The Dollar Going Off the Gold Standard: What Does that Mean?

Gold has hypnotized humans for millennia. Ancient Egypt, in particular, was a fan and used gold for everything from pyramid capstones and jewelry to masks, ornamental weapons, and funeral art for pharaohs. Historically, across nations, the precious metal symbolized wealth, status, and power. 

It wasn’t long before gold became the medium of choice for currency in many countries. Besides being eye-catching, gold’s unique qualities make it one of the few non-reactive elements that are easy to extract and carry. It’s also durable, has the right amount of scarcity, and is easily distinguishable from other metals.

The rise of the gold standard

The first recorded mint was around 650 to 600 B.C. in what is now modern-day Turkey. The stamped coins were a mixture of gold and silver and formed a convenient payment method. Other nations soon started using coins once they realized its practicality. 

Then around 800 A.D., during the Tang Dynasty, China paved the way by creating the first paper money. The government used these certificates to pay local merchants. It was only in the Song dynasty, in 1023, that the government enacted a law declaring only government banknotes as an acceptable payment method. These banknotes could be exchanged for metal coins, salt, or liquor. 

It would take centuries for other countries to adopt a paper currency, and centuries more for the gold standard to come into being. The gold standard backs the value of money with gold so that people can convert currency into a set amount of gold. 

The U.S. established a united national currency in 1787 through the U.S. Constitution, which gave Congress the powers of coining money and regulating its value. The country used a mix of copper, silver, and gold coins until gold was pushed out of circulation by silver’s declining value. It wasn’t until 1834 through the Coinage Act that there was a shift back to gold. 

While the country flirted with paper currencies in the mid-1800s, it was with the National Banks Act in 1863 that the government established a national currency. Citizens could still redeem the money for silver or gold. On the other side of the ocean, the United Kingdom’s Parliament had already passed the 1844 Bank Charter Act, where Bank of England notes were recognized as legal tender and fully backed by gold. Congress would eliminate silver as an exchange option only in 1900 through the Gold Standard Act.

The first hit to the gold standard

Up until the early 1900s, the United States had a big problem that put the nation’s financial stability at risk; bank runs. Banking panics occurred when people withdrew money from banks because they doubted the bank’s solvency. This was often brought on by another nearby bank closing or market conditions. Ironically, large crowds withdrawing money at once often drove otherwise stable banks to close. 

Bank closures during runs were a symptom of another issue with the country’s monetary system—that of its legal tender not being able to grow and contract to meet consumer demands. Congress created the Federal Reserve in 1913 in response, commonly referred to as “the Fed,” to address the problem. 

The Fed was charged with maintaining the gold standard, but it indirectly loosened strict ties between the dollar and gold. To keep banks afloat during panics, the Federal Reserve could create Federal Reserve notes, a new form of money, and only needed to equal in gold a fraction of the money issued.

Major historical events causing the gold standard to crumble

Only a few short months after Congress created the Fed, the U.S. and European governments temporarily suspended the gold standard to fund military expenses during World War I. By the end of the war, many countries returned to a modified gold standard or abandoned it entirely. For instance, Germany couldn’t go back to the gold standard because much of its gold was lost in making payouts to other nations for the damages it caused. 

Countries realized during the war that it wasn’t necessary to tie their currency to gold for a healthy economy. In fact, when the Great Depression hit the United States in 1929, the gold exchange standard contributed to deflation and high unemployment rates in the world economy. As the Great Depression worsened, countries still clinging on to the gold standard dropped them entirely—including the U.S., which completely abandoned it in 1933

During that year, President Franklin D. Roosevelt issued an executive order stating that all citizens turn in their gold. Cash also couldn’t be converted to gold anymore. Then in 1934, Roosevelt enacted the Gold Reserve Act, which built up the nation’s gold reserve by banning gold’s export, stopping its convertibility, and restricting its ownership. In turn, the government raised gold’s price to $35 per ounce to inject more money into the economy and help the nation recover from the Great Depression. 

During World War II, gold’s role was also severely hampered in the international landscape under the Bretton Woods Agreement of 1944. Whereas before countries could exchange their currency for gold, allied countries agreed to redeem their money for dollars instead—effectively transitioning the world to a U.S. dollar standard instead of a gold one. The agreement made sense because the U.S. held three-fourths of the gold supply and countries already used dollars to settle accounts with one another.

How inflation and a looming gold run became the last two nails in the coffin

Since under the Bretton Woods Agreement countries weren’t converting currency to gold, there was less of an incentive to keep currency values the same as official rates. The U.S., being the key player of the system, also issued too many dollars to keep the gold price at official rates and prices stable in the economy. The resulting inflation only worsened in the ensuing years. 

Decreasing domestic exports as other nations like Japan became more competitive also meant that, eventually, there was more foreign-held currency in the world economy than gold. This made it more desirable to convert U.S. dollars to gold and threatened the world’s confidence in the dollar and Bretton Woods System. 

Fearing a gold run and desperate to address domestic inflation, in 1971, President Richard Nixon announced the country would stop converting dollars to gold at a fixed value, completely abandoning the gold standard. 

In 1976, the government officially severed any ties to the gold standard by changing the dollar’s definition to remove any references to gold. The dollar became purely a fiat currency, meaning paper money and coins are legal tenders only because the government says so and not because they are backed by gold.

The impact of moving away from the gold standard on monetary policy

Liaquat Ahamed, a professional investment manager and author of the Pulitzer prize winner, “Lords of Finance: The Bankers Who Broke the World,” states in his book that the break with gold was mostly responsible for pulling the nation out of the Great Depression. It allowed the U.S. government to adjust the supply of money in the economy and influence interest rates. In later years, Nixon’s announcement also stopped dollar-rich foreigners from emptying the nation’s gold reserves.

