What Will Be the First Central Bank in the World to Dare Buying Bitcoin?
It’s more a question of when than if in my opinion.
The year 2020 is the year in which everything changes for Bitcoin. The coronavirus pandemic has triggered an economic crisis that has completely changed the position of institutional players concerning Bitcoin.
Seeing Bitcoin recover even stronger from the liquidity crisis that occurred in March 2020 convinced many that Bitcoin was here to stay.
JPMorgan CEO Jamie Dimon, who had always been a staunch opponent of Bitcoin, has himself finally bowed down to Bitcoin’s resilience. In the wake of the famous macro investor Paul Tudor Jones, who switched from gold to Bitcoin in early May 2020, many institutional investors chose to buy Bitcoin.
Bitcoin is seen as the best hedge against the great monetary inflation
For all these players, Bitcoin is increasingly perceived for what it is: a great store of value to protect against the great monetary inflation in which the actions of the Fed and other central banks are currently plunging us.
Big companies like PayPal have even decided to embark on the adventure by announcing that they are working to offer buying / selling Bitcoin directly from their platform.
Bitcoin’s Adoption: Today PayPal, Tomorrow Amazon?
Bitcoin’s adoption is accelerating strongly.
A large American company listed on the Nasdaq then decided to move up a gear by making Bitcoin its primary treasury reserve asset for the coming years. A former staunch opponent of Bitcoin, Michael J. Saylor, CEO of MicroStrategy, announced this in August 2020.
As a result, MicroStrategy purchased 21,454 BTC in an aggregate purchase of $250 million.
MicroStrategy’s strategy sounds bold in 2020, but in a few years, Michael J. Saylor will be seen as a genius. More and more other companies will be following what will become the standard in the years to come.
At the individual investor level, we are seeing more and more people coming to buy Bitcoin. Little by little, the Bitcoin’s adoption continues to grow.
By 2020, everyone seems to finally understand where Bitcoin’s greatest value proposition lies:
Bitcoin allows you to protect your wealth in a way that is resistant to censorship.
It’s only a matter of time before a central bank buys Bitcoin
HODLing Bitcoin is a great use case for Bitcoin. Those who still say that Bitcoin is a failure, because nobody uses it to buy their coffee in the morning, still don’t understand what the Bitcoin revolution is all about.
While hyperbitcoinization is likely to occur through a sharp increase in consumer demand around the world, the next big step will be taken in the coming months and years when a central bank officially announces that it will buy Bitcoin.
This is history in the making, and it seems inevitable to me. Sooner or later, a central bank will take the step.
The question I ask myself now is, which central bank will be the first to buy Bitcoin?
Candidates for such a strategic move will have to meet very specific criteria
In my opinion, the country whose central bank goes first will meet these very specific criteria:
- Strong opposition to the United States.
- Does not participate in China’s Belt and Road Initiative.
- No longer wants to be dependent on the U.S. dollar and the exorbitant privilege it gives to the United States.
- Needs alternative solutions to the U.S. sanctions that have led to the country being sidelined from the current monetary and financial system.
For the first criterion, after four years as President Donald Trump, I think the list can be very long.
Nevertheless, I am going to be more interested in the countries that have a dispute with the United States that goes beyond Donald Trump’s negative attitude of the last few months.
In this context, I am thinking immediately of Iran, Venezuela, North Korea, Cuba, and Argentina.
Among these countries, Iran and Venezuela have already shown a lively interest in Bitcoin at the state level. Iran is increasingly interested in the mining of Bitcoin, which is an activity that can be lucrative.
As Iran moves closer to China, the country will have to give up Bitcoin
The problem of Iran in my opinion is that the country is in advanced discussions with China for a 25-year strategic cooperation agreement with an amount that would exceed 400 billion dollars. In the face of American economic sanctions, Iran is looking for a strong ally.
Only China is currently powerful enough to oppose the US sanctions and not respect the embargo on Iran.
Within the framework of this agreement, which could be sealed definitively at the beginning of 2021, Iran would commit to supplying gas and oil at low cost to China, while the country of Xi Jinping would invest massively in the Iranian economy for 25 years.
Iran would probably join the Belt and Road Initiative, and Beijing could impose the use of its e-RMB as part of this agreement. As a result, Iran’s central bank would no longer be in the front line to buy Bitcoin.
Venezuela will probably have no choice but to purchase Bitcoin
Venezuela is the other country that seems to be at the forefront of buying Bitcoin. The country’s economy led by Nicolas Maduro is devastated.
Besides, U.S. sanctions have excluded Venezuela from the current system. Venezuelans are already buying Bitcoin on a massive scale to protect themselves from the hyperinflation that is ravaging the country.
The Central Bank of Venezuela could therefore see the purchase of Bitcoin as a last resort to face the American sanctions.
With a devastated economy, Lebanon could have been another outsider in this area. Nevertheless, the European Union is going to help Lebanon rebuild, and I doubt that the purchase of Bitcoin by its central bank would be viewed favorably in Brussels.
The popularity of Bitcoin in Argentina or Nigeria could push governments to move in this direction
On the South American side, a country like Argentina could be a candidate for this kind of movement. Argentina’s economy is devastated by decades of bad monetary policies. Argentines are already big fans of Bitcoin.
Many Argentinian citizens already see Bitcoin as the best solution at their disposal for long-term savings.
Such a strategic move on the part of Argentina’s central bank might even be seen as the first good economic decision taken at the state level in decades.
On the African side, Nigeria is one of the countries with the highest adoption of Bitcoin among the population for everyday use in the world. At the top of the list with Nigeria is Argentina, which I just mentioned.
Nigeria Is Establishing Itself as a World Leader in Bitcoin’s Adoption
The explosion of Bitcoin adoption will occur in Africa first.
To see a country like Nigeria make such a decision would not be impossible.
However, Nigeria is rather well integrated into the current system and relations with the United States are not bad. It is probably not on Nigeria’s side that we should expect such a move in the immediate future.
China bets everything on its e-RMB
When one speaks of fierce opposition to the United States, one immediately thinks of Russia. Russia has been trying to reduce its dependence on the U.S. dollar for many years now with its central bank, which has been among the biggest buyers of gold for several years.
What may prevent such a move is that Vladimir Putin seems to be a fierce opponent of Bitcoin and cryptocurrencies. Not being able to control this network that belongs to no one is a problem for an autocrat who likes to control everything.
Russia could also switch to greater use of China’s future e-RMB as part of a growing strategic alliance between these two global giants.
To conclude this overview, I am left with China. With the new Cold War taking over the world, China wants to reduce its dependence on the US dollar. This is obvious. However, Xi Jinping does not want this to happen through Bitcoin.
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The war between the US and China will benefit Bitcoin.
Xi Jinping also wants to be in control. Under these conditions, a neutral and apolitical digital currency such as Bitcoin does not interest him at all.
Instead, China’s strategy is to bet everything on the e-RMB, its state-backed digital currency. China will try to impose its e-RMB along with its Belt and Road Initiative to extend its influence on the world.
Xi Jinping’s plan to see China become the world’s leading power by 2030 is going through it.
It is only a matter of time before a central bank starts buying Bitcoin. In my opinion, a country like Venezuela has every interest in such a move, given the sanctions that the country is facing from the United States.
Iran could also be a candidate for such a strategic move. However, discussions with China regarding a strategic agreement of 400 billion dollars over 25 years could prevent such an initiative.
Once the first central bank has entered into such a strategy, other central banks will likely follow fairly quickly. Emerging countries, which suffer most from the flaws of the current system, are in any case in the front line for such an adoption.