The Titanic was a ship so large people said it could not go down. It sank in the North Atlantic Ocean in the early hours of 15 April 1912, after colliding with an iceberg during her maiden voyage from Southampton to New York City.
The financial system is so large that it is simply taken for granted. Yet it is built on dependencies so that if one institution goes down all could go down. Christopher Coles at Artemis Capital sees a liquidity crisis starting in 2019. Others see different triggers. In truth no one knows when or where the next trigger will be.
The Titanic had bulkheads that could be sealed to contain any disaster. She would stay afloat if four compartments were breached. But not five.
Governments bailed out the system in 2008 when Lehman Brothers collapsed. Because of the systemic nature of today’s risk — one which affects every part of the system — they may not be able to do so again.
“The ship will sink.”
The dependencies of the financial system make it susceptible to collapse. It is simply the way it is built.
The Titanic only carried lifeboats for half its people.
Blockchain products like Bitcoin and Bitcoin Enhanced are systems of value outside the financial system — lifeboats that will still float if the financial system goes down. However supply is limited. Bitcoin will only ever have 21 million coins. The two Bitcoin Enhanced tokens are capped at just 4 million each. There is simply not enough to go round.
People with a place in the lifeboats survived. The boats floated. Everybody rowed.
Bitcoin and Bitcoin Enhanced are outside the financial system because people create the value themselves. There are no dependencies. Everybody who owns a coin or token participates in creating its value — everybody rows. The system works. The boats float.
Moral to the story: Diversification is the cornerstone of any effective investment strategy. Products such as Bitcoin and Bitcoin Enhanced now make it possible to diversify outside the risks of the financial system.