|
|
📅 November 13, 2024 · 🕒 17:22 AM EDT |
KIS-37: Bitcoin as a Strategic Reserve—Hedging Against Economic Uncertainty
5 min read
Hey Reader,
Note from the editor
🎉 Welcome to Issue #37 of the keepitasatoshi.com newsletter, where we examine the top crypto asset projects and their communities.
With how markets responded to the recent U.S. Presidential Election, the asset tokenization email can wait. In previous issues, we've argued how every Bitcoin bull market causes FOMO at a higher level—first it was retail investors, then institutional investors, then the institutions themselves, followed by sovereign wealth funds, and finally the final boss, nation-states.
Well, with President Trump's re-election, the nation-state FOMO officially begins. Today, we're shifting our focus to something only taken seriously in crypto circles but is now a mainstream topic reshaping institutional investment strategies: Bitcoin as a Strategic Reserve.
In this issue:
- End of Pax Americana
- Macroeconomic Factors Driving Bitcoin Adoption
- Legislative Moves: The U.S. Bitcoin Reserve Bill
- Implications for the Global Economy
Stay curious, stay informed, and as always, #KeepItASatoshi!
KB
Golden Age of America or the End of Pax Americana?
As we witness the transition from President Biden to President Trump, it's essential to recognize that certain underlying forces continue to shape our economy and society, regardless of who's in the Oval Office.
These market dynamics have a significant impact on our financial landscape and are largely beyond the immediate control of any administration.
Key Factors That Remain Constant:
- Technological Disruption and AI: The rise of artificial intelligence and robotics continues to redefine industries, automate tasks, and displace jobs, fundamentally altering our relationship with work and the type of work available. This technological revolution is accelerating, leading to both opportunities and challenges in the labor market.
- Government Spending and Fiscal Policies: Increased government spending persists by the tune of $7 Trillion a year, fueled by war machine expenditures and social programs. The national debt has soared to $35 trillion, which amounts to approximately $106,000 per citizen. This escalating debt influences monetary policies more than any single president can.
- Demographic Changes: The U.S. population is aging, obese, and addicted to opioids, with the lowest birth rates among younger generations ever recorded. This demographic shift coupled with irrational immigration restrictions poses challenges for economic growth, social security systems, and the overall labor force.
- Wealth Concentration and Economic Inequality: Late-stage capitalism has seen wealth increasingly concentrated among the ultra-wealthy, while wage growth and labor rights for the average worker has stagnated. Real wage growth has not kept pace with productivity or inflation since the 1970s.
- China's Economic Ascendancy: China's rapid economic growth has made it a formidable global power. With significant advancements in technology, infrastructure, and international trade, China's success can no longer be ignored. US politicians must come to terms with the fact that they no longer singularly dominate the global economy; i.e. BRICS.
- Currency Devaluation and Inflation: The U.S. dollar is gradually losing purchasing power due to sustained inflation and expansive monetary policies. Inflation directly affects our purchasing power and is the source of financial strain for US citizens, not illegal immigrants. It's likely the single largest reason the Harris Walz campaign failed.
Regardless of political leadership, until the two party system is dropped and the failure of neoliberalism is addressed, these factors will continue to influence markets and shape the financial future. Understanding these persistent trends is crucial as we navigate investment strategies and consider assets like Bitcoin as a hedge against economic uncertainty.
Macroeconomic Factors Driving Bitcoin Adoption
Former Chinese leader Deng Xiaoping famously stated, "It doesn't matter whether a cat is black or white, as long as it catches mice." This pragmatic approach underscores the shift in global economic strategies, where results take precedence over ideology.
Similarly, the United States is experiencing an evolution in its economic policies. Recent administrations have emphasized outcomes over conventional labels like capitalism or socialism, focusing on retaining economic power and global influence.
This shift includes increased government intervention in the economy, drawing parallels with models of state-directed capitalism.
