De-Dollarization — #BRICS, #Gold, & Crypto #BTC & #ETH
De-dollarization is the talk of the town for the global investors and even local (wealthy) investor friends of mine who are seriously concerned with when the USD Dollar will run away with inflation. It is no longer a question of if it will happen but rather now it is a conversation on when the US dollar will inflate away it’s purchasing power according to experts and leading investors.
Where Should I Store my Wealth in 2023?
It is no secret that the USA’s debt is no longer the the best place to store their wealth. The USD dollar has increased in the short term in purchasing power compared to other global currencies, as measured by the Dollar index ($DXY). This is due to global uncertainty in markets which is always uncertain but right now in October 2023 the perceived risks are high of a recession in the USA ahead and globally so more investors are holding on to store of value assets and cash.
The short term increased in the US dollar’s purchasing power will go away soon as economists and macro investors agree inflation is the only way out for the USA government to solve their budget issues.
I believe that de-dollarization is happening faster than most believe. Here are three examples of the world’s net decreased demand for the previous almighty US dollar; BRICS currency, the price of gold, and then the price of Bitcoin.
- The new global BRICS currency backed by commodities
- Gold’s Price & Central Bank Demand
- Crypto’s Hard Assets Demand — Bitcoin & Ethereum’s Price Action
Let’s dive into each one a bit more deeply after first covering what is de-dollarization in simple terms.
What is De-Dollarization?
De-dollarization is the process of investors reducing the reliance on the US dollar as a reserve currency, medium of exchange, and unit of account in the global economy. There are a number of factors that could drive de-dollarization, including:
- A decline in US economic power and influence
- Concerns about US sanctions and financial dominance
- The emergence of alternative reserve currencies, such as the new BRICS currency
- Technological advances that make it easier to use alternative currencies for international transactions
De-dollarization could have a significant impact on the global economy. It could make it more difficult and expensive for US businesses to operate internationally, and it could also lead to higher interest rates and inflation in the US.
However, as the world’s dominant reserve currency today it is unlikely that the dollar will be 100% completely replaced in the near future, but rather to continue to have decreasing purchasing power over the next decade into 2033.
What are Examples of De-Dollarization?
BRICS Currency
The most startling example of the global investor market is the new global currency powered by commodities like oil and gold supported by Russia, China, Brazil, South Africa, India, and soon 6 more powerhouse countries.
In August at the BRICS countries 15th summit, the idea of a new currency was presented and supported by leadership. According to Luiz Inacio Lula da Silva, Brazil’s president a BRICS currency “increases our payment options and reduces our vulnerabilities”.
The new currency is not public yet, but the momentum is growing with research and a growing list of confirmed and interested countries that will soon join. With 6 new strategic oil rich countries in the Middle East joining now in January 2024.
Politico Source
With Argentina, Egypt, Ethiopia, Iran, Saudi Arabia and the United Arab Emirates all being invited to join, but not yet confirmed they all will join, it is still clear that the largest and most powerful countries outside of the West have already created a large enough alliance to bring on new strategic countries.
Most Americans will not welcome the below rhetoric coming from the BRICS research organizations, but it doesn’t matter, there is enough hard evidence that the USA treasuries and the US dollar is not the best for most nations to rely on.
The World Should Welcome the New Kids on the Bloc
“The West’s proclivity to deploy unilateral financial sanctions, abuse international payments mechanisms, renege on climate finance commitments, and accord scant respect to food security and health imperatives of the Global South during the pandemic are only some of the elements responsible for the growing disenchantment with the prevailing international system.”
Gold, Going Up to All Time Highs (Expected)
It’s no secret that the price of Gold is near all-time highs and soon will begin to continue to increase in purchasing power compared to the US Dollar based on the global investor sentiment that gold, the most common precious metal, will hold it’s value and provide diversification away from the wrath of inflation on the US dollar.
Gold provides diversification to the US dollar and all other global currencies in a few ways. Gold used to move independently of stocks, bonds, and other currencies, but now is expected to increase against other government fiat currencies.
- Gold is a safe haven asset. During times of economic or political uncertainty, investors often flock to gold as a safe place to park their money.
- Gold is a global currency. Gold is traded and accepted all over the world. This makes it a good way to hedge against currency risk. If one currency depreciates, the value of gold in that currency will typically increase.
Since 2020 and the Pandemic’s massive stimulus, gold has been seen as one of the best ways out of the US dollar’s wrath, however it has not yet come to fruition since the price of gold peaked in 2020, but has not yet reached an all-time new high yet.
Who’s Buying the Gold Outside of Normal Investors?
Global central banks purchase gold for a number of reasons: to mitigate risk, to hedge against inflation and to promote economic stability.
According to IMF research, In the third quarter of 2022, global central banks added US$20 billion of gold to their international reserve portfolios. This was the largest quarterly increase in official gold demand in fully 55 years according to the World Gold Council (2022). Nearly three-quarters of respondents cited the precious metal’s “long-term store of value” as a guiding factor in gold purchases.
Here are the top two reasons why central banks are buying gold faster than ever.
First, gold appeals to central bank reserve managers as a safe haven in periods of economic, financial and geopolitical volatility, when the return on alternative financial assets is low.
Second, the imposition of financial sanctions by the United States, United Kingdom, European Union and Japan, the main reserve-issuing economies, is associated with an increase in the share of central bank reserves held in the form of gold. There is some evidence that multilateral sanctions imposed by these, and other countries have a larger impact than unilateral sanctions on the share of reserves held in gold, since the latter leave scope for shifting reserves into the currencies of other non-sanctioning countries. — “Gold as International Reserves: A Barbarous Relic No More?”
