The content of this article is from Bitcoinmagazine
The following article describes the reasons for withdrawing BTC and using a self-custody service
Believe it or not, a BTC ETF is about to go live.
Market analysts say, “BTC ETFs are coming online, but we’re not quite ready for them.”
You may be excited to think that the old guard has endorsed BTC. with the launch of the BTC ETF, many investors will also have easy access to BTC exposure through the current accounts of large banks. BTC is rapidly gaining acceptance as a revolutionary value preservation tool.
However, as with many financial products on Wall Street, the average investor should proceed with caution. It is well known that the big banks do not care about the average person.
However, with BTC ETFs, the biggest pitfalls are far from just coming from the big banks. The pitfalls also come from the most powerful governments and the current source of the world’s currency reserves.
Before buying any BTC ETF, we all need to ask ourselves the question of who actually holds your BTC at the end of the day?
Today, this question may seem to show your ignorance, but based on past experience, it will be significant in the near future.
Where are your assets stored?
Over the past decade, fintech has made investing easier with the emergence of robo-advisors and game-like trading apps, but the underlying structure has not changed.
Why is this? Mainly because regulation dictates the asset owner and the type of assets held, but also how to prove ownership and management of the assets, and the whole paper-based process is old and uninnovative. The banking industry does not have much incentive to upgrade the back end of its systems. Most of the so-called fintech innovations are simply hiding the old world under a digital surface.
You can buy and view assets, such as stocks, bonds and ETFs, in brokerage apps, though the holders of these assets are regulated custodians. Most of the time, this doesn’t create problems and is actually more convenient for you. Can you go to a bank branch every time you want to sell a stock? The average investor has a digital interface to a back office custodian, which makes trading easier, but it does mean that your assets are held for someone else. The following section will explore why this is important.
As a native digital asset, BTC has its own unique characteristics. Most venues where BTC is purchased allow it to be withdrawn to a wallet. Because the entire process is digital, the purchase and withdrawal process takes only a few seconds. BTC on an exchange is kind of like cash in the bank, except that unlike cash, it doesn’t require you to go to an ATM or branch to withdraw money and then cut a hole in your mattress to hide it. Withdrawing BTC or any asset from an exchange is self-custody.
BTC is purely a digital currency, which makes self-custody of bitcoin much easier than dollar bills or stocks. The whole process takes just a few clicks of your phone, no trips to the bank, and could lead to a huge struggle to change the regulated custody model for most investment assets.
Most investment assets are held by a custodian, but in many cases it is very easy to self-custody BTC. So why should you hold other assets such as BTC yourself?
Why is it important for asset holders?
In developed countries, institutions work well, so it is hard to understand the importance of this issue. If you live in one of the developed countries, you may never have problems selling your assets or withdrawing money from your bank.
However, if you are in an industry that is a “gray area” for banks and governments, such as adult entertainment or gambling, you may experience frequent problems with frozen bank accounts or seizures of funds. If you don’t live in a developed country, you may know from experience the importance of self-custody, as bank failures, government confiscations or institutional corruption can cause assets to disappear.
Unfortunately, there are deeper dangers associated with this problem that affect everyone, especially for those living in developed countries that are heavily indebted in both the public and private sectors.
To illustrate the dangers, here is a look at how the richest countries have approached the problem of asset holding in the past.
Government theft of citizens’ savings
In the early 1930s, the U.S. government was in deep trouble. The Great Depression forced the government to print money, but its ability to pump large amounts of cash into the market to support prices had reached its limits. At that time, every dollar in circulation required at least 40 cents worth of gold for the Federal Reserve’s reserves. The Fed had already issued the entire value of the gold it owned into dollars, so it needed more gold and printed more dollars.
However, another problem created by the Fed printing money is that the reduced value of cash destroys the value of existing savings, meaning that for future savings, holding cash is a bad way to go. U.S. citizens who had to struggle to survive the Great Recession are now faced with the threat to the value of their savings and wages. They needed an asset that would not depreciate in value. At that point, that asset was only gold.
The U.S. government and U.S. citizens were snapping up gold. What happened next?
The U.S. government confiscated the citizens’ gold.
On April 5, 1933, President Roosevelt signed Executive Order 6102, using wartime powers that were still in effect, to make everyone turn in their gold coins and bars to the Federal Reserve on or before May 1 of that year, prohibiting any citizen from making any further purchases of gold.
