If an escalation in the Korean crisis gives us the worst possible outcome, nuclear war, which asset should we hold to keep value through the fallout?
If the world does go through a nuclear Armageddon, which form of currency could we expect to be using on the otherside? Although it’s a question no one wants to find out the answer to, it is one recently posed by investors as they consider the resilience of their portfolios in the face of an escalation of the Korean crisis.
Pyongyang has provoked Washington by threatening Guam, firing of a missile over the Japanese mainland and allegedly testing a hydrogen bomb. The insistence by the regional powers of America, Japan, South Korea, China and Russia, that diplomacy is at a premium, emphasises the fact that a nuclear conflict is a real possibility.
Writing in this month’s Atlas Pulse, Newscape CIO and Fleet Street Letter editor, Charlie Morris explains his belief that it would be gold that wins out following a nuclear exchange as the traditional infrastructures, physical and electronic, fall apart. Although this wouldn’t affect bitcoin, which could survive “as only one node needs to chug away”, it would affect its users. “While the people dashed to the countryside, I believe that Bitcoin’s network traffic would collapse until normality resumed. However, during the subsequent peace, it would soon resume. And when the economic system finally normalised, it would thrive again.”
A nuclear wasteland would clearly impact most assets, killing off many investment classes wholesale, but, while bitcoin would drop and then recover, gold would hold its own says Morris: “It ought to be that gold will hold its value, in real terms, throughout the period. The value of money would probably fall, and monetary policy would remain easy. A speculative premium is unlikely, as people would have more immediate concerns, such as the basic necessities of life.”
“All in all, gold should do its job and preserve wealth throughout the period. Even if the people didn’t carry on trading gold, the governments would – just as they have during past conflicts.
In the aftermath, the survivors would be more cautious and sceptical than they were before. The harsh reminder of the system’s fragility would make more people embrace alternative assets more readily. Both gold and Bitcoin would remain popular.”
Speaking on Atlas Pulse TV, Morris posed the question of which would be the better asset to have following a nuclear exchange to Adam Cleary, CEO of Cavenham Capital and allegedly the first person to put gold on blockchain. “You would want to have both,” says Cleary. “Obviously gold is completely physical, and does not rely on electricity so you would continue to own it. You would continue to have a historical store of value in that scenario.”
“I think Bitcoin would also continue and also be very valuable because of its open, permissionless, decentralised nature. I would expect society to default in a way to that transfer of value in that Doomsday scenario as long as the internet stays up.”
That’s a point echoed in academia. Kevin Dowd, professor of Finance and Economics at Durham Business School says both would spike as fear assets. “You’re looking at a kind of ‘prepper’ situation, we’re looking around and thinking ‘can we buy food?’ and so forth. Gold is much more reliable in that kind of scenario.”
Both Morris and Clearly point out bitcoin’s natural network ability, if the internet did survive a nuclear war would gold be able to compete with the cryptocurrency? “You might say it has a different network: everybody knows what gold is, it has traditional value, it’s something we can store easily and it’s not dependent on technology,” says Dowd. “Bitcoin is massively dependent on technology and that’s a key factor. If there was an EMP [electro-magnetic pulse] attack, then bitcoin would be buggered. I would go for gold. I know somebody in the street would take gold for payment, but I can’t say the same about bitcoin.”
It seems the survival of the internet and power sources may be the decider in such a world. Although no one wants to find out the real answer anytime soon, it is perhaps worth noting that while the computers that make up the internet do not require bitcoin to work, many of them do rely on gold’s conductive properties to function…
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