Just over 100 years ago there was a bubble asset that grew and fell wildly over the course of a decade. The people who held it would have lost 100%. 100 of their money five times. They would, at various times, have made huge fortunes or seen their asset value destroyed by hyperinflation.
The asset I am referring to is gold valued in Weimar marks. If that reminds you Bitcoin, you’re not alone. In his Tree Rings newsletter, analyst Luke Gromen examined the surprising similarities between the volatility of gold in Weimar in Germany and bitcoin today. His conclusion? Bitcoin is not so much a bubble as “the last operational fire alarm” warning us of very big geopolitical changes to come.
I agree. Central bankers have over the past 10 years (or decades, depending on where you placed the marker) price discovery canceled in markets with low interest rates and quantitative easing. Whether you see this as a welcome smoothing of the business cycle or a dysfunctional activation of indebted companies, the result is that it is now very difficult to get a picture of the health of individual companies or certainly of the real economy as a whole. from assets. prices.
The rise in popularity of very volatile cryptocurrencies such as bitcoin could simply be seen as a speculative sign of this Foam activated by the Federal Reserve. But this could best be interpreted as an early signal of a new world order in which the United States and the dollar will play a less important role.
The last four years of Donald Trump’s presidency and his toxic policies have weighed on the world’s confidence in America. It also decreased confidence in some neighborhoods on the stability of the dollar as a global reserve currency. This sentiment peaked in the Jan.6 attack on the US Capitol building. As financial policy analyst Karen Petrou said in a recent note to clients: “There are many victims of this near-coup, but the US dollar may well be one of them. It’s no more immortal than any other category killing brand. “
Trump has certainly devalued Brand USA. But it’s also a symptom of long-term economic problems in the United States – problems that have been masked in recent years by low rates and monetary policy, which kept asset prices high but also encouraged indebtedness and leverage.
Bitcoin’s rise to power reflects the belief in parts of the investment community that the United States will come to resemble Weimar Germany, as the 2008 post-financial crisis monetary policy designed to stabilize markets gives way. place for the post-Covid monetization of the rise in US debt. . There are, after all, only three ways to get out of debt: growth, austerity, or printing money. If the U.S. government sells so much debt that the dollar begins to lose value, then bitcoin could in theory be a safe haven.
The deterioration of Germany’s currency did not end well. This highlights another aspect of the bitcoin boom. We have moved from a unipolar world in which the United States was the preeminent political and economic power, to a post-neoliberal world where there is no longer a consensus in favor of free trade and unfettered capitalism. We will probably have two or even three poles: the United States, Europe and China. China has signaled its desire to become less dependent on the US financial system, buying fewer US Treasuries and deploying its own digital currency.
In this world, it is easy to imagine that the dollar would continue to be the main reserve currency, with the renminbi and the euro gradually becoming larger and larger stores of value. But one can also imagine that cryptocurrencies that can easily cross borders would have certain advantages over fiat money issued by governments. While the migration of people and goods can become more constrained, digital commerce and information flows continue to grow.
Crypto advocates, including technology leaders such as Tesla’s Elon Musk, Facebook’s Mark Zuckerberg and Twitter’s Jack Dorsey believe digital currencies are better suited to this more multipolar world. They are largely unregulated and therefore less subject to political forces. In the same way that the major technological platforms have recently demonstrated their power in remove Trump from social media, bitcoin could float above any monetary nationalism that could result from the New World Order.
Will cryptocurrency become the new gold – a cover against a changing world? Will the Big Tech Consensus prove to be more powerful than the Washington Consensus or the Beijing Consensus? Perhaps. But it is also possible that sovereign states are acting to regulate this existential threat. In the United States, Treasury Secretary Janet Yellen has already raised the question future regulation of cryptocurrency.
None of this makes me want to buy bitcoin. But I don’t see it as a normal bubble either. It was not known at the start of the 20th century which of the hundreds of automakers would win the race to replace the horse and buggy. Now who knows if bitcoin, ethereum, or diem, or a digital currency yet to be invented, will win in the long run. For now, the bitcoin boom can best be thought of as a canary in the coal mine.