Under President Trump's leadership, the U.S. is expected to adopt policies that focus less on traditional capitalist or socialist labels and more on retaining power and economic dominance.
This shift includes significant government intervention in the economy, resembling China's model of state-directed capitalism.
During the 2008 financial crisis, the U.S. government's implementation of quantitative easing (QE) primarily benefited financial institutions, leading to asset price inflation without substantial real economic growth.
In contrast, the response to the COVID-19 pandemic involved direct stimulus payments to individuals, boosting consumer spending and stimulating economic activity.
This transition towards "QE for the people" has significant implications:
- Inflationary Pressures: Increased consumer spending without a proportional rise in the supply of goods and services can lead to inflation.
- Devaluation of Savings: Traditional savings vehicles may yield returns below the inflation rate, effectively eroding wealth over time.
- Rising Debt-to-GDP Ratios: Government borrowing to fund stimulus measures increases national debt, impacting long-term economic stability.
Legislative Moves: The U.S. Election and the U.S. Bitcoin Reserve Bill
With the re-election of President Trump, Senator Cynthia Lummis has reaffirmed plans to establish Bitcoin as a national strategic reserve asset.
Bitcoin's decentralized mining network and capped supply of 21 million coins make it a unique asset class. Its growing adoption by institutional investors reflects a recognition of its potential as a store of value and a hedge against inflation.
Key Developments:
- The BITCOIN Act of 2024: Senator Lummis's proposed legislation, officially known as the Boosting Innovation, Technology, and Competitiveness through Optimized Investment Nationwide Act, aims to direct the U.S. Treasury to acquire 1 million bitcoin over the next five years. The plan includes establishing secure, Treasury-managed Bitcoin vaults.
- Bipartisan Support: With Republicans securing majorities in both the Senate and the House of Representatives, the bill has gained significant traction. Notably, bipartisan support is growing, with figures like Representative Ro Khanna endorsing the initiative due to Bitcoin's strategic value.
-
Economic Objectives:
- Debt Reduction: The strategic reserve aims to reduce the national debt by half by 2045.
- Financial Leadership: Position the United States as a global leader in financial innovation.
- Inflation Hedge: Utilize Bitcoin as a safeguard against inflation and currency devaluation.
Market Reaction:
- Bitcoin's All-Time High: Following the election results and Senator Lummis's announcement, Bitcoin surged to a new all-time high of $90,000. This rally reflects increased investor confidence in Bitcoin's role in the future U.S. economy.
Implications for the Global Economy
The adoption of Bitcoin as a strategic reserve by nation-states could have profound global impacts:
- Currency Dynamics: Increased Bitcoin adoption may weaken the dominance of traditional reserve currencies like the U.S. dollar.
- Financial Repression: Governments may keep interest rates low despite high inflation to manage national debt, negatively impacting savers and bondholders.
- Wealth Transfer: Assets like Bitcoin could see significant appreciation, leading to wealth shifts towards early adopters and those hedged against inflation.
By integrating Bitcoin into its strategic reserves, the United States finally positions itself at the forefront of this financial innovation. These shifts could result in a reconfiguration of global economic power balances, with Bitcoin playing a central role in financial systems.
Conclusion
As we navigate these unprecedented times, it's clear that Bitcoin's role in the global economy is expanding. Its potential adoption as a strategic reserve by nation-states underscores the importance of considering Bitcoin in both institutional and individual investment strategies.
Looking Ahead: The BRICS Challenge
In our next issue, we'll tackle the BRICS rise and how countries like Brazil, Russia, India, China, and South Africa are influencing global finance, the potential impact on the US dollar's dominance, and what this means for both traditional and crypto investors.
As the BRICS nations continue to challenge the established financial order, it's crucial to understand the potential impacts on global markets.
📢 We Want to Hear From You!
What are your thoughts on Bitcoin as a reserve asset? How do you see it fitting into your investment strategy? Reply to this email to share your perspectives.
Reply to this email and share your experiences. Let's keep the conversation going!
