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Dealing with market downturns aren’t just a necessary part of living in advanced capitalism, but an unavoidable fact of life. What goes up must come down. Most people claim to hate them, but the truth is more millionaires are made during recessions than at any other time. So we labor on, we do our due diligence, make our decisions, and we hope they pan out.
Investment decisions, such as when to buy or when to sell, are some of the most important and private financial decisions most of us will make in our entire lives. We're inundated with information trying to influence us—from investment webpages to random Twitter or Reddit posts touting the merits of some company or commodity. It becomes hard to see the truth through the promo.
Now there are other problems. Advances in technology have further complicated the playing field.
Digital currencies have arrived
Built on blockchain technology, which we once thought was both private and transparent at the same time, we’ve now come to realize this is far more transparent than we’d like to admit. Anyone with the appropriate technological know-how can see your transactions, and taking things a step further is a quick step away from identifying who you actually are in the real world.
The truth is, financial privacy is needed for financial freedom, and this becomes more critical during a financial downturn. It serves as a hedge against reactionary regulatory actions, allows the free movement of market forces, and helps facilitate a strong and independent functioning economy.
As blockchain marches towards inevitable mass adoption, more of our financial data is going to be available to regulators and other interested parties. This could lead to more erosion of our privacy and a number of terrible consequences.
Here’s why we’ve got to change that.
The Logic of Markets
Recognizing what market downturns are and understanding the primary causes as to why they happen helps us understand why financial privacy is imperative.
Market downturns happen when investors react to external factors.
It could be rising interest rates, wars, political events, quarterly earnings, hacks, country-wide bans, or any number of other occurrences. Confidence in the companies or protocols that comprise the market may decline as a result, leading to lower stock prices or crypto prices in general. If this decline continues over a period of weeks, panic may set in.
Panic leads to investors selling their existing positions to stop their losses, which can trigger a domino effect that causes a further downward spiral.
Unfortunately most investors in a panic spiral act on fear, their minds hijacked into emotional decision making. They see their neighbor selling their positions, and assume the sky is falling. So they sell as well, their rationality thrown out the window.
Eventually, however, the market turns for the better, new productivity, discoveries, or adjustments are made, and the market starts to pick back up again.
This is a natural process of market cycles.
The market is driven by the opposing forces of fear and greed. The role of regulators should be limited to ensuring that no one party can gain an undue advantage on any other.
But regulatory bodies and government agencies tend to overstep their boundaries, acting heavy handedly on incomplete information. As we’ve seen during the pandemic this can result in directly funneling money into companies themselves, as happened during 2020 with the fed buying corporate securities. These actions drastically affect the markets.
But imagine if a regulator had even more information. A complete financial picture of everything that was happening in the market, including all transactions, wallets, and company balance sheets.
Regulators could provide incentives for investors to purchase stocks preferred by government initiatives, and in the same vein, provide disincentives towards purchasing those from companies presently in what they deemed to be ‘poor standing’. They could directly funnel funds into companies themselves.
The free markets, where individuals or companies can innovate and excel, would no longer be free.
These are crude oversimplified examples, but they demonstrate the power a completely informed government could wield if all of their financial data were consolidated and available. A free-market turned into a controlled group of ‘regulatory-favorites’ - eliminating free market signals of what is valuable and what is not.
But beyond the large-scale macroeconomic problems associated with lack of privacy, there are microeconomic dimensions of privacy in markets that can’t be forgotten.
A Question of Autonomy
The next level of the ongoing struggle for financial privacy is intensely personal.
Your ability and decisions taken to navigate your way out of a market downturn should be no one's business but your own. It should not be subject to outside scrutiny.
Privacy, and inherent financial privacy, is an inalienable human right. While written in the human rights code (signed by over 130 countries), it’s one that's been under attack in recent years, by both regulatory bodies and corporations, who seek to rebrand it as a ‘privilege’.
It’s not. It’s a human right.