I and many others expect the price of Gold to increase to new highs and be inversely related to the DXY as gold grows in importance globally again as a store of value that can’t be cloned, there is only so much gold in the world.
Bitcoin — Digital Gold
Bitcoin is up 105% year to date and has increased in price to show new life in the largest cryptocurrency by total market capitalization. With over 75% of Bitcoin’s supply also held by “long term” investors who have not moved their Bitcoin for over 6 months, it’s clear now that Bitcoin’s a scare resource with strong store of value principles.
Here’s how my AI tool, Bard by Google, thinks of Bitcoin as a hedge for de-dollarization.
- Bitcoin is a decentralized currency. Bitcoin is not subject to the control of any government or central bank. This makes it attractive to investors who are concerned about the economic or political stability of their home country.
- Bitcoin is a scarce asset. There will only ever be 21 million bitcoins in existence. This scarcity makes it a good store of value and a hedge against inflation.
- Bitcoin is becoming increasingly accepted as a form of payment. More and more businesses and individuals are starting to accept bitcoin for payments. This makes it easier for people to use bitcoin to hedge against the dollar.
Personally, I’m a big fan of Bitcoin as a hedge to the US dollar. I’ve even named my dog after the Bitcoin founder Satoshi and you can watch this video if you want to see him.
Bitcoin has cemented itself as the internet’s digital gold with a limited supply and a global community running and protecting it from corruption or manipulation. My estimate is that Bitcoin will be a $100,000 per Bitcoin token by the end of the next full cycle. Even with this optimism and the current global demand shown for Bitcoin, I believe there are even better opportunities for me to de-risk from the dependency on the US dollar than just going all in on Bitcoin.
What are Trusted Financial Analysts Saying?
There is no question to leading experts that de-dollarization is happening now and it’s happening in a variety of ways that are hard to track or put into traditional terms.
Macro Economic Analysis — The Forest Through the Trees
Arthur Hayes and others consider Luke a strategic investor analyst.
One of my favorite macro analysts, Luke Gromen, highlights the different ways this is happening today in the below interviews. Check out either of these two videos to hear his thoughts on the BRICS currency and the US dollar:
Crypto Exchange Founder — War + Debt Markets will lead to BTC 🆙
Another expert, Arthur Hayes, a founder of Bitfinex, and now ex-pat American living in Singapore, shares his ideas on the markets in robust detail from a unique vantage point.
In Arthur’s latest post, The Periphery, he estimates the increased demand for Bitcoin, Ethereum, and other coins due to the global wars occurring in Ghaza/Israel and Ukraine/Russia and along with the US debt issues
The structural hedging needs of banks and the borrowing needs of the US war machine reflexively feed on one another in the US Treasury market.
If long-term US Treasury bonds offer no safety for investors, then their money will seek out alternatives. Gold, and most importantly, Bitcoin, will begin rising on true fears of global wartime inflation.
And the end game, when yields get too high, is for the Fed to end all pretense that the US Treasury market is a free market. Rather, it will become what it truly is: a Potemkin village where the Fed fixes the level of interest at politically expedient levels. Once everyone realises the game we are playing, the Bitcoin and crypto bull market will be in full swing.
This is the trigger, and it’s time to start rotating out of short-term US Treasury bills and into crypto. The first stop is always Bitcoin, then Ether, and finally my beloved shitcoins. — Arthur Hayes
Financial Times Point of View
One of the most trusted Western Financial newspapers, the Financial Times has multiple articles on de-dollarization and there are two that I think are worth noting. First on China’s push for the Yuan to be used more globally.
The transfer in the Chinese currency was only Argentina’s second to the IMF. “These are indications of broader changes happening in the international financial system, which will become permanent,” a senior official at the Argentine economy ministry said. “These shifts will take time, but they will not be reversed.” — Financial Times, “China capitalises on US sanctions in fight to dethrone dollar”
The second example is a consensus across central bankers. The US Dollar will still remain the most used central bank currency and the De-dollarization is the major trend that will continue over the next decade.
“The sense of de-dollarisation is in line with the historic trend over the last ten years,” said Nikhil Sanghani, managing director at OMFIF. “Reserve managers are telling us there’s unlikely to be a major trend from that path.”
“Reserve managers have little confidence that their colleagues on monetary policy committees will get inflation under control,”
-Financial Times, “US dollar to maintain dominance over next decade, say central banks”
With views from three different experts across the spectrum and divide the consensus is clear that the US dollar will have inflation issues in the next decade, leading other nations and investors to find alternatives
Summary — What’s Ahead?
No one can tells exactly when the US dollar will lose it’s place as the world’s reserve currency, but it sure appears that the smart money is continuing to move diversify into alternative assets to protect the value of their wealth.
We are big believers in Bitcoin’s importance as a global store of value for the AI and internet economy. Bitcoin started it all and has a one-of-a-kind proposition with it’s community dedicated to their mission. Bitcoin does have a few shortfalls in terms of long term sustainability and profitability as a business, and that is why Ethereum is the preferred investment vehicle for myself and my investors.
Bitcoin is digital gold and Ethereum is internet money. Staked Ethereum, like moving the asset from a checking to a savings account, is a passive income generating non-correlated investment into what is being called “The Internet Bond”. This is where we plan to spend more time on the education of Ethereum and why Bitcoin is the base layer currency of the internet and Ethereum powers the commerce of the internet, hence working together hand-in-hand.
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