Bretton Woods 2.0
This week in Crypto
Despite an action-packed week of news, Bitcoin has been range bound with daily candles closing between $11,550 and $11,300 as it continues to shrug off negative news that would have previously sent prices tumbling. We have now had regulatory clampdowns on BitMEX, the KuCoin exchange hack, the UK FCA banning retail derivatives and now a major Chinese exchange, OKEx, suspending withdrawals due to the arrest and detention of one of the founders who holds one of the private keys needed to facilitate the transfer of assets to exchange users. Even though the news made international media headlines around the world, prices remained reassuringly steadfast and adds to our previous commentary that investors at these levels hold long term time horizons for their BTC positions. Investors are seeing the risk of selling and missing the next move up as greater than the risk of one of the largest exchanges suspending withdrawals. The push up to $11,800 over the last 24 hours, levels not seen since early September, add further weight to this thesis.
Counter to the OKEx news, and adding support to the bullish sentiment in the industry, was an in-depth report by international investment manager, Fidelity International — Bitcoin investment thesis bitcoin’s role as an alternative investment. Wind back a couple of years and this sort of report would have been vigorously celebrated, retweeted, shared and discussed at length across all crypto media channels, however these reports are now starting to become normalized within the industry that is maturing fast with the likes of Fidelity building out their institutional grade crypto infrastructure and services.
“In a world where benchmark interest rates globally are near, at, or below zero, the opportunity cost of not allocating to bitcoin is higher,” Ria Bhutoria, Fidelity Director of Research
Looking ahead, as the market becomes increasingly reassured by these types of reports, we anticipate further disclosure for corporates like MicroStrategy and Square Inc who have made the leap and allocated their treasury to Bitcoin and other hard assets. Companies will need to protect themselves from monetary expansion and low interest rates as highlighted by Fidelity’s research note. Will Microsoft, Apple or Google be next? It wouldn’t surprise us at all if some big names joined the ‘’hodler list’’ in next 6 months or so.
Last week Ethereum also got a nod of approval from none other than Heath Tarbert, chairman of the Commodity Futures Trading Commission (CFTC) who is usually associated with clamping down on the crypto industry, BitMEX as the most recent example. Heath was quoted on a recent panel:
“Let me just basically say how impressed I am by Ethereum, full stop, period.” Full comments here
Quite the endorsement from a major regulatory gatekeeper! With ETH trading confidently around the $370 level, spurred on by bullish news such as this, we see further upside in the coming months especially if Bitcoin moves higher to retest the yearly highs of $12,500 and beyond whilst regaining greater market dominance from the multitude of so-called Zombie chains that dominate CoinMarketCap and Coingecko.
Bretton Woods 2.0
2020 has not been short of extraordinary events with the media and society lurching from one major news event to another in varying degrees of fear, shock and incredulity. With COVID 19, the unprecedented US political election drama, global lockdowns and worsening climate change all contributing to record levels of coordinated money creation, it feels as if this unsustainable crescendo of global events will eventually force some form of fundamental global change that will shape the subsequent decades. History has shown this trend to be true.
Last week we looked at how regulators often push sensational narratives of fear to justify the increased intervention in markets and how this is evident with the creeping regulation surrounding new cryptographic technologies and the digital asset markets. This week it was the turn of the International Monetary Foundation, IMF, to piggyback on, and use the current global stresses to push a dramatic narrative that has been somewhat overlooked by the media as most editors are distracted with Biden’s emails, Trump’s antics and COVID infection rates.
This possible global monetary change, dressed up with fear, was laid out last week by current Managing Director and Chairwoman of the IMF, Bulgarian economist Kristalina Georgieva. She gave an extraordinary speech and in turn provided us with a glimpse of how these guardians of the global economy plan to use the depressing macro-economic, environmental and health backdrop of 2020 as the justification needed for a ‘’Bretton Woods style’’ renegotiation of global monetary system. By comparing present day to the seminal post WWII Bretton Woods Agreement where allied leaders ratified the first coordinated world monetary order so they could rebuild the world from the devastation of 2 world wars, we get a sense of how significant Georgieva sees this opportunistic moment in time and how desperate the debt based financial system behind the scenes actually may be. In 1944, Bretton Woods gave us the USD world reserve currency, at the time pegged to gold and unpegged by Nixon in 1971 which created the iniquitous debt-based fiat economy we now have and is arguably the real reason why Bretton Woods 2.0 is now being pushed rather than the fear being peddled by the IMF.