But other side effects of moving away from the gold standard are arguably not as great. Because currency isn’t backed by gold, it’s much easier to print and borrow money, which might explain why the U.S. debt is $22.8 trillion (as of 2019). More dollars in the economy also creates inflation and cheapens the dollar’s value. When dollars don’t stretch as far as they used to, it’s the nation’s poorest who struggle the most to survive and make ends meet. 

Could we see a comeback of the gold standard?

Going back to the gold standard enforces more accountability in government borrowing and money printing. But, in practicality, a shift back to the gold standard is more idealistic than realistic. 

The United States only had a genuine gold standard for 54 years of its history, from 1879 to 1933. Before that, it had a bimetallic standard, and afterward, it was only a semi-gold standard that gradually moved to a fiat-only standard. And the move to pure fiat happened because it wasn’t possible to maintain links to the gold standard while ensuring the nation’s economic stability. What worked in the past wouldn’t work again in today’s complicated money system.

The gold standard was useful in establishing a financially secure economy during simpler times. However, most world economies are now too complex to rely on limited gold reserves or another commodity. In addition, the U.S. also doesn’t have enough gold at today’s fixed rates to pay off debts with foreign investors. With the move back to gold is almost an impossibility, the season is ripe for non-commodity backed types of currencies to flourish in today’s economy.

Finance Strategists: Interview with CEO of SALT Justin English

image of Justin English, CEO of SALT

Introduction

Success leaves clues.

Finance Strategists sat down with Justin English, CEO of SALT Lending. He shared his thoughts on the past, present, and future of the company, as well as the insight he has gained from running the business.

Who is Justin English?

Q. Who are you and what’s your background?

I’m Justin English. I joined SALT as CEO in May 2020. Prior to my role as CEO, I was first and foremost an early customer and investor in SALT and began consulting for the company and serving on its board in fall of 2019.

Before joining SALT and entering the crypto space, I spent more than 15 years across the private equity, early stage venture capital, consumer products, supply chain, manufacturing, distribution, and consumer services industries.

An entrepreneur at heart, I’ve been personally invested with capital and have spent my career understanding business drivers to influence implementation in the real world, which has aided me in my ability to serve as an advisor to early-stage organizations as well as those that are growing and scaling.

Q. Who has been your biggest influence, and why did they have such a significant effect on you?

My college economics professor had a significant impact on my ability to think critically and bring insight into a discussion. Before each class, we were all expected to read The Economist and be prepared to discuss that week’s issue of the magazine. Our entire grade was based on these discussions and the insights we produced throughout them.

The exercise taught me to pay close attention to the nuances of the story or issue being discussed and formulate intelligent, thought-provoking questions as a result. I learned to identify the most common assumptions on which people would base the discussion and then question and poke holes in those assumptions. I’ve leaned on this tactic throughout my career and still use it today, as it always makes people stop and think, resulting in a more insightful discussion overall.

Q. Knowing what you know now, what advice would you have given your younger self?

I was extremely stubborn when I was younger and set on learning in my own way, through my own failures. If I could give one piece of advice to my younger self, it would be to use my resources and learn from the achievements and failures of those who came before me rather than repeat their mistakes and failures purely out of stubbornness.

Business

Q. What is SALT Lending?

SALT is a fintech company with a focus on crypto assets. Our mission is to build products that increase access to financial opportunities and give people more control over their ability to generate long-term wealth.

The first to offer crypto-backed lending, we accept crypto assets as collateral for cash loans, enabling crypto holders to get value out of their assets without having to sell or rely on the traditional banking system.

Aside from our lending product, we are excited about the upcoming launch of the SALT Card — a crypto-backed credit card that will allow customers to borrow against their crypto assets and use their crypto for everyday purchases without having to spend any of it, all while earning crypto rewards with every purchase.

Q. What makes SALT Lending different from its competitors?

SALT is different from our competitors in three key areas: the combined experience within our team enables us to continuously improve operational processes and make space for innovation; our management team and our ability to build and invest in value-creating technology (SALT Stabilization, StackWise, our Loan Management System, trading execution platform); and the fact that we’re leaning into transparency and compliance and have been a publicly reporting company since early 2021.

From a customer perspective, we often stand out for our customer service, as SALT customers love knowing that at any point, they can speak to a real person who can walk them through any issues they’re experiencing or answer any questions they may have.

Q. What led you to join SALT Lending?

Having started as an early investor and SALT customer back in 2017, I was among the first to ever hold a crypto-backed loan and explore SALT’s platform. I experienced the benefits and pain points of the product first-hand and later joined the Board of Directors, which enabled me to provide feedback on the technology and product offerings and offer guidance on what improvements could be made.

I continued to be a customer throughout my engagement with SALT and took on the role of CEO in 2020 with the intent to improve our lending product and expand our product suite to provide greater value for our customers.

Since becoming CEO at SALT, my goal has been to create products that incentivize people to develop strong financial habits that will enable them to build generational wealth– the SALT Card is the first manifestation of this goal, as we seek to take the traditional concept of credit and disrupt it.

With this product and future products, we want to change the way people think about debt and credit and empower them to move from building up “bad debt” to generating wealth simply by developing better habits and getting more value out of the assets they already own.

Q. What has the experience of building the business taught you?

While I’ve learned a lot from building the business at SALT, some of the greatest things the journey has taught me are leadership and softer skills, which I’ve come to realize are way more important than I’ve previously given them credit for.

Aside from that, I’ve learned the importance of pragmatism when it comes to making business decisions. I’ve seen so many peers fall into the trap of becoming too emotionally invested in something to the extent that the sunk cost bias clouds their judgment and creates a tunnel vision mindset.

