When it comes to investing, your primary goal should be the preservation of capital. Thus you try and forecast possible scenarios and accommodate for potential risks. To reduce risk, one typically hedges a portfolio with a non-correlated asset to offset potential losses. This is in an effort to protect the overall value and then rebalance as necessary. Unfortunately we've entered into an unprecedented time where we've seen a selloff of almost all assets.

This is my rough two cents of how I could see things play out in a worst case scenario over the next decade and why I hold crypto as a hedge against my other holdings.

I've known about Bitcoin since 2017 and have followed it with only a minor position until this year. What first peaked my interest was the looming debt issue and the deflationary environment we were heading into. People like Ray Dalio were fairly open about it, even giving out a free pdf on the 'Debt Crisis'. The US was providing quantitative easing which almost seemed like a regular occurrence and the market was increasing as a result of share buy backs.

The government was like the Titanic, having already hit an iceberg, it was looking for the ship that might save it. Covid might have been that solution. This event would provide the government and the Fed the opportunity to inject trillions of dollars without question in an effort to refuel the economy and fill the deflationary gap.

Due to extended shutdowns and the coming economic issues, it's likely this event will backfire. Injecting a mass amount of capital could have helped to boost the M2 money supply and increase velocity while helping to fill the deflationary gap. Now the extended duration of the event is going to demoralize the people no matter how much money is produced and distributed. People will inadvertently pay down debt where possible and save in fear of further hardship while corporations will lay-off, pay down debt and contract until they see signs of spending. Thus a further downward spiral and further deflationary affects that the Fed was trying to correct for.

Luckily, being the reserve currency and the fact that this is a global issue, there is still demand for the dollar which gives it strength for now. Europe has already had negative rates and the US is quickly approaching such conditions. Typically printing more dollars devalues the currency thus inflating the value of scarce assets like gold, silver, and yes, Bitcoin. Devaluations with currency wars will likely help aid Bitcoin's price appreciation and other assets.

It’s been obvious that markets haven't been acting rational as equities have been going up without any real signs of improvement and silver's paper price has been decoupled from it's physical over-the-counter price. Bitcoin also fell along with the rest of the market. This was primarily due to exchanges going down from what may have been intentional attacks. This event caused the liquidation of long positions thus creating selloffs. As a person who follows technicals, I noticed a weird break in patterns when the Bitcoin market turned downwards after a 200 day golden cross the week before the stock market crashed. Typically a golden cross signals a long bull run. It's definitely a traders market with so much uncertainty.

It's been discussed that the Fed was going to purchase ETF's that track corporate bonds. I wouldn't be surprised if we see the Fed attempt to buy ETF's with securities to prop up the wealthy. Corporate share buybacks will likely benefit corporations in the near future when rates rebound and offset the carry cost. The return on investment capital should be greater than the weighted average cost of capital. I think there will be perceived value in equities due to future inflation of all goods and services but in terms of real adjusted values, I think it will be minor without additional government spending.

Without forcing a transfer of wealth between generations, the only real solution at this point would be mass government spending on infrastructure. This would include projects such as possible high speed rail, solar farms, desalination plants, low income housing, and other infrastructure upgrades. Unfortunately, bureaucracy and regulations often take to long in order to make this effective without extreme measures. Any new infrastructure would likely take two to three years. It seems like the current plan is just to print more money.

It's already anticipated that GDP will be down, the unemployment rate will remain high, and wages could decline as debts increase unless ample stimulus is given. All of this could result in another downturn in real estate as it's closely tied to income and employment numbers. Those investors who derive their livelihood from rental income have seen a dramatic hit as rental payments have been frozen.

We are in the middle of a Millennial economic boom and this may be to their advantage. Their wage growth in conjunction with spending could help to pull us out if they are given the opportunity. Once things open up, we may see Millennial investment in crypto and ETF's through company funded 401K's.

Those already in bonds are safe until maturity as they are currently selling at a premium. Unfortunately, no one will want new bond issuances with coupon rates at almost zero. When things do resolve themselves there will be so many dollars in the market we will see inflation. As inflation increases we'll see a massive devaluation in bonds and corporate debt which could cause a potential bond crisis. This will result in a number of cascading effects. There will be corporate insolvency issues as they won't be able to refinance their debt; a collapse in the junk bond market and a devaluation in treasuries. As a result, the Fed may have to buy up the collapsing bond market. This would send a wave of US dollars ushering in a possible dollar collapse and hyperinflation. We would then be at a tipping point which would give way to the rise of the digital dollar. Ultimately, the digital dollar will benefit the government as a tracking tool and allow them to tax every transaction which may have otherwise gone unrecognized with paper fiat. During this time the dollar could lose it's dominance in which case we may see war in an effort to protect the dollar.

If I'm wrong, I win because of the upside in the market and all things remain the same, ceteris paribus. If I'm right on potential risks, hopefully my crypto position will be a good hedge.

Note: This is not an offer to sell or the solicitation of an offer to buy securities or other instruments mentioned. I do not represent any of the affiliate links, brands, or companies mentioned. Cryptocurrency is a speculative and high-risk investment with the potential for loss. This article is for informational purposes only and is not to be seen or used as financial, tax, or legal advice. Please consult a professional adviser and tax accountant prior to any investments.