Nick’s Note: When I read this exchange about “the ultimate offshore bank account,” I knew I had to pass it along to International Man readers.
It’s a discussion between Chris Lowe—Bonner & Partners’ editor at large—and analyst Nick Hubble about cryptocurrencies… and how you can use them to protect yourself from the coming economic crisis.
Until next time,
Chris Lowe (CL): You’ve been warning about Financial Martial Law. What do you mean by that?
Nick Hubble (NH): No matter where you live, transferring your money costs a fortune thanks to all the checks the banks must go through to examine whether you’re secretly funding al-Qaeda. Accountants and lawyers are making a fortune out of ordinary bank account holders who need to satisfy the government they’re not paying for an AK-47.
And it’s not just terrorism related. Under the guise of preventing terror, governments will get access to vast amounts of information about you. Once they have the information, you can become a target of new policies. For example, banks dealing with Americans must notify the American tax authorities if they suspect a customer of evading tax.
And many international banks are now turning away American customers because of these laws. For your members living in the U.S., this leaves their finances trapped and subject to whatever laws Washington comes up with next.
In the end, these laws will go global. Once banks make it their business to know your affairs… and they’re required to report potential discrepancies to the government… there’s no turning back. You end up in a system where there’s absolutely no privacy and governments can track your every financial move. It’s absurd.
CL: What can readers do about this?
NH: As the financial repression gets worse, people naturally want out of the stupid system. They want to secure their wealth outside the jurisdiction of politicians gone wild.
It’s not about flouting the law. It’s about making sure the law cannot flout you. The problem is there are money-grubbing politicians everywhere… even in once-safe tax havens such as Switzerland. In recent years, the Swiss have been cooperating with the Americans and clamping down on bank secrecy.
The good news is there’s a far better option—bitcoin. Bitcoin is the ultimate offshore bank account. Because it’s truly decentralized and global, bitcoin isn’t subject to any one country’s politicians and banks.
CL: Why is that so important?
NH: People who opened offshore accounts in Cyprus and Switzerland learned this lesson the hard way. Cyprus was struck by the sovereign debt crisis in the European Union (EU). Cypriot banks imposed capital controls to stop people from withdrawing their savings. Then they imposed “haircuts”—in other words, confiscations—on accounts. The more money you had in your account, the more draconian these confiscations were.
And in Switzerland, steady pressure from Washington and the EU has slowly whittled away the famous client privacy that Swiss banks stood by for generations.
Well, bitcoin doesn’t belong to a country or jurisdiction. And it’s owned by nobody. Politicians don’t rule bitcoin. Bitcoin can’t have a sovereign debt crisis. And capital controls won’t work because it’s already a global system.
CL: Are there other benefits of diversifying your savings into bitcoin and other cryptocurrencies?
NH: Another benefit to using bitcoin is that it booms during bad times. [See chart below.] And that’s an admirable quality in a world so full of risk.
For example, China’s financial sector is still filling the gloomy section of the media’s reports. For the first time ever, Chinese banks are having to borrow money at a higher cost than they lend to their corporate customers. Borrowing at a higher rate than you lend is not exactly a good business model. It can’t last.
The Chinese government’s finances are in trouble, too. Ratings agency Moody’s downgraded Chinese government bonds to A1 from Aa3, and its outlook is now negative. Dramatic increases in debt are to blame, according to Moody’s.
Meanwhile, Greece’s benefactors have failed to agree on further financial support. The EU and the International Monetary Fund are arguing about whether to reduce Greece’s debt to put it on a sustainable path or to keep the country reliant on international support so that policy pressure can continue. It’s another situation that’s not sustainable.
And there are plenty of other geopolitical hotspots. For instance, earlier this month South Korea fired warning shots at what it believed was a North Korean drone, after North Korea test-launched another ballistic missile.
And China’s president, Xi Jinping, has warned Philippine president Rodrigo Duterte that China will go to war if he continues to reject China’s claims over disputed areas of the South China Sea.
You also have a major crisis in Venezuela, where inflation has surged to more than 700% and anti-government protests have left 60 people dead.
More Chinese capital controls… a renewed financial crisis in Europe… another imploding socialist economy in South America? Bitcoin does well just when your other assets are struggling. That’s just what you want from your offshore account—hedging and diversification benefits.