I’ve always been a pragmatic person, but my experience as an entrepreneur and my current role as CEO at SALT have helped hone my ability to compartmentalize and look at things from different angles. I make a conscious effort to take a step back and look at problems from a really plain, simplistic view.

For me sunk cost equates to learning, not failure. In leading a business I’ve learned that when it comes to problem-solving and decision-making, you have to invest time and energy and take note of the process and the journey as you go along.

With this mindset, I’m able to emotionally detach from the investment itself and look at it not as a sunk cost, but as a necessary process that has enabled me to make more informed, objective, and sound decisions.

Q. Where do you see things headed for you and the company in the next five years?

As crypto becomes more widely adopted and emerging businesses continue to challenge the traditional financial system, we want to help consumers achieve financial freedom by shifting the way they think about credit and wealth.

The traditional system does not set consumers up for financial success. In fact, it does the opposite, as it is structured in such a way that encourages the accumulation of “bad debt” and borrowing against future income to enable living outside of one’s means.

Once consumers fall into this trap, it’s extremely hard for them to get out of it and it becomes cyclical. We want to fundamentally change the way people think about their finances by educating them and building products like the SALT Card that incentivize good habits like saving and building generational wealth.

Note: This article was originally published on Finance Strategists.

The most confusing economics concepts explained series part 3: Supply and demand

scale showing supply and demand

Have you ever wondered why the price of something might change suddenly? Like, for instance, the skyrocketing prices of above-ground swimming pools amidst the coronavirus pandemic? One common reason lies in the concept of supply and demand. This economic principle has a very real effect on how products are priced and your ability to obtain the goods and services you want and need.

What is supply and demand?

“Supply and demand” is a fundamental economic model that explains how the availability of a product or service (the supply) and the number of people who want to buy it (the demand) determine its price. For example, the supply of a popular, limited-edition pair of sneakers can determine how much people will pay for them. If there is a limited supply, and they are set to sell out quickly, the asking price can be higher than a similar sneaker with a much larger supply that people know they can buy at any time. However, there is a limit to the asking price. Even enthusiasts will eventually refuse to buy at a certain price point.

As a consumer, you only have so much money to spend, and if you buy a pair of sneakers, you can’t buy anything else with that money. So the cost of the sneakers has to match their value to you. The seller must try to ask for the highest amount they can without tipping the scales and turning off your sneaker demand. This relationship, or tension between supply and demand, can keep the prices for many goods within a reasonable range—provided they aren’t interfered with artificially.

There’s more to it

Whether you look at shoes, real estate, or stocks, the less there is of something, the more the seller can ask for it—assuming there’s a real demand. For example, there may be only two houses available in a particular lakefront residential area, but if the water is polluted or if it’s next to a noisy highway, the houses will still be hard to sell at anything but a very low price because the demand will be poor. However, if the location is desirable, the lack of choices will increase the demand and prices. 

There are also some instances where supply can’t keep up with demand, and the seller can continue to sell at the highest price possible. The price may be kept high until the demand falls, or the supply increases to the point where there is no threat of losing out by waiting for a better price.

Perceived supply and demand matters

One final thing to know about supply and demand is that it doesn’t depend on facts to influence the market. A perceived supply can determine price just as much as actual supply. When consumers worry that there may be a shortage of an important household staple, it could cause them to assume a limited supply and run out to buy more than they normally would. 

We saw this in the spring of 2020 when COVID-19 was hitting the news cycles and people were stocking up on toilet paper. The uncertainty of the situation caused people to speculate that there may not be enough toilet paper for their needs, so they bought more than usual and prompted a shortage, as well as a price increase. This caused the perceived threat to become (at least for a time) a reality. 

So whether real or perceived, supply shortages can drive demand. Further, demand can be reduced by supply surpluses. And this ongoing ebb-and-flow causes the prices you’re asked to pay to fluctuate. 

The Most Confusing Economics Concepts Explained: Purchasing Power

Purchasing Power, man looking at chart

Have you wondered why your dollars don’t stretch quite as far as they did last year or the year before? How about 10 years ago? Many factors continue to drive inflation up which, in turn, lowers what a dollar can buy. This leads us to the confusing economic concept we’ll explain this month: purchasing power. 

What is purchasing power?

Purchasing power refers to the number of goods and services that you can buy with an amount of currency. For example, if you can buy a month’s worth of food for a family of four with $500, your money has more purchasing power than when $500 can only buy three weeks’ worth of food. But why is purchasing power important?

Why is purchasing power important?

Purchasing power has far-reaching impacts from the individual level to the global economy. 

People need items like food, clothing, and shelter, and manage their budgets to meet those needs. When the cost of necessities becomes too high for the wages earned in an area, economic problems result. Excessive inflation and reduced purchasing power are hard on communities, and statistics have found correlations between crime and poverty

Purchasing power, inflation, and investments

There’s another aspect to purchasing power that’s important, however, and that is in relation to investing and the markets. When purchasing power goes down, it’s almost always due to inflation. For investors, this drop in inflation matters. Inflation can help them make more money on loans they issue to borrowers but it can also make some investments too expensive to participate in, such as real estate or bullion.

Hyperinflation, or the rapid inflation of currency (usually a rate of more than 50% per month), can be a sign of an unhealthy economy and can spook investors. It also may be very hard for small businesses to access the loans and lines of credit they need to expand product offerings or provide services to new areas. This can reduce activity in the market.

The global impact

The global impact of a lower purchasing power in many countries at once is real, as well. Significantly weakened economies have resulted from prolonged periods of hyperinflation and decreased purchasing power, which can lead to the destabilization of more than currency. An entire country’s credit rating may decrease, leading to opportunity losses for the country’s citizens, ruined trade agreements, and difficulty in achieving global expansion. In countries where hyperinflation is the norm, political unrest has often resulted. Lebanon saw a 50 percent increase in the cost of basic consumer goods, one of the factors leading to mass protests.

