A Case for Crypto [4 - final]

The Current Outlook and Future of Cryptocurrency:

As of now, the atmosphere within the cryptocurrency domain is muted. Sure, it’s a notch above what it was a year ago, but the mood remains somber. The community feels the echoing silence. Disturbing news related to crypto frauds, the arrest of significant players like SBF, and the decline of figures like BitBoy, have dampened spirits. Institutions, once interested, now retreat. This paints a grim picture in the public’s eyes, making them often mistake the few as representatives of the many.

But why our continued optimism? Because every technological revolution faces skepticism before acceptance. The skepticism of the DotCom era preceded the rise of today’s tech giants. Blockchain, we believe, will follow this trajectory, albeit perhaps in smaller scale. The challenge, though, is to determine whether it mirrors the promise of the early internet days or the frenzy of the Tulip-mania.

To answer this question, we circle back to the idea of Decentralization.

The Trustless World:

At its core, the attractiveness of cryptocurrency revolves around the idea of decentralization. Here’s why it matters:

• Decentralization disperses power. This reduces vulnerabilities and minimizes the appeal for rogue elements to manipulate.
• The system operates on a majority consensus, ensuring the collective keeps individual tendencies in check.
• In such a setup, right conduct earns rewards, be it monetary or in the form of social recognition.
• Conversely, those with malicious intent face penalties — both social and financial.
• Given these safeguards, malevolent entities are limited in the harm they can cause.
• A decentralized system’s efficacy correlates with its diversity and number of participants.

In essence, participants don’t need to place faith in a few decision-makers. The strength lies in trusting a system steered by multitudes, making it inherently trustless.

However, a significant hurdle remains: Why would nations - entities built on control - embrace decentralization? Governments, regardless of their political inclinations, typically seek to maintain a firm grip on power. For a decentralized future to take root, it’s paramount that governments, both democratic and authoritarian, see value in this new paradigm.

Geopolitics: the Future of Money

Peeling away from the narrow association between blockchain and money allows us to examine the changing geopolitical landscape. At present, the world is observing a strategic equilibrium, primarily influenced by the West and the East. This binary view is overly simplistic. After the Ukraine invasion, China’s relationship with Russia appears ambivalent, hinting at underlying complexities.

Here might be a more nuanced breakdown of power structure:

1. The US and close/subordinate allies like Israel and South Korea
2. The EU, while allied with the US, it’s not without its disagreements.
3. India, boasting nuclear capabilities and a political narrative that increasingly distances it from the West.
4. China, possessing the world’s second-largest military.
5. Russia, still a significant player with its nuclear capabilities and natural resources, even as it grapples with Western pressures.
6. The oil powerhouses in the Arabian world.

Amid this intricate geopolitical balance, smaller nations aim to remain neutral, eager to avoid a situation similar to what Ukraine experienced.

This fragmented global picture, with the diminishing economic sway of the US and challenges to the dominance of the dollar, signals a shift in the world order. The use of the dollar as a geopolitical tool against the Russian Ruble has further spurred conversations about potential alternatives to a dollar-centric global trade system.

This unfolding story suggests a trend towards deglobalization, evoking memories of Cold War dynamics, where the world is marked by regional conflicts, international interventions, puppet governments, and intensifying geopolitical tensions.

In this context, a clear trend is visible: Countries are accumulating gold.

Concurrently, discussions about a new global currency are intensifying. As China and Russia promote their currencies for international trade, their partners face a conundrum. Agreeing to these conditions means relinquishing financial power, opening the door to potential currency weaponization.

Conversations, especially among BRIC nations, are indicating a potential new trade currency — a strategy to break free from the USD’s influence without giving any one nation too much financial control.

Many prominent US economists view this as a remote possibility. And it’s easy to understand why. Developing a new globally accepted currency, especially if the US opposes it strongly, is an arduous task. Moreover, for smaller nations, adopting a currency championed by a US adversary seems risky unless left with no alternatives.

In any case, the appetite for an alternate currency system is palpable. Whether this will be a crypto contender like Bitcoin or a new blockchain-based solution remains to be seen. As nations weigh their options, the debate will pivot between a decentralized solution and the controlled appeal of Central Bank models, similar to the Euro’s approach.

The Technological Case:

In our prior discussions and the preceding section, we emphasized how blockchain’s core tenet, decentralization, prioritizes security and resilience.

Given the growing contemplation among nations about alternative currencies — driven either by inherent vulnerabilities in their own monetary systems or by concerns over the dollar’s dominance coupled with the US’s propensity to leverage it against rivals — what might the future landscape look like?

Will nations rally against the USD? Could there be a centralized BRIC bank? And what about smaller countries? Might they forge a currency of their own, perhaps something like an ASEAN gold-backed currency?

While the European Union’s creation of the Euro provides one possible template, we surmise that technological advancements and geopolitical frictions might be steering the world towards another direction:

A Trustless Currency.

In an environment where trust in allies and trading partners is increasingly elusive, a trustless mechanism seems apt.

However, we’re skeptical that major powers like the BRIC nations would adopt existing cryptocurrencies such as Bitcoin or Ethereum. Although smaller nations, in similar fashion to El Salvador, might embrace these decentralized cryptocurrencies despite the current technical limitations.

Viewing through the prism of political economy, one discerns the appeal of a novel currency devoid of overarching control by any single entity. From here, it’s a logical leap to identify the most fitting technology for such a paradigm. In our assessment, that technology is blockchain.

Concluding Argument:

As nations and regional blocs confront escalating tensions and the peril of hostility from seemingly neutral entities, a shift towards a more insular, de-globalized world appears imminent. Russia might question China’s unyielding support, while the EU might grow wary of the US’s absolute support. Latin America, currently courted by both China and the US, must confront the harsh reality that their predominant trading partner could destabilize their economy overnight. ASEAN, Africa, and the Arab world find themselves in a precarious dance, courting allies while striving not to upset potential adversaries.

Envisioning this potential future, if nations navigate rationally (though they occasionally don’t), the adoption of blockchain technology to create an international trade currency seems likely. Although we’re less optimistic about established cryptocurrencies like ETH or BTC becoming this medium (given their historical baggage and current distribution, which might not meet the requisite criteria for an equitable international currency), we recognize their potential role among individuals and smaller nations.

Factor in the advantages of the Token Economy and the expected leaps in decentralized technology, and our conviction strengthens: We’re bullish on the long-term trajectory of the crypto realm, irrespective of the current calls for its death.

The question is when, not if, this will happen. But for now, we will be placing a long-term bet on the space. We are making market-neutral trades along with a permanently long position. If this is something you might be interested in, take a look at our mission here.