Making pickles and investing is the same thing.
I shall explain.
When we work, we convert our ‘value’, into income.
Investing preserves our value or our income earnt today, but didn’t spend, so that tomorrow’s world is taken care of.
When we invest, we have to invest through a medium though, or conduit if you like – this is the ‘currency’.
Our preserved income needs to travel through a currency, like the NZ dollar, before it’s exchanged for units of ownership in some sort of ‘asset’.
Although thoroughly mind-numbing for some, anything that affects how the currency functions, should be understood by those who invest. It’s not mandatory to understand this to be a successful investor no. I think there’s a risk though, largely ignored by many, with respect to the currency moving around our financial system.
If a currency is a container of liquid value, then sound money would be a type of currency that doesn’t leak. Sound, or ‘hard’ money, is a currency that reliably stores value. Ideally, it doesn’t fluctuate wildly in value and preferably, the value it does hold, can be held for a while.
What’s ultra-sound money then? Money for ultrasounds?
To answer this, I’m going to be annoying and define the opposite word first. ‘Unsound money’ is a currency that doesn’t act as a reliable store of value. It’s either volatile, as measured in something stable, or it fails to perform its function as a value store over time.
Fiat currencies, like the pound, the dollar, Yen, Aussie, Kiwi are not technically, sound money on this basis.
Fiat currency are units in a financial system programmed by central banks to lose at least 2% of value each year.
As an everyday investor, if you’re trying to accumulate resource through investments, it’s important to understand not just how the government, but how the money-system itself, is taxing your wealth.
Higher rates of inflation, and higher rates of taxation, will impact all of us in the end, left and right voters alike.
In other words, we may need more for the world we’re heading into.
Cool, so, how do I get ‘more’?
It’s not bullet proof, but consider doing at least 2 of these 3 things consistently over time:
1 – Invest more.
2 – Take more risk.
3 – Keep an open mind.
It’s not uncommon to see some invest a lot, or take a lot of risk (often without realising it), but it’s around the open mind bit I think we can all improve on.
If you have an investment timeframe of greater than 10 years, then chances are you can’t go wrong with option #2 so let’s lock that bad boy down. Considering (especially right now) inflation makes #1 a bit more challenging, sure, do it if you can, but either way, I’d really suggest option #3 is the winner.
Keep an ‘open mind’, but on what?
Consider ‘alternative’ investments that can act as a sound store of value and medium of exchange. In other words, consider investing in assets, that are more sound than the money you use every day. One of the options would be digital assets like cryptocurrencies.
As the world goes through more ‘shaking’, only wealth built on the strongest foundations will endure.
Wealth for the future should be stored in sound vessels.
Many in the crypto community would suggest Bitcoin is sound money. This assertion largely finds support in the fact its supply is finite. Bitcoin can’t be created ‘out of thin air’ like our dollars can.
However, critics of Bitcoin suggest while finite, it’s not stable, so it can’t qualify as sound money. Here, they may have a point, but I wonder if that’s true on a longer time-horizon.
Relative to say the USD, I’d suggest Bitcoin is very sound indeed. On this basis, I can understand then, why some suggest Ethereum is ‘ultrasound’ money.
Unlike unsound money, or currency that can be created out of thin-air, Ethereum has a decreasing supply, and a distributed monetary policy. Is this enough to make it ultrasound money? Is this a currency that can store value well over time, and maintain price stability? That’s a big call.
Whether it’s luck or genuine discernment, the art in having an open mind is to admit when we’re wrong and act on our newfound truth. You may think crypto’s a scam, a joke, or it’ll never last (I thought this, and I was wrong).
Investors who follow ‘old-finance’ people miss the point with crypto.
It’s not about the asset, it’s about the hands that hold it (or try to hold it!).
With traditional investing, diversification happens on the asset side (shares, property, fixed interest etc). In reality, this is still a concentrated portfolio, or collection of investments. If all our investments are denominated in a currency which can be manipulated by an un-elected and hardly accountable central bank, how secure is our wealth?
Our preserved value needs to pass through currency when we invest, but here’s the issue:
We have a currency risk going on here and we’re mostly informed by an industry incentivised to preserve the status quo.
Many in traditional finance preach that Bitcoin, Ethereum, NFT’s and other digital assets are worthless schemes that sucker in the gullible. If that view changes only when there’s a revenue model behind it, I’ll find that even more offensive than I do now.
In a properly diversified portfolio, there should be a small allocation towards digital assets, including assets similar to Ethereum.
I believe cryptocurrency can be an insurance strategy, an opportunity for outperformance, and an alternative to mainstream money.
In summary, investing’s the same as pickling, in the sense both require setting aside resource to engage in a process that results in spending at a future date. The risk with pickling occurs when you use sub-standard ingredients – it may look fine, until you go to consume what you’ve set aside. Should the world shake in a way it’s never shook before, whatever insurance you’ve previously set aside becomes incredibly valuable.
Now the disclaimer:
I’d really love it if you sought advice when making financial decisions, especially in relation to using mortgage debt, or investing in anything high risk. The world is changing yes, but don’t forget to plan for a world that doesn’t change fast enough!
Do your own research around digital assets, get some advice too if you can, and consider investing an amount you could afford to live without for a while – it’s best to invest for the long term with high risk investments like cryptocurrencies, because the higher the risk, the longer it may take to bear fruit. Ethereum and other digital assets are generally considered extremely high risk investment options.
My guest on this episode is Aditya Das, Blockchain Researcher and Investment Analyst with Brave New Coin.
For further research, check out The Dollar Milkshake Theory by Brent Johnson. This explains part of the reason why the USD is so high right now. It isn’t just because investors are finding safety there during turbulent times. In fact, it’s falling in value. The US dollar is decreasing in value although it’s increasing in ‘price’ (other currencies are falling in value faster). Debt denominated in US dollars requires more currency to service the loans when interest rates are rising, as they now are. This has the impact of ‘sucking up’ currencies like a tornado. Or milkshake?