A steady decline in purchasing power

It’s not surprising that a dollar doesn’t buy near what it did 100 years ago ($1 in 1913 equals $26 in 2020). The history of purchasing power in the U.S. is a predicted one of decline. The dollar has consistently bought less decade after decade, with few exceptions. Significant historical moments, such as the oil crises in the 1970s and 1980s or the dotcom bubble of the 1990s have pushed purchasing power down more rapidly. Even with the dollar bouncing back here and there over the years, 1913 marked the high point of purchasing power for the U.S., and we have never returned to that level.

Solutions for diminished purchasing power

An out-of-control decrease in purchasing power can be catastrophic for an economy. When people can’t make their money stretch to buy the food or housing they need, the government may step in and try to quell the negative consequences. One way they may do this is by monitoring the consumer price index; then, the Federal Reserve may choose to drop interest rates to encourage borrowing, lending, and purchasing. Other mechanisms, like increasing minimum wage or offering tax incentives, are other methods to help bring purchasing power back up, at least temporarily.

While decreasing purchasing power can start small, usually at the household level, it has vast effects that can reach the global economy at large. What we see in a family’s budget, for example, may be a sign of larger economic forces and shouldn’t be ignored.

SERIES: The Most Confusing Economics Concepts Explained: Inflation vs. Deflation

Inflation and deflation are common economic terms that can be a bit confusing. They aren’t always addressed in school, but they affect our lives in so many ways. While the causes and consequences of inflation and deflation can be complicated, their definitions are surprisingly simple. Here is what you should know about these two terms and their role in a greater economy.

What is inflation?

In the simplest terms, inflation occurs when the price of goods and services goes up over time. It can happen slowly, over decades, or with sudden and devastating effects. Not every economist agrees on the reasons for slow, gradual inflation. It’s often tied to factors like market demand or the availability of certain goods and services.

Inflation in action

A current example is the inflated price of backyard swimming pools, pool filters, and pool maintenance supplies. With COVID-19 precautions closing many local swimming pools, more people than ever decided to put up backyard pools this summer. This increase in demand forced the price of pools and supplies up; another factor was the scarcity of some pool supplies since they have traditionally been manufactured in countries that slowed or shut down production due to COVID. The combination of increased demand with a short supply led to a deep inflation in the cost of these goods.

Hyperinflation

There’s more to the story, however. When both the cost of goods goes up, and the value of the local fiat goes down, it’s often referred to as “hyper-inflation,” especially when both happen in a short time frame. Unlike standard inflation, which experts aren’t always able to attribute directly to a source, economists tend to agree on the cause of hyperinflation.

The most common cause is a sudden and excessive growth of a country’s money supply. How does this happen? The Fed usually plays a role in making more money available in a strangled economy. Additionally, it’s not uncommon for governments to step in and tinker with interest rates or offer economic cash infusions (stimulus payments) in an attempt to stop the financial bleed that frequently happens with long periods of hyperinflation. Unfortunately, the bandaids for hyperinflation can often make problems worse.

How can you know if we’re in a period of inflation or hyper-inflation?

While the Fed aims for a rate of 2–3% per year inflation, this isn’t always manageable. Venezuela, for example, has seen inflation rates of 200,000% in a single year, an obvious sign of hyperinflation. It doesn’t have to be that severe to be counted, however; experts define anything above a 50% annual inflation rate to be a form of hyperinflation.

What is deflation?

The exact opposite of inflation, deflation, is the decrease in the cost of goods and services. It is usually accompanied by an increase in the value of the fiat. While some see this as a pleasant situation, deflation can be difficult for lenders who rely on climbing interest rates to make money on the cash they lend. Too much deflation or inflation can hurt essential industries. It can also harm consumer confidence over time, as people can get used to seeing prices go lower and actually hold on to their money waiting for the absolute best price. This can further aggravate the deflation cycle, something we saw during the Recession of 2008.

Remember, the role of government, unemployment, natural disasters, and technological advances can impact the cost of products we buy. Further, in the U.S., inflation doesn’t always happen across the board; consumer categories such as food and housing may see inflation over time, while items like electronics or clothing may see deflation during the same period. While consumers can’t always do much to affect inflation or deflation, we can better prepare our investment portfolios to secure our individual economic futures.

SALT Stabilization: How it Works

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I’ve Been Stabilized. What’s Next?

When your Loan-to-Value ratio (LTV) exceeds 90.91%, we stabilize your loan by converting all of your volatile assets into stablecoin (USDC).

At this point, you will notice that your USDC wallet reflects the total US Dollar value of your combined portfolio. Each collateral wallet balance will show $0. Don’t panic!

How Do I Convert Back to My Original Assets?

To get your original assets back, you will need to manage your LTV and restore the health of your loan to a safe state (83.33% LTV or lower). To do this, follow these steps.

  1. Navigate to the Loan Status page or click “Manage LTV” in the notification module on the dashboard.
Image for post 2. Manage your LTV by either depositing more crypto or making a one-time payment in the Manage LTV Module. Image for post

3. We recommend curing your LTV to a healthy state (<70%), but as long as you have managed it to 83.3% or below, you will be eligible to convert.

4. Navigate back to the Loan Status Page. You will see that your LTV has dropped, but you are still being held in Stabilization Mode.

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5. In the Manage LTV module, you will notice that you are now eligible to convert. Click “Convert Now” to convert back to your original assets or to a mix of any assets we accept as collateral.

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6. The convert tool will default to the percentages of your original collateral mix. You may edit this and convert back to a different collateral mix if you’d like.

7. Click “Next” to review the details of your conversion and then click “Convert Now” to confirm. Once confirmed, you will have successfully reverted back to your asset mix of choice.

