Baby boomers and older have spent the past few decades acquiring ridiculous stockpiles of money. At the end of Q1 2022, Americans above the age of 70 held a total net worth of nearly $35 trillion, according to Federal Reserve data. Let’s break that down into something comprehensible. Boomers’ wealth is equal to 157% of U.S. gross domestic product!
Older generations will trickle down $70 trillion dollars between 2018 and 2042 (Cerulli Associates), with $61 trillion going directly to their heirs. At no time in history has wealth been in the hands of older citizens. This transfer has unleashed a torrent of economic activity including real estate, start ups, crypto assets and philanthropy, which reflects the different priorities and politics of the receivers in comparison to their givers.
The new era of wealth has a different perspective of money and the systems that support it. We are about to enter a new era of money and monetary policy. We are entering the era of blockchain.
What is happening that is changing our perspectives?
Dollar distrust is at all time highs. Freezing Russia’s foreign assets has exposed the weakness to all foreign nations that rely on the US dollar system. The world’s 11th largest economy just got pulled from the global financial system. Now we are not objecting to its’ moral justifiability, but we are saying that it has knock-on effects that will forever change the perspective of the security of the US dollar. This is occurring simultaneously as we are approaching debt interest on all time high debt held by the Fed and record high inflation rates. “No one wants to be a bag holder on U.S. treasuries” (Jim Bianco).
The U.S. treasury yield curve is inverting, which is signaling that investors have less tolerance to holding treasuries over longer periods of time; combined with inflation and high debt on the books, people are looking for alternatives to hedge against the weakening dollar.
The U.S. treasury market is a $14 trillion dollar market and that money will be diverted. Ethereum is jumping into that void and is a worthy candidate. Let’s discuss why?
- The Federal Reserve is at an all time high, but Ethereum can’t hold debt.
- Inflation threatens the real returns of U.S. treasuries, but Ethereum is being developed to be deflationary.
- The U.S. removed the world’s largest economy, but Ethereum is credibly neutral.
Now I can hear you all already……what are they saying, don’t they know that Ethereum is volatile and the dollar is stable?!
Yes, you are correct the dollar is more stable than Ethereum, but what we need to compare are the yields received by staking Ethereum in comparison to holding a bond with the U.S treasury. Let’s take a look.
According to Aurther Hayes, in his recent article Five Ducking Digits, “if the ETH stake rate is 8%, ETH could go down 32.6% and equal a 10 year 2.5% treasury bond.” And this is not taking into account the potential for ETH’s capital appreciation. Predictions of a $10k ETH and beyond are no longer whispers in the background.
We are reading headlines such as:
“Ethereum Transitions to Global Asset”, Bloomberg Intelligence.
“Increasingly Clear that the Future of Finance Runs on Ethereum”, One River Asset Management.
“Ethereum is being transformed into a low risk bond asset, and it is cheap”, Marcel Kasumovich
Low risk isn’t a word you associate with cryptocurrencies but this is starting to change because volatility and low risk are not working against each other. In crypto the longer you held the more volatility worked in your favor. And with the ETH protocols, it has programmed controlled issuance, is globally neutral and can’t hold debt.
The dollar has slowly lost value overtime and due to the lag time, people generally haven’t paid attention until recent.
In Ray Dalio’s book, The Changing World Order, he states that we are in a period of burdensome sovereign debt, massive money printing, and large wealth gaps that will continue to devalue the dollar. The risk-free rate isn’t so risk free when governments can print money. Let’s define a risk-free rate.
The long-term yield on the US Treasury coupon bonds is generally accepted as the risk-free rate of return. Government bonds are conventionally considered to be relatively risk free to a domestic holder of government bonds, because there is by definition no risk of default.
There is also the risk of the government printing more money to meet the obligations, thus paying back in lesser valued currency. The result to the investor is the loss of value according to his/her measurement, so focusing strictly on default does not include all risk.
So sure you have a risk-free rate because they cannot default, but if the rate is negative, does that really count as risk free if you know it will end in a loss?
It doesn’t look good for the fiat dollar. Could ETH be the new risk-free rate?
- Ethereum can issue new ETH but can’t hold debt.
- Ethereums’ protocols and algorithms control the issue of ETH and do what is best for Ethereum and will not be influenced by elites or governments.
- Ethereum staking is globally accessible and permissionless: no one can prevent you from receiving your yield.
So what do you say? Is ETH the new Internet Bond?
Purpose built for the digital age, here we come!