CL: Why not just buy gold instead?
NH: These days, the price of gold is toyed with in financial markets to the point where the actual metal doesn’t play much of a role in determining prices. In a rush to meet margin calls on their other punts during a crash, traders sell their gold positions, for example. Then the price of gold plunges alongside other assets. [See chart below.]
But each financial shock, crackdown, or poor economic release has sent the price of bitcoin higher. And it’s easier for most folks to get their hands on bitcoins and transact with them than it is for them to get their hands on gold and transact with it.
Venezuelans, for example, are using bitcoin to buy everyday goods on Amazon.com in the U.S. and then have them smuggled into the country. And the Chinese are using bitcoin to evade strict capital controls and send their money overseas.
CL: What’s your response to folks who push back and say, “That’s all very well, but bitcoin has one big risk—its price.”
NH: It’s a great point. Regular offshore bank accounts usually offer deposits in a variety of international fiat currencies to diversify away the risk of price falls in any single currency.
Bitcoin as a currency is highly volatile. And that’s definitely something you should take into consideration. But you can’t ignore the upward trend in bitcoin’s value versus fiat currencies over time. And there are strong reasons to believe that bitcoin will continue to rise against government fiat currencies.
CL: Why has bitcoin performed so well relative to government fiat currencies?
NH: First, bitcoin is scarce by design. There is a finite supply of 21 million bitcoins. Central banks and commercial banks, on the other hand, can pump out government fiat currencies at will. And on the demand side, bitcoin is only starting to get used in the real world. Every day, more people and companies are using it. And when constrained supply meets rising demand, prices go up.
Recently, Japan made bitcoin legal and Japanese financial markets are integrating it. And each time there’s a geopolitical crisis—like we’ve seen in Venezuela recently—the price surges, as folks sell fiat currencies to buy bitcoin to protect their savings.
This is where bitcoin really becomes relevant to your readers. It is a way for them to diversify their savings outside of the dollar and the banking system. And that’s important in the times we live in. Who knows what sort of policies are planned for your nest egg?
Bitcoin also has the advantage of cutting out costly middlemen. Which brokers and bankers do you pay to manage your bitcoin wallets? What are the monthly fees and charges? Who do you have to trust to keep your bitcoins safe?
Nobody, none, and nobody. Bitcoin doesn’t need bankers, brokers, lawyers, accountants—or any other costly middlemen charging you for the “privilege” of using their services.
Another aspect of bitcoin that a lot of folks still don’t understand is that bitcoin isn’t anyone’s debt. It’s not like the balance in your bank account, where your bank promises to pay back a certain sum if it decides to honor its obligations and is in a financial position to do so.
Bitcoin is electronic cash. As with cash, or with a bearer bond, possession means ownership. Unlike “cash in the bank,” with bitcoin there is no counterparty risk.
CL: One criticism you hear a lot about bitcoin is that it’s not much use for buying things. Transactions are still slow. And many merchants still don’t accept it.
NH: You can use bitcoin to buy things. But it’s still not as widespread as fiat money in terms of what you can buy with it. And transaction times are slow. But an offshore bank account is designed to keep your wealth safe, not serve as some sort of day-to-day transaction account. For now, at least, bitcoin is best suited for this purpose, too.
And when you decide it’s time to move some of your bitcoin back to a more widely-accepted currency, you can—anywhere in the world and to any currency. Usually at very low costs.
That said, new technology will soon allow you to stick to bitcoin entirely. For instance, bitcoin payment cards are in the pipeline. These allow you to pay for your daily coffee in bitcoin by transferring to pounds at the moment of the transaction.
But this isn’t even necessary. If you are looking to help keep your savings safe from draconian government clampdowns, bitcoin offers the key advantages of an offshore bank account without the key pitfalls.
Editor’s Note: Owning bitcoin is just one way to prepare for the crisis brewing in America.
The truth is, the US is on the verge of a total economic breakdown. This financial catastrophe will eclipse the 2008 financial crisis and touch every aspect of your life.
Fortunately, there are practical steps you can take now to make sure you survive the fallout. Click here to learn more.