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Still have questions about stabilization?

Please call our support team at +1 (720) 575–2272.

How to Grow Your Business Capital Through Cryptocurrency

By Annabelle Pollack

Disclaimer: Buying cryptocurrency is risky. This article is for informational and educational purposes only and does not constitute investment or financial advice.

Cryptocurrency is reshaping the finance and business worlds. Not only has it challenged conventional thinking, but it has provided new avenues for entrepreneurs and business owners to start and grow their businesses in these uncertain times. Many of them have turned to crypto as a way to raise initial capital or to fund ongoing operational costs. If you’re seeking creative ways to grow your business capital through cryptocurrency, there are a few ways to go about it — the most important thing when it comes to getting involved with crypto is doing your research to identify the best avenue for achieving your business goals.

Choose the right cryptocurrency for your business

When it comes to determining which cryptocurrency is the ideal fit for your business, you have several options from which to choose. At the moment, there are already more than 1,000 unique cryptocurrencies in which you can transact. But just as there are blue-chip stocks, a guide to cryptocurrencies by FXCM details how some digital currencies are considered the “gold standard” of the industry. At the top is Bitcoin, which is regarded as the first incarnation of cryptocurrency and is projected to have a market capitalization of $1 trillion in the near future. Next is Ethereum, whose $83 billion market capitalization is poised to expand in the coming years due to its growth potential in the online sphere. Then, there is Litecoin, and its surging market cap of over $18 billion. Bitcoin, Ethereum, and Litecoin are seen as the strongest investments, with Yahoo! Finance noting how a high market cap is indicative of high investor activity. All three are extremely liquid, too, which means they can be easily sold at the market price. Each cryptocurrency is different and may boast specific features that others do not. Some factors to consider as you’re choosing a cryptoasset for your business are security, privacy, transaction speed, block times, market cap, liquidity, and the blockchain upon which the cryptocurrency is built. Once you identify which factors are most important to you, you can narrow down your options and choose the crypto(s) best suited for your business.

Buy and Trade Crypto

Once you’ve done your research, identified your cryptocurrency of choice, and learned the ins and outs of the industry, you can evaluate whether you’re confident enough in your knowledge to move forward with buying and trading digital currencies. That being said, it’s essential to prioritize safety and security regardless of whether you’re trading frequently or buying for the long term. A good way to do that is to find a reputable online cryptocurrency trading platform that can help you buy and trade crypto, as well as help protect your investments. Some trading platforms even offer crypto CFDs (not available in the United States) that don’t require a special wallet or exchange account, but will ask you to speculate on the direction of their price movements instead. You can also invest in several coins at the same time, as doing so may help you mitigate the risk that comes with putting all your eggs in one basket. This way, you’re more likely to see your business capital increase.

Get a crypto-backed loan

In an instance where you need cash but are unwilling to part with your crypto entirely, consider taking out a crypto-backed business loan. As the name suggests, this type of loan is secured by cryptocurrency, offering a way for you to get cash or stablecoin without having to sell your cryptoassets. The amount of cryptoassets you’ll be required to put up as collateral is contingent on a few factors including your loan amount, loan duration, and Loan-to-Value ratio (LTV). If this option appeals to you, a SALT loan might be just what you’re looking for. SALT accepts a dozen coins as collateral including Bitcoin, Ether, and Litecoin, and you can choose one or more of the offered collateral types to secure your loan. SALT also offers flexible loan terms, allowing you to choose your desired loan-to-value ratio from 30%-70% (amount borrowed divided by the value of your crypto), the duration of your loan (3–12 months), and whether you’d like to receive your loan proceeds in fiat or stablecoin. Interest rates are competitive, too. By taking out a crypto-backed loan, you can secure the funds to start a new business or operate and improve an existing one without selling your crypto.

Accept cryptocurrency payments

Another way that a business can generate further capital is to accept payments via cryptocurrency. For instance, Business2Community claims that businesses can lower the transaction fees involved during payment transactions due to the high number of peer-to-peer processing networks accepting popular coins. Compared to traditional methods like wire transfers and check payments, cryptocurrency can be a lot faster and more efficient. In addition, cryptocurrency transactions can be conducted directly between the business and the customer on the blockchain, which avoids the potential for third-party scams and external payment disputes. By accepting cryptocurrency payments, businesses can simultaneously grow their capital and streamline payment processes.

While there are significant risks that accompany cryptocurrency investments, doing your research and being diligent can help you significantly grow your business capital and fund new developments. Exploring different payment options and looking into specific coins can help you become more knowledgeable when it comes to determining the best way for you to start or operate your business.

 

SALT announces first-ever distributed custody model for securely storing collateral assets, onboards Fireblocks as first partner

This new model will allow SALT to distribute risk, enhance security, reduce interest rates, fund loans more swiftly, and focus on expanding its suite of wealth preservation products

We’re excited to announce Fireblocks, a platform that secures digital assets in transit, as our first partner for securely storing and transferring customers’ collateral assets. The partnership with Fireblocks marks a shift in SALT’s business model from self-custody to a more distributed custody approach that will allow us to onboard additional partners in the future and add greater flexibility for capital providers. This new approach also enables us to distribute risk, fund loans and conduct transactions more quickly, and provide customers with enhanced security for their cryptoassets, as well as lower interest rates on crypto-backed loans.

“When SALT was founded in 2016, custody wasn’t where it is now, so we built a proprietary custody solution to keep our customers’ collateral assets safe,” said Justin English, CEO of SALT. “Now that the industry has matured and companies like Fireblocks have come to the forefront, we’re excited to work with them to streamline our operations and expose their networks to our suite of wealth preservation products. They have a proven ability to safely and securely store and transfer collateral assets and to do so swiftly, which will inevitably allow us to provide faster service to our customers and focus more on product development.”

