Bitcoin, the black hole devouring the fiat of Nation States, will enter its final stages earlier than expected.
Venezuela, once an economic powerhouse of South America due to its massive oil reserves, had fallen to become an economic basketcase where hyperinflation has destroyed their currency.
Although the bulk of the economic collapse of Venezuela happened prior to the US Sanctions, the economic sanctions imposed by the US can’t be ruled out as a contributor. The sanctions, ostensibly for financing terrorists groups such as the FARC in Columbia, later for human rights abuses, and…
…to prevent the [Venezuelan] Central Bank “from being used as a tool of the illegitimate Maduro regime, which continues to plunder Venezuelan assets and exploit government institutions to enrich corrupt insiders.” ~ United States Secretary of the Treasury Steven Mnuchin, Treasury.gov
Why should the US care about the corruption in a South American country? And what’s the point of sanctions that just push Venezuela into the arms of rivals such as China and Russia to avoid western sanctions?
Venezuela was ridiculed for coming out with its own nationalized cryptocurrency, called the Petro, which is backed by oil, gas, gold and diamonds, and is meant to help overcome US and EU sanctions.
That last part is telling: the skirting of sanctions by the west. Sanctions are the financial hammer coming down on countries seen as mismanaging their own