Global Trends to Watch in 2020
My family and I used the Thanksgiving holiday to take our annual India trip to visit family, and while roaming about New Delhi, the world’s second most populous city, there was a palpable slowness. How does a region such as NCR (National Capital Region, or New Delhi plus a handful of massive adjoining cities) with a population likely over 40 million, feel eerily quiet? It’s a little hard to describe, but never before have I felt that there was actually too little traffic. Until November 2019. And sure enough, while waiting in the New Delhi airport for my flight to Tokyo en route to Los Angeles, news headlines flashed that India GDP growth had fallen to six year lows.
The world is definitely experiencing a slowdown in economic activity, but instead of trying to make statistical predictions about recessions and GDP declines, let’s instead explore some macroeconomic and geopolitical trends I’ll be watching in the coming year, and how they might impact the long-term investment case and use case for Bitcoin. Let’s start with the state of the banking system by paying a visit to the Federal Reserve. After that we’ll move to China, trade wars, and then take a trip back home to the United States.
The Fed
To assess the current nightmarish problems in the global banking system, one has to operate under a few assumptions. First, the dollar is not a national currency, but rather the international private currency of the global banking system. Second, that system, the dollar system, has been perpetually on the brink of collapse since 2007, but it has the Federal Reserve as its lender of last resort. The Fed backstops the entire banking system upon which our capital markets are built.
My mental model on the subject is this paper about the central bank liquidity backstop, so naturally I listen closely when one of the co-authors, Zoltan Pozsar, predicts we’re only weeks away from QE4 despite the Fed’s best efforts to calm markets with emergency measures. Backstops, it seems, will be needed elsewhere. Pozsar additionally details the transmission mechanisms on how problems in the repo markets could negatively affect stocks. The Fed will likely be buying bonds, providing FX swap lines, and funding dealer collateral in 2020, making good on its promise as the lender of last resort to a permanently fragile dollar system.
The global economy
India isn’t the only home to a billion people with a slowing economy. China just experienced its slowest quarter of growth since 1992. On a global level, annual car sales are now in decline and job losses were registered by JP Morgan’s Global Composite survey, both happening for the first time since 2009. The trend to watch in 2020 will be other global growth metrics that succumb to 2009 levels, like world trade.
Speaking of world trade, we must address the ever-present “trade war.” In my humble opinion, “trade war” is a complete mischaracterization of the current shift in US/China foreign relations. The situation between the two countries is more accurately described as a “technology cold war,” evidenced by this excellent collection of headlines about Apple, Google, Huawei, espionage, and trade secrets. Let’s not forget to mention that active United States support of Hong Kong protestors throws a wrench into any speedy conclusion to trade negotiations. I expect the tech cold war and Hong Kong situation to escalate in 2020, not subside.
Currency devaluations
In the midst of global economic slowdown, uncertainty, and restrained liquidity conditions in the global banking system, dollars will become increasingly hard to come by, forcing an appreciation of the dollar versus other foreign currencies. China will devalue their currency, and I anticipate this trend continuing around the world. People in countries most likely to devalue against the dollar are often restricted by their governments to participate in other savings vehicles such as dollar assets, gold, or bitcoin. I anticipate that people in countries prone to currency devaluation will accumulate bitcoin as an active hedge against their unstable national currency alternative, despite both price volatility and direct or threatened legislation deeming bitcoin an illegal asset. As we see from this riveting research from Matt Ahlborg, Bitcoin is being used by people in countries with capital controls, currency devaluations, and altogether corrupt bureaucracies above them.
The United States of Bitcoin
Some of Bitcoin’s most promising business efforts toward long-term and grand-scale institutional adoption are happening right here in the United States. After the Libra debacle in Washington DC earlier this year, it was evident that certain members of Congress are, in fact, quite enlightened on the promise of Bitcoin’s technology, correctly identifying the United States as perfectly positioned to foster the future’s leading Bitcoin companies. I am incredibly optimistic about the future legislation surrounding Bitcoin that we’ll see develop in the United States, likely piggybacking off the recent and exciting progress in Wyoming. I also expect to see monster numbers from Fidelity and ICE/Bakkt as institutions capitalize on cutting edge Bitcoin infrastructure.
All news is good news for Bitcoin
Global uncertainty and the strengthening of Bitcoin’s network effects are a recipe for some serious momentum for Bitcoin adoption next year. Follow along as we watch for liquidity crises, a slowing global economy, the US/China technology cold war, currency devaluations against the dollar, and the United States serving as the breeding ground for Bitcoin innovation over the next decade. My heart is racing with excitement and anticipation for all the bullish developments next year, both from within the amazing Bitcoin community and externally from favorable geopolitical developments. But alas, we must stay humble. Happy New Year!
Written by Nik Bhatia @timevalueofbtc
For more from Nik Bhatia, check out The Triumvirate of Liquidity, Global Trends to Watch in 2020 , and you can also follow him on Twitter.
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