The move toward third-party custody solutions will also enable SALT to provide greater security and flexibility to capital providers that may prefer to work with a specific custodian, provided the custodian meets our rigorous security standards.

“MPC has quickly become the industry standard among the largest and most trusted institutions in the digital asset space,” said Michael Shaulov, CEO and co-founder of Fireblocks. “We’re proud to partner with the SALT team to help them strengthen security, reduce costs and expand operations as they move into the next stage of their growth.”

Fireblocks meets these security standards by combining multi-party computation (MPC) with Intel SGX technology to create a proprietary, defense in-depth approach to digital asset security — this allows organizations to accelerate operations without relying on physical hardware or slow, manual processes.

“Security is our top priority as we make this shift to be commensurate with our growth and distribute risk among trusted custodians,” said Dirk Anderson, chief technology officer at SALT. “The primary reason we’ve chosen Fireblocks as our first partner is because of their approach to MPC technology. Not only does it meet our security standards, but it will grant us more flexibility and increase the speed at which we can conduct transactions. This means we can fund stablecoin loans much faster and reduce the turnaround time for returning customers’ collateral assets once their loan has matured.”

From a customer standpoint, the biggest and most exciting changes to note are increased security, faster services, and the offering of lower interest rates. Aside from these changes, the customer experience will largely remain the same. Just as they do now, borrowers will still be able to make deposits and withdrawals, and will be able to continue tracking the health of their loan via our Loan-to-Value monitoring and real-time notification systems.

“We believe working with Fireblocks and other custody partners in the future is in the best interest of both the business and our customers,” said English. “Not only will we be able to offer more competitive interest rates, but we will have the time and resources to focus on expanding our offerings to include products that are designed to help our customers build and preserve their wealth.”

To apply for a loan or learn more about our suite of wealth preservation products, visit https://saltlending.com/getaloan/ or contact [email protected]. For questions contact [email protected].

About SALT

SALT, the pioneer of crypto-backed lending, offers a way for individuals and businesses to use their cryptoassets as collateral to secure a fiat or stablecoin loan without having to worry about credit checks. SALT offers flexible loan terms and accepts multiple cryptoassets as collateral including cryptocurrencies, stablecoins, and tokenized gold. SALT also offers competitive interest rates and does not charge origination or prepayment fees. As cryptocurrency becomes more widely adopted and additional real-world assets become tokenized, SALT’s mission is to offer solutions that make it possible for people to securely hold, manage, and borrow against their cryptoassets. Founded in 2016, SALT is headquartered in Denver, Colorado. For more information, visit www.saltlending.com or follow us on Twitter, Facebook and Medium.

All SALT loans are subject to KYC, AML, and other Terms, Conditions, and Restrictions. Please see saltlending.com/terms and FAQ for additional information. Loan options and terms may not be available in your jurisdiction, for your loan amount, and/or collateral type. SALT Loans are subject to jurisdictional limitations and other restrictions. SALT may not be able to offer a loan to all borrowers. SALT loans are originated by Salt Lending LLC. NMLS #1711910. NMLS Consumer Access (https://www.nmlsconsumeraccess.org/).

About Fireblocks

Fireblocks is an enterprise-grade platform delivering a secure infrastructure for moving, storing, and issuing digital assets. Fireblocks enables exchanges, custodians, banks, trading desks, and hedge funds to securely scale digital asset operations through the Fireblocks Network and MPC-based Wallet Infrastructure. They have secured the transfer of over $70 billion in digital assets and have a unique insurance policy that covers assets in storage & transit. For more information, please visit www.fireblocks.com.

Media Contacts

SALT

Kendra Staggs, [email protected]

Fireblocks

Yelena Osin, [email protected]

The Evolution of the Crypto Market and its Role in Asset-Based Lending

Originally published in ABF Journal

Cryptocurrency is a disruptor. Not only has it changed the way we conduct business, but it has changed the way we think. The most obvious manifestation of how cryptocurrency has disrupted our thought patterns is in the way we think about money — about who issues it, how to transact with it, how to put it to work and how to keep it safe. It also has changed the way we think about our government, our right to privacy and our financial freedom. What’s less obvious is how cryptocurrencies are disrupting the way we think about and participate in asset-based lending. The advent of Bitcoin catalyzed the creation of a myriad of cryptocurrencies, many of which became viewed as assets, yet at the time, there was no way for crypto investors to unlock the value of these assets without selling them. This is the problem SALT’s founders set out to solve in 2016 and in doing so successfully, made asset-based lending as we once knew it a thing of the past.

Creating a New Asset Class

As Bitcoin began to experience wider adoption following its release in 2009, it became clear that some investors were purchasing crypto to trade on a daily basis while others were choosing to invest long-term, viewing Bitcoin more as an asset than as a spendable currency. As more investors adopted this long position and began to think of cryptocurrencies as an asset class in their own right, the term “HODL” emerged in 2013 on a bitcoin-talk forum and has since become one of the most commonly used words in the crypto vernacular. This HODL culture has grown significantly over the years and has evolved to where investors are buying, selling and trading these assets not only for themselves but on behalf of others. This activity has taken the form of crypto portfolios and crypto funds, which offer access to this new asset class for individuals and allow them to diversify their portfolios while eliminating some of the overhead of learning how to purchase and safely hold cryptoassets. By providing a way to collateralize cryptoassets to secure a cash or stablecoin loan, SALT provides opportunities for individuals, businesses and capital providers to build and preserve wealth.

How to Lend Cryptoassets

As the first-ever crypto-backed lender, SALT has developed the technology and processes required to successfully lend against cryptoassets, giving borrowers a way to unlock the value of these assets without selling them. Take Bitcoin for example. It’s one of many cryptoassets we accept as collateral on our platform, yet it makes up more than 80% of the collateral securing our loan book.

