Bitcoin, dogecoin, crypto — the possibilities of decentralized finance, which emerged with blockchain technology, introduced a space of jargon that the most tech savvy individuals hopped onto a decade ago. But, for most people, cryptocurrency is risky and volatile, with no tangible existence — fearing the idea of a currency that’s value is powered by human belief. In developing countries with unstable economies, investing is much riskier; even Americans don’t partake in financial sectors because they are already trying to balance childcare, healthcare, rent, and other necessities. In this essay, I focus on cryptocurrency as a facet for reform in the financial sector and the government’s role in regulation — I am not arguing whether cryptocurrency is inherently a good or bad investment, nor am I giving financial advice.
Thesis: Although crypto is often viewed as a bubble and has few long-term advantages, it’s recent growth exposes the demand for a global, decentralized, and accessible financial asset storage; in relation to the globe’s disparate retirement saving systems, the ideas introduced by cryptocurrency can pave way for reforms in the current financial sectors in order to make retirement saving accessible and safe for everyone, globally.
Because of low retirement savings for especially low-income individuals, there is disparity in retirement well-being between wealthy individuals with financial management resources and working class people who don’t necessarily have significant funds to put aside. An IRI survey reported that “one in four [workers ages 40 and up] have no savings at all” (Insured Retirement Institute). The survey found that young people generally do not save enough, and many also are expecting to depend on Social Security to be a large portion of retirement funding. According to the Social Security 2021 Fact Sheet, the average Social Security payout was $1,555 per month (Social Security Administration), yet the average American retiree needs approximately $4000 per month in retirement (Foster). Older adults who did not save enough in their younger years often struggle to pay for housing, medical bills, and other expenses. The United States Social Security fund is predicted to become insolvent by 2036, meaning older adults’ retirement funding will only decrease. If older adults rely on government funds for retirement financing, they will face many financial hurdles — and this phenomenon is common amongst all countries that provide forms of pensions or Social Security. For a comfortable retirement and peace of mind, individuals must have due diligence for their own retirement security. However, for many younger individuals, having the luxury to put aside 15–20% of one’s income aside for retirement savings is a luxury — and knowing how to invest is another barrier on its own. There is a gap in retirement comfort for older adults who have the means and knowledge to save (mainly white or Asian males), and those who don’t (women and ethnic minorities). Families who are concerned with paying for healthcare, childcare, housing, or food do not have the means to save and invest, and they often did not grow up with mentors in financial planning. The disparity manifests in many forms: for example, there are many older widows who don’t have enough money to get by since women statistically outlive their spouses but also don’t have financial literacy. All these issues that older adults face is partially a result of the accessibility of the financial sector for minorities. They are unable to take advantage of ideas like compounding interest because of the little resources available — and they will be charged administration fees for putting money in stable mutual or hedge funds.
Most governments lack regulation to protect individual investors, fostering distrust towards the financial sector and government: people are deterred from investing for retirement, solidifying the gap in retirement savings. For those who aren’t extremely financially literate, the stock market’s complexities and volatility make personal investment intimidating. For example, if someone does have retirement investments and were nearing retirement age near 2008, a significant portion of the savings would be gone due to the housing market crisis at that time — putting this individual in financial turmoil right before retirement. After the 2008 housing market crash, the hedge funds managing inherently bad investments were bailed out, and the everyday working American who expected to retire on their supposedly “stable” investments were left with too little savings for retirement. In 2008, the American government failed to regulate industries for malpractice, and the common people suffered the greatest losses while Wall Street bankers merely received a slap on the wrist. The skepticism towards Wall Street and investment banking is warranted — funds charge administration fees to “grow your wealth,” and end up losing all the individuals’ money. People who invest on their own without fund managers must do their own research on how markets operate — this itself is a barrier to investing since learning about financial management and investment practices is extremely nuanced. With the entrance of cryptocurrency as a alternate asset, people would be even more confused and scared to put their savings into a clearly volatile asset. The coins that cryptocurrency is composed of do not tangibly exist and are backed by human belief — the same human belief that makes Santa Claus real. The market’s volatility is apparent — within days, the value of Bitcoin has risen and dropped over 30% (CITE SOURCE). If one draws parallels to the housing market crash, most people with any regard for a comfortable retirement would steer clear of cryptocurrency, but the recent news show the complete opposite.
