At the dawn of crypto when the GFC served as Satoshi’s muse, Bitcoin was conceived as an antidote to defiled fiat, including the dollar. It was surmised that scarcity would triumph over profligate dilution. And that the dollar would steadily give ground. Bitcoin would serve as a store of value immune from debasement. And Bitcoin lived up to expectations, appreciating 585% over the last five years, beating the S&P 500 by over 500%. Heading out of unprecedented Covid fiscal and monetary stimulus and unbounded money growth and into the weaponization of the dollar associated with the western response to Czar Putin’s war, it was thought possible that the dollar would take a leg down. That it would fall out of favor. That the reserve currency had been so abused as to be subverted. Compounding that would be a hypothetical element of instability associated with inflation and rising Fed rates, potentially leading to a breakdown of the fiat-driven global debt supercycle. Social contracts break. And then the Terminator walks out of the smoldering remains…
At the core of this dark scenario is the recognition that the edifice is unstable — the debt edifice that sustains demand. The argument has merit. It is not hard to find crevices. Lunch is on sale in Tokyo, where interest rates are artificially low, but you can’t go there to eat it because of Covid travel restrictions. The ECB is performing unnatural bond-buying acts to save the Italians from themselves. Widening spreads on Illinois debt suggest the State needs the ECB’s help. Perhaps Illinois should join the Euro, or issue its own currency — “The Drunken Lincoln”. No wonder Ken went to Miami. But then again, my home state has always been a mess.
In truth, the impending end of the debt supercycle has been continuously forecast for decades. But forecasting this stuff is hard. And the smartest and most persuasive advocates have a habit of writing off overwhelming evidence that they are completely wrong. The dollar is not dead. The dollar strengthened despite Covid stimulus and in the wake of the war. The Western alliance did not fracture. It strengthened.
The bellicose Chinese are in danger of waking up Japan just as Russia has done with Germany and of attacking Taiwan at the expense of catalyzing a pan-Asian NATO. Hua’s ongoing rantings appear to be ghost-written by speechwriters from North Korea. Emperor Xi, just like his pal Czar Putin, is massively overplaying his hand.
America has a healthy chorus of critics, domestic and foreign, who warn us of our impending decay and demise. And we take it seriously. Even when it is ridiculous. Some may remember when the preeminent threat to the United States was considered to be Japan. When American auto workers were smashing Japanese cars with baseball bats. Take a gander at the 1991 classic book, “The Coming War With Japan”. As a side note, my family owned a 1991 Buick Regal, and that car richly deserved a beating.
America tends to be simultaneously dysfunctional and overwhelmingly resilient. And we tend to forget the latter. What does that have to do with Bitcoin? Bitcoin has outperformed the dollar over the last five years, and the dollar has been strong. The bull case on Bitcoin is not tied to the demise of the dollar. The dollar represents the forceful defense of democracy and freedom against emboldened autocracy. Bitcoin adoption may be tied to the survival of democratic states, as crypto at its core is an exercise in economic freedom. Pause to consider that the crypto ecosystem is using dollar stablecoins as its economic backbone. That happened organically. Note that Argentinians have been defending their wealth by purchasing crypto in the form of dollar stablecoins. One of our favorites, the Lightning Network, is incorporating dollar coins into its Bitcoin-powered payment network via the Taro upgrade. And consider that dollar stablecoins are being enshrined in America’s financial system by the advance of non-partisan legislation. As are Bitcoin and Ethereum. Crypto is advancing the globalization of the dollar. Did Satoshi see that coming?
At SkyBridge, we believe Bitcoin is a singular digital asset on a course of adoption as the preeminent non-sovereign alternative to fiat currency, superior to Gold. These views are not tied to the emergence of the Terminator.