What makes Bitcoin a strong form of collateral? The answer lies in Bitcoin’s combined characteristics. Like gold, Bitcoin is scarce, fungible, divisible, transferable and durable. It is also extremely liquid given it is traded on global exchanges every day. Additionally, as a decentralized asset, Bitcoin is highly secure. All of these properties make Bitcoin both a viable asset and a highly efficient form of collateral that has piqued the interest of some of the largest financial institutions in the world.

One thing to note is Bitcoin’s volatile nature, which can pose challenges specifically for the ABL market. However, SALT’s risk management technology effectively manages this volatility. Our technology includes real-time loan-to-value (LTV) monitoring, margin call and liquidation triggers, real-time notifications and the safekeeping of assets through institutional grade custody solutions. For example, our loan-to-value (LTV) monitoring system tracks the prices of assets 24 hours a day, 365 days a year, providing borrowers with the ability to monitor the health of their loan in real-time. If, during periods of heightened volatility, a borrower’s collateral declines in value and their LTV breaches our margin call threshold, we protect the borrower by issuing a margin call that prompts them to take action to restore the health of their loan. Actions borrowers may take include paying down principal or depositing additional collateral to recalibrate their LTV to an appropriate level (70%). If no action is taken and asset prices continue to decline, SALT has the ability and the right to liquidate collateral assets to preserve lender capital. The overcollateralized nature of our loans combined with our risk management technology and ability to liquidate assets enables us to protect the lender, and as a result, we’ve experienced zero losses of principal to date.

Choosing a Crypto-Backed Lender

SALT’s business model is attractive to crypto investors (e.g. traders and asset managers) and businesses (e.g. mining operations and exchanges) for a few reasons. First, we provide access to liquidity, offering loans ranging from $5,000 to the millions. Typical use cases include businesses seeking working capital to fund operational costs and large capital expenditures, or investors seeking leverage, diversification or risk management. Second, since our model is asset-based and requires overcollateralization, we do not rely on a borrower’s credit profile and can fund loans within 24 to 48 hours, assuming the borrower meets our strict AML/KYC requirements. Third, customers know their assets are safely and securely held with institutional-grade custody providers for the duration of their loan. Fourth, our loan process is straightforward and customizable. We allow borrowers to lend against a single cryptoasset or a portfolio of cryptoassets and offer flexible loan terms, including durations ranging from three to 12 months, LTVs up to 60% for individual loans or up to 70% for business loans, and competitive interest rates ranging from 5% to 12% depending on the borrower’s jurisdiction, loan amount and LTV. While we are no longer the only crypto-backed lender in the world, we are one of the few that incorporate a human element into our business model. Unlike completely automated lenders, SALT offers both phone and online support, and assigns each customer a loan support specialist at the time of loan origination. These human touches positively impact a borrower’s experience with the platform; they know that by choosing SALT, they will always have the option to speak with someone about their financial needs.

The Evolution of the Crypto Market and Tokenization

Since SALT’s founding in 2016, the crypto lending market has grown exponentially. According to a report from Credmark, the crypto lending market reached $8 billion in total lifetime loan originations as of Q4/19 and has since surpassed $10 billion following Q1/20. These numbers not only indicate the growing demand for liquidity among crypto holders but also the growing interest among capital providers to get involved in the crypto market. For example, we’ve witnessed an influx of both crypto native (BitGo Prime and Genesis Capital) and traditional financial institutions (Silvergate) that provide leverage and liquidity vehicles at the institutional level.

Another thing to consider regarding the evolution of the crypto market is that as the world becomes tokenized, the very definition of the term “crypto market” is changing. With the emergence of companies like Paxos and Harbor, we’re beginning to see increased tokenization of real-world assets like gold and real estate. At SALT we already accept Pax Gold (a gold-backed cryptoasset) as collateral on our platform and our vision for the future goes well beyond our current collateral scope.

The Role of Alternative Investments

As crypto becomes more widely accepted, a growing number of people are assessing their own risk profiles and determining the best way for them to participate in the crypto market. For those with lower risk profiles, the market has evolved in recent years to offer individuals or businesses indirect exposure to this new asset class. As previously mentioned, crypto portfolios and crypto funds are part of this evolution along with alternative investment companies like Cadence (portfolio company of Coinbase Ventures). Cadence is a securitization platform for private credit that grants access to exclusive high yield, short term investments traditionally reserved for institutions. In February 2020, we partnered with Cadence to offer prospective investors the opportunity to gain exposure to cash flows associated with a portfolio of underlying loans collateralized by cryptoassets. The first note of $500,000 was oversubscribed in five days and we have since worked with Cadence to issue $2.9 million in notes to investors to date. As more companies like Cadence provide structure, liquidity and indirect exposure to alternative asset classes like crypto, we expect to see even greater demand from investors seeking attractive risk adjusted returns.

Opportunities for Institutional Investors

There’s no doubt cryptocurrency has changed the way we think about asset-based lending. It has formed a new asset class and also has catalyzed the trend of broader tokenization — a trend that will inevitably expand the universe of collateral options and have a meaningful impact on the ABL industry. If you’re a decision maker at an institution and are interested in learning more, email [email protected] to discuss opportunities to build and preserve wealth in this rapidly evolving industry.

A CBDC Crash Course: Can sovereign-focused digital currencies become a monetary reality?

By Rob Odell

Article originally published on ValueWalk

China’s central banking system officially launched large-scale testing of what could be the world’s first digital sovereign currency. The People’s Bank of China, the nation’s central bank, is working with main banks in major cities, with a focus on digitizing the renminbi. During this trial, users register their mobile phone numbers for access to digital wallets. Through that access, they can use digital currency, issued by the central bank, to withdraw and transfer money, and to pay bills.