Cryptocurrency is a manifestation of the distrust towards government and managed financial institutions, but in its current state it still does nothing to further access for previously excluded minorities. Cryptocurrency individual retirement accounts are being opened, and millennials are also, in higher numbers, relying on cryptocurrency investments to fund their retirements (Investopedia). The majority of cryptocurrency investors are “high income, well-educated, male, millennial or Gen X and highly financially literate,” creating what is considered the “crypto elite” (worth.com). Yet there are some intriguing nuances in the demand for cryptocurrency more recently that show pathways for the democratization of finance. Anyone can purchase a cryptocurrency, regardless of location — so now individuals from other countries invest on the same basis of US investors. This contrasts the regular stock markets because mainly domestic American individuals have access to the stable and highly valued US stock markets. The high price of stocks (Alphabet and Amazon have an entry share price nearing $3000) and transaction fees deterred middle-income young international individuals from investing in the stock market. The emergency and hype of cryptocurrency, as well as the accessibility of information in easy internet searches, allowed for educated (or self-educated) individuals to partake in crypto investments on the same playing field as American investors. American investors also shifted towards cryptocurrency because they saw the value of assets that were unregulated and unlinked to any untrustworthy hedge fund managers. Cryptocurrency allows the users to have full autonomy over transactions — hence being referred to as “decentralized finance” There is no bank passing out bills or storing money — it is the people and the blockchain technology doing it. There is no government regulation, and there is no middleman making bad investments or charging fees. Because there is no central authority controlling cryptocurrency, it is available to anyone on the globe — thus being named a global currency rather than being tied to a government. With cryptocurrency, people can buy fractional coins with whatever money they have, and it is not bound by borders.
Blockchain technology and the freedom of cryptocurrency is a double-edged sword with glaring issues: deregulation removes authoritarian policy from currency, but users are not protected from risks and malpractice. The idea of cryptocurrency is similar to fiat money — it has value because people think it has value. Rather than being backed by a government, it is backed by intense computations that ensure each coin is legitimate; these calculations are so energy intensive that counterfeiting a coin and legitimately mining for coins take the same amount of work. However, because of the increased trades of cryptocurrency, the US government has entered discussions on regulating cryptocurrency — thus making it more stable for long-term investors. Other countries have also implemented a range of crypto-regulating policy that could make it potentially safer from scams and market manipulation. For example, in the United Kingdom, “the regulatory body has introduced cryptocurrency-specific requirements relating to know your customer (KYC),” and anit-money laundering and comparing the financing of terrorism obligations (Investopedia). Most developed countries like Singapore consider cryptocurrency assets as property, and the European Union is in the works of drafting legislation to make crypto widely accessible. Cryptocurrency has no borders, yet countries and economies are taking a fragmented and inefficient approach to regulations.
The prospect for global cooperation in regulating cryptocurrency offers new prospects in global cooperation and global accessibility to a unified stable market for investment. Global standards for usage and acceptance of cryptocurrency as a legal tender — for example, ensuring all transactions are linked to an identifiable person — can open up access to stability for people who previously were barred from joining investment markets. If people in the United States, European Union, and west africa follow the same rules, it creates an even playing field for anyone on the globe to tap into a regulated market. The prospect of a global currency implies global citizenship, where innovations and ideas of developed countries can spread easily to developing countries, thus redistributing and evening out the disparity of access to new markets. Tying back to retirement, a stable global investment market would even the playing field for retirement savings globally, as people within the US and other countries abide by the same rules and benefits. Admittedly, while this future outlook of a global currency seems positive, there are still hurdles to overcome for global cooperation. If we are arguing that cryptocurrency makes finance more accessible, it is only accessible if users have the proper interface — such as internet connectivity and mobile phones. In developing countries, most transactions are done in cash, meaning the infrastructure for widespread cryptocurrency exchange isn’t even implemented.
Financial literacy and investment is best when the individual takes control of their choices — there is no way to shortcut gains and risk. Looking forward, as bystanders in the government’s slow policy stream, it would be ideal to see new regulations put up for cryptocurrencies so that people can take more informed and protected risks. I am not telling you to or not to put money into cryptocurrency — however its widespread adoption by younger investors are opening doors to discussions that could make finance — and innovation — more accessible. Cryptocurrency, an idea that took root in the early 2010’s, is the epitome of technology and innovation, and is a reaction in the opposite direction of government regulation. It exposed the many flaws of the government in protecting people, and further exposed the elitism associated with financial management and retirement savings. From here, cryptocurrency provides an avenue to consider innovation in how it applies to global disparity. Cryptocurrency is not the answer to the gap in retirement savings between the wealthy elite and day-to-day people, but it shows how the government needs to step up to provide resources and increase accessibility to finance for regular people. If cryptocurrency is regulated, it could become a safe asset for not just tech-savvy men, but anyone hoping to save for a stable future.
