cards as well. There were places that did so I don’t mean to sound like this was some sort of disaster where you couldn’t get by, that’s not the case at all. It was just extremely difficult, so much so that it impacted day to day life.
I often found myself thinking about the people in line with me and what their story might be. Did they own a business? Was this someone working 4 jobs just to get by? What do they think about this system and how did it get to this point? How could I possibly help these people? I certainly can’t change an entire nation-state I thought but…there is a way for these people, and people of other nations going through similar issues to protect their wealth from fiat money printing gone awry. Enter Bitcoin.
In April of 2018, Bitcoin was trading in the $9,200 USD range. Over the next few months, it would continue to fall until bottoming out in December at around $3,200. For those familiar with Bitcoin, this process is entirely normal. It may seem drastic but think about it like this. Today bitcoin is trading at approximately $9,600 USD and the Peso is at a 61.76/1 to the US Dollar. Had the people in line at the ATM opted to take a portion of their savings and invest in Bitcoin at the time, they would have protected their wealth and well being from an additional 60–70% devaluation vs the dollar. This is simply staggering to think about, had they invested in Bitcoin at the time, even with the price swings over the past year, they would have been able to preserve and most likely grow their wealth. You may be saying well, that's great but my currency is stored in US Dollars, why would I need to worry about that?
Below is a chart of the US Dollar purchasing power from 1913 to 2019:
Every single dollar you have in your pocket or bank account becomes worth less every single second of the day. Why does this happen? The simple answer is that all fiat money (that is money created by a central government) is inflationary. There is no cap on the supply of money that can be created and as such, governments, despite the best intentions of some within the government, inevitably take advantage of this and print money at a staggering rate. Why do they do this? A multitude of reasons, but the main take away here is that they ALL DO IT. Every single one of them. The simple truth is that every fiat currency that has ever existed in human history has reverted back to its intrinsic value which is, you guessed it, zero.
Over time our government has printed exceedingly more and more money to solve whatever the issue of the day was at that time. War in Iraq, bailout of Wallstreet, political promises, and on and on. They show no signs of slowing down and for all practical purposes have no incentive to slow down. The status quo has been to kick the can down the road. Any president serves at most an 8-year term, as long as they can avoid the problem they will. What this ultimately means for me and you, and if not for us, our kids or grandkids, is a situation that is not too far off from what I experienced in Argentina. Our way of life is dependent on a monetary system that we all believe has value. The problem you don’t know you have yet is that your money is losing value and will continue to lose value as long as the United States Dollar exists.
The reason Bitcoin is a solution to this problem is that the amount of Bitcoin that will ever be released into existence is capped at 21 million. It is not controlled by any one centralized government or authority and as such cannot be used to manipulate any one countries population or people. The amount of Bitcoin released is predictable and can be verified at any point in time by anyone around the world. Unlike fiat currency which has no limit to the amount, a government can print.
My intent here is not to lecture you on why I think Bitcoin is important. What I wanted to do is simply present a scenario in which you may not think is possible in the United States but it is almost a certainty at some point in the future as we will all face the same problem the people in Argentina have with the Peso. What I would suggest the reader do is take the time to educate yourself about digital assets like Bitcoin as well as precious metals like Gold and Silver. By allocating a small percentage of your wealth to these types of assets that are not subject to massive inflation, you can protect yourself from the inevitable devaluing of the United States Dollar, a problem you may not know you have.
All the Best.