And yet we see collusion of internet service providers (ISPs) and regulators: Giving permission for ISPs to package and sell data to the highest bidder. We see a violation of privacy in the incidence of power creep, wherein regulatory agencies grant themselves sweeping powers in the wake of a catastrophe or ‘pandemic’, refusing to give those powers up when the threat has passed.
Meanwhile, corporations sneak their ears into our phones, our computers, and our homes - with helpful trojan horses named Siri, Google, Cortana and Alexa - who extract exabytes of data every year. And why is this done? Because they want to sell you more stuff.
Unless decentralized private finance (PriFi) is adopted, financial privacy on the blockchain is the next domino to fall.
Having your financial positions, holdings, and transactions completely exposed and linked to you, could allow governments to re-direct investments, allow other companies to shift rates, and perhaps most importantly allow regulatory agencies to regulate or even block your spending.
There’s a world of restriction and control that opens up once you’ve got financial data connected to the individual.
Blockchain is heading in this direction already, and regulatory agencies are looking to accelerate the process.
All it takes is a new and convenient cryptocurrency. A CBDC.
CBDCs Amplify Blockchain’s Weakness
Central Bank Digital Currencies (CBDCs) are already in development. The digital yuan and the digital dollar - have already been discussed, one being initiated.
Unfortunately, as it relates to market downturns, one of the primary avenues for riding out volatility just happens to be a stablecoin (or ‘stable fiat’ where stocks are concerned).
But imagine when the central bank can directly manipulate the currency in your wallet? Where transaction details are exposed, wallet addresses are linked, and information flows freely and directly to the regulatory authorities themselves.
No subpoena needed. No warrant necessary. No legal boundaries at all. Just direct, unfiltered access to your financial information on the blockchain via the CBDC.
This financial information is stored quite literally, forever, open for access and use at any point in time in the future by anyone with the desire and technical knowhow to read the information.
A regulatory body's dream, in this case, is an individual's nightmare.
Financial data of this sort could be used to segment various groups in society, reduce or restrict an individual's ability to provide food or shelter for their family, or simply block the sending of the CBDC to certain wallets altogether.
While this has not flat-out occurred yet, it is something that we’re rapidly moving towards, with blockchain being the technological fuel for this advancement.
Private finance, or PriFi, is a solution that can protect anyone. It’s a solution that is readily available right now. One that dApps and entrepreneurs of the future can interweave into their ideas. And leaders like Haven, Oxen, and Monero are leading the charge.
The Rise of Privacy
The good news is that privacy isn't dead.
Like any underdog against vast overwhelming forces, the tactics used to protect your privacy are innovative and unique. But they are available now.
We all understand that the market will have its ups and downs. There will be market downturns. But in the future when the markets plummet and the prospect of accumulating losses sends the risk averse to the exits, we at least have options to keep regulatory and corporate interests out of our business.
Solutions that make financial espionage impossible, and in some cases like Haven’s PriFi stablecoin xUSD, even allow you to avoid the volatility of the downturn altogether.
Privacy is a human right. Financial privacy is an extension of this, yet it is something that blockchain technology has started to eliminate. PriFi is a solution, and there are PriFi organizations working on providing the safeguards for our privacy right now. Haven, Dero, Oxen, Monero and others are there for your protection.
The question is, do you want it?
Author Bio:
Rarecommons fell down the rabbit hole of blockchain technology in 2017, quickly realizing that the privacy aspects of the technology are still in its infancy. After looking into available alternatives, Rarecommons chose to support the Haven Protocol project and community, to help its Monero-based private stablecoin ecosystem develop and reach a broader audience. Convinced that innovations like Haven Protocol help us all to see what is possible and set the stage for a brighter future, Rarecommons helps push the Haven technology to new heights. Take a look and join the community by going here: https://havenprotocol.org/
Disclaimer
The views and opinions expressed in this article are solely those of the authors and do not reflect the views of Bitcoin Insider. Every investment and trading move involves risk - this is especially true for cryptocurrencies given their volatility. We strongly advise our readers to conduct their own research when making a decision.