"No one holds cash nowadays, it is either in the stock market or in cryptocurrencies" I feel this is what a lot of people think nowadays as I have seen numerous videos about the printing of money by the FED, putting their stimulus money into stock market and also of inflation. I think the overall notion is that since cash can be so easily printed, why hold on to it as it's value will fall over time.
Instead, we can use cash to buy assets or items that will be worth more in the future. That is also why people love buying real estate as well. Explaining as well on the overheated property market in Singapore.
A lot of my friends have been entering the stock market since late last year and previously I used to only be the one investing, with the entry of Tiger Brokers and MooMoo + stock market bull run, many of my friends have chosen to put their cash into the stock market.
Cash is still king?
For me, I feel secure holding at least 6 months of my salary and would like to build it up more over time. Cash is still king as long as it is still our medium of payment. However, in terms of value appreciation or growth, cash is definitely not king. For many of the older generations, cash is and will always be king because from a young age, cold hard cash was what paid their bills. I came across this video recently called "Are we ready for the next crisis?" by DW Documentary, in the video, many people are being asked how does cash come about. Most of them were not aware with some of them saying that it comes from the bank or when we work we receive it. In a way, they are right but how does cash really came about?
How cash/money came about and how it might change in the future
A rough overview is that in the early times, there was no money but things were exchanged for example, you grew vegetables and you could exchange it for some meat by sharing your crops. IOU was also issued if you were not able to pay where debt was also created. Next we moved on to a time where money was in the form of metal or pebbles where for example some form of common and unique characteristics was found for money to make it not easily replicated but at the same time, something that was easily recognisable.
Eventually, societies moved away from using precious metals to make money. Known as representative money, the new paper bills and coins made of non-precious metals represented certain values that everyone in those societies could agree upon. Governments or banks would promise to exchange representative money for a specific amount of silver or gold. Today, most modern currency is not backed by silver or gold. Instead, today's money is known as fiat money. Money has a certain value today because it was given that value by government fiat or decree. - Taken from www.wonderopolis.org
Money today has a certain value because the value is given by the government and I believe Bitcoin was created in 2008 in response to the Great Financial Crisis where Satoshi Nakamoto wanted to create a peer to peer payment system that did not require a third party confirmation. This means that banks would not be involved in this equation. It is a simple idea, to eliminate the middleman/third party to optimise the whole process of payment.
Many people who invested in cryptocurrencies early on understand that this concept is here to stay as it is something that made sense, to remove admin fees and yet have everything still be processed and have a transaction record through a blockchain.
Regulatory problems
“You’d have to shut down the Internet” to ban Bitcoin, says SEC’s Hester Peirce. Even though, the governments want to have a way to regulate cryptocurrencies, it really is quite difficult to do so when internet is readily available although the government can still implement policies to ban them. Like in India and Turkey where the Turkey’s central bank banned the use of cryptocurrencies and crypto assets for purchases citing possible “irreparable” damage and transaction risks.
The government might want to implement regulations for cryptocurrencies when they realise that more people are adopting it. Just recently, Turkey has been facing many controversies with cryptocurrencies exchanges where the owner escaped with people's money. This is definitely not due to the cryptocurrencies themselves but the people who are managing the exchanges. This can in turn make the governments really step in if needed
Why you should still have sufficient cash on hand
For now, cash is still king and important to a certain extent in our asset allocation because it is our main mode of exchange to obtain goods. We do not know in the near and far future on how cash will be redefined, the world is evolving at a rapid pace and everyone will have to adapt to the changes as it comes along. Just like how jobs could be made redundant in a matter of years, cash or our own currency might just change. Or maybe things will still remain the same for a long time. Building up cash is still the priority so always remember to have an emergency fund or buffer to make sure you do not have to liquidate your investments to make payments. Hope you guys enjoy today's video and as usual, do subscribe and hit the like button!
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https://financialgym.com/blog/2021/1/2/bitcoin-101-what-is-bitcoin-and-why-was-it-created
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