Today we face a new Bretton Woods “moment.” A pandemic that has already cost more than a million lives. An economic calamity that will make the world economy 4.4% smaller this year and strip an estimated $11 trillion of output by next year. And untold human desperation in the face of huge disruption and rising poverty for the first time in decades.
Once again, we face two massive tasks: to fight the crisis today — and build a better tomorrow.
We must seize this new Bretton Woods moment.
Other than marketing IMF loans and increased debt on developing nations, Kristalina Georgieva’s speech lacked specifics on what the IMF intends to do. Her speech and message does however follow the same narrative from June’s socialist leaning primer from the World Economic Forum’s declaration that the world is in need of a ‘’a great reset’’.
‘’Every country, from the United States to China, must participate, and every industry, from oil and gas to tech, must be transformed. In short, we need a “Great Reset” of capitalism’’. Klaus Schwab, Chairman WEF
What does all this lofty and cryptic rhetoric mean? What is this global reset? Is the world in such dire straits as it was after the world wars that we need to invoke ‘’Bretton Woods 2.0’’?
Mark Carney has already hinted at what was to come in his controversial Jackson Hole speech in June 2019 when he identified the USD world reserve status as a problem and suggested that a network of Central Bank Digital Currencies (CBDCs) could be the answer. Momentum is now gathering pace around Carney’s ideas as the major players of the IMF, World Bank, ECB, Federal Reserve, China, Russia look to take the initiative with centralized digital currencies.
Reading between the lines in all of this, in our opinion the financial leaders of the world already know that the Nixon induced, USD debt-based system is unsustainable and they are providing signals to interpret by those watching closely. The writing is on the wall for the current system, they just aren’t explicitly telling us and blaming COVID-19, amongst other things, as a reason for the massive change coming.
Today the IMF will host a discussion panel specifically on digital currencies entitled ‘’Cross-Border Payments — A New Beginning’’. In the absence of an explicit roadmap from the IMF, it is clear they are accelerating towards their desire (or rather need) to roll out a new monetary world order where Central Bank Digital Currencies take center stage from the USD and attempt to deleverage and relieve the current system from the unsustainable banking system — this is Bretton Woods 2.0.
This recent Bretton Woods rhetoric is a sign that these institutions, namely the IMF, are incredibly serious about this and are moving fast. The transition to economies to run on CBDCs is nearer than we probably think, and over the course of the next decade we expect to see digital currency wars play out as the major financial institutions and private sectors players (Facebook’s Libra as an example) jostle to grab control and market share.
The upside to Bretton Woods 2.0 and integration of CBDCs is that we may end up with a more robust, inclusive, efficient financial system that is not beholden to the banks, the USD and the policies of whoever sits in the White House. Our banks will be replaced with Central Banks who will have both monetary and fiscal responsibilities and powers that will allow them to direct the flow of capital to those who need it without going through the banking system. This will be fast, highly targeted and with the benefit of bespoke and hopefully appropriate interest rates for different sectors and individuals within the economy rather than banks determining interest rates based on their own profit and capital metrics. Automated tax collection, savings schemes and incentives can all be managed between consumer and central bank.
The downside, as we have discussed before in the Weekly, is the erosion of financial freedoms, sovereign rights and financial privacy via greater consolidation of power and the centralization of decisions at a Central Bank level. CBDC’s pave the way for Universal Basic Income and allow Central Banks to run unlimited balance sheets should they wish. The Central Bank will be watching your every financial move and should it wish to, turn your access to financial services on and off with a click of a button. This is all before we dive into how these Central Banks are elected and run — the political and corporate conflicts will be complex.
Despite what many Bitcoiner’s like to evangelize, it is naive to think that Bitcoin will become the next global reserve currency when you start to understand that the largest financial institutions in the world are readying for Bretton Woods 2.0. They will not relinquish control to Satoshi’s decentralized protocol of peer-to-peer cash however that is not to say that the new Orwellian monetary order can’t operate alongside its libertarian digital cousin, Bitcoin. In the coming years, we may be forced into using Central Bank Digital Currencies and have little option but to trade our freedoms and personal data for Bretton Woods 2.0. Thankfully we have Bitcoin and other decentralized and permission-less technologies that provide the option to opt out of the system. Such decentralization can provide insurance against the failure of centralized financial systems, new and old, and protect your hard-earned purchasing power from the soon-to-be all powerful and all-seeing Panopticon that are the Central Banks.