If this test is successful, it means that China could be one of the first countries to develop and maintain central banking digital currency, or CBDC. But China’s move toward CBDC doesn’t necessarily mean that other countries’ central banking systems will, or can, automatically follow. Moving an economy from bills and coins — whether physical or virtual — to 100% digitization isn’t something a country just does. Furthermore, there is the question of whether central banks can — or should — work directly with consumers and businesses, in direct competition with commercial and investment banks.

As such, the CBDC reality is a few years away.

Defining Digital Currency And Central Banks

Mention the words “digital currency” and the first thought that might come to mind is Bitcoin.

Certainly, Bitcoin, Ether, Litecoin, and other cryptocurrencies are digitized value exchanges, which can be used to buy goods and services. But cryptocurrencies and central banking digital currencies are two very different sides of the digital coin. While cryptocurrencies are privately developed and distributed, CBDCs are government-backed sovereign currency systems, complete with appropriate denominations. In other words, think digitized fiat currency, overseen by the central banks.

Much like cryptocurrencies, however, CBDCs are recorded on digital ledgers, which keep track of ownership and transactions by users with ledger accounts. But unlike cryptocurrencies, these ledgers would be overseen by central banks, which would also issue the currencies and process transactions.

Speaking of central banks, these institutions have big-picture monetary goals for the nations in which they operate. The above-mentioned People’s Bank of China, as well as the U.S. Federal Reserve, Bank of England, Deutsche Bundesbank, and others are responsible for national monetary policies. They also deal with the nation’s commercial and investment banks, as lenders of last resort. They aren’t in business to work with consumers or businesses.

Just because central banking systems don’t work on the commercial level, it doesn’t mean they haven’t. In writing for the National Bureau of Economic Research (NBER), economists Michael Bordo and Andrew Levin pointed out that central banks’ histories are filled with examples of interactions with consumers and businesses, and “often, these activities were considered more important for the central banks than the conduct of monetary policy, both in terms of daily operations and the priorities of top management.”

For example, the Bank of England conducted general business and consumer banking activities during the 17th and 18th centuries. And, in the United States, a highly successful post office savings bank system operated from 1911 through 1967, using the post office network to offer government-backed deposit accounts and other financial services. In many cases, postal banking performed central banking functions — such as funding two world wars — before the Federal Reserve stepped in to determine national monetary policy.

Digital Sovereign Currency Structure: The Theory…

Researchers and scholars have been pondering the idea of centralized digital currencies for a few years. The most recent study along these lines was released in June 2020 by the Federal Reserve of Philadelphia, and entitled “Central Banking Digital Currency: Central Banking for All?” Led by University of Pennsylvania economist, Jesús Fernández-Villaverde, the authors explored whether a central bank, such as the U.S. Federal Reserve, could successfully implement a 100% digital sovereign currency structure, which could realistically compete with commercial financial institutions without too much disruption.

The authors determined that, in theory, and absent any kind of financial panic, a digital conduit between central banks and consumers might be effective in optimizing fund allocations. Furthermore, a direct-to-consumer sovereign digital currency could help streamline and potentially eliminate current time-consuming and costly payment systems.

Bardon and Levin also suggest that central banking systems could offer digital currencies to the general public through specially designated accounts, opened in partnership with commercial banks. The banks could keep corresponding amounts of commercial funds in segregated reserve accounts at the central banks. Furthermore, setting up a CBDC infrastructure would be a straightforward process. Thanks to the internet, brick-and-mortar branches wouldn’t be necessary.

So, in theory, a CBDC is workable.

Now, The Reality…

China is pushing ahead to set up the first bona fide, workable CBDC. Meanwhile, other central banking systems, including the Bank of England, Bank of Japan and the Swiss National Bank, are working with the Bank for International Settlements (BIS) on additional CBDC research.

But the BIS cautions that jumping on the CBDC bandwagon right now will mean bumps in the road, mostly in the forms of security, convenience and accessibility. The current coins-and-bills banking system has sophisticated infrastructures in place to handle peak demands for money, and can support potential bank runs. Then, there are the questions about privacy and potential data breaches. Take for example, a situation in which the Federal Reserve issues $1 million to an individual’s stablecoin address. That individual then spends $100 from the same address at an online retailer.

Right now, with the way most blockchain technology functions, that retailer can look at that stablecoin address and see without question that there is nearly $1 million in the account. Cryptocurrency proves that while blockchain technology is great for anonymity, it is far from private. We must find a way to bring the same level of privacy to CBDCs as we currently experience with traditional banking, so that it is both private and public in all of the right ways. Until then, CBDC will likely remain more of a futuristic vision than become a reality.

And, from a larger-picture perspective, Fernández-Villaverde and his colleagues caution that the move to CBDCs could give central banking systems monopoly power, siphoning business away from commercial banks. Commercial and investment banks are set up to support maturity transformation — in other words, using consumer and business deposits for longer-term loans, such as mortgages. Central banks don’t have the capacity to do this; such a lack could be dangerous to economic policies.

Keeping It Cash … For Now

Though the Chinese central bank is experimenting with sovereign-backed digital currency and centralized ledgers, the CBDC concept isn’t close to implementation. Even China is phasing in CBDC very slowly. Coins and bills will be with us for a while longer, at least until security, accessibility and privacy issues — not to mention potential monopolization scenarios — can be worked out.

Still, the increasing use of cryptocurrency continues to prove that digital mediums of exchange are workable. As the People’s Bank of China continues working with sovereign-backed digital exchanges, other central banks will likely examine their own regulatory, legal and technical risks to determine the feasibility of CBDCs.