Of course, the Fed would let everyone exchange their gold for dollars via gold at the then market rate of $20.67 per ounce. That seems to feel pretty fair doesn’t it? Less than a year later, after the Gold Reserve Act of 1934 was passed, each ounce of gold equaled $35, devaluing the price of the dollar by nearly 50%.
As a result, the Federal Reserve was able to continue to devalue the dollar, but the general public was prohibited from holding assets that held their value.
Those Americans who hid their gold coins under the floor had the opportunity to keep them from being confiscated. However, it was much easier for the government to confiscate the gold stored in banks because the authorities knew where to get it.
So the holder of the gold was important during this time.
Having said that, this was a very tense and extreme period in the history of the United States and the world. Do we have any indication that this history could repeat itself and what role would BTC play in it?
Is there a reason for the government to confiscate BTC today?
First, BTC is designed to counter the inflationary tendencies of governments and central banks, and it is important to understand this. When there is a recession, governments always try to print more money, falsely claiming that they are “meeting the demand for cash”. In reality, they are devaluing the cash and redistributing the value to others.
Here’s what Satoshi Nakamoto wrote in his BTC white paper
The fundamental problem with traditional currencies is that their operation is based on trust. People must trust that the central bank will not devalue the currency, but based on the history of fiat currencies, this happens all too often.
BTC represents a typical precious metal. Instead of maintaining value by changing the supply, it has a predetermined supply and the value changes based on the quantity.
This is why BTC is called “digital gold”. It provides depositors with value protection, just like gold did in the old days of inflation, and BTC is highly portable and can be traded at any time. No matter how demand changes, the supply of BTC remains unchanged. Precious metals are the only asset on the planet with a total supply similar to BTC, although their price is less predictable than BTC.
When governments decide to issue additional fiat currencies, store of value assets such as BTC and gold become store of value vehicles.
Conditions for government confiscation of BTC
If the accumulation of long-term debt leads to an economic crisis, then the government is justified in confiscating BTC, or any other store of value asset, as it did in the 1930s. The government would need to respond to the crisis by printing money to lower the value of the currency.
In this way, those who earn wages and have savings would be greatly harmed because their assets are in fiat currency. In turn, people will scramble to sell their depreciating fiat currencies and look for assets to preserve their value.
Because the devaluation of the fiat currency would cause a sell-off, the government could either watch the fiat currency and the power it brings disappear faster and faster, or use the power left to do what Roosevelt did in 1933. They could confiscate valuable assets and forcibly prevent further purchases of preserved assets, leaving individuals unable to protect the value of their savings.
Do these conditions exist today?
Now that debt levels are at record highs, are we facing a serious crisis that will lead to unprecedented increases? Are the prices of preserved assets rising?
Major crisis: the new crown epidemic
Record high debt levels
Unprecedented number of additional issues
Level of price increase for each asset class
With much of the world in recession this year and stock prices rising sharply, this is a classic situation as described above where everyone doesn’t want to hold cash and instead wants to buy other assets that retain their value. From January 1, 2020 to the time of this writing, the S&P 500 is up nearly 40% and Bitcoin is up nearly 500%. Even the price of lumber is up 230%.
Still can’t believe this is true? Ray Dalio is the founder and CEO of the world’s largest hedge fund, specializing in markets and economic cycles. In a recent article covering the current form of finance, Dalio compared the current situation to the 1930-1945 period, saying:
“If we follow history and logic, when governments are financially deficient, they raise taxes and don’t want those debt assets and capital to flow to other value preserving assets and other tax areas, so it is likely that a ban on capital flows will be imposed and assets will not be allowed to flow to gold, BTC, etc. These tax changes may be more frightening than expected.”
In times of crisis, your asset custodian is paramount. Will you leave your BTC on the exchange, give it to a custodian, or hold it yourself?
Withdrawing your BTC
The world is changing like never before, in ways that the vast majority of us have never experienced in our lives. History and logic suggest that what happened at the end of the last major debt cycle will repeat itself, with governments seizing the assets of their citizens, fixing their own messes, and bailing out a self-interested system.
This time, people have a more powerful tool to avoid this crisis. However, the tool has to be used correctly. Buying BTC but not holding it for yourself is like buying a helmet but not wearing it while riding your bike. It will not provide protection when you need it most.
BTC that is stored on an exchange or owned through an ETF product, your BTC will be confiscated when it is most valuable and necessary, and that is when the current monetary system has run its course.
Fortunately, buying and safely storing BTC remains simple today. You’re better off holding it yourself now, lest it be confiscated.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/why-do-you-need-to-withdraw-btc-and-be-self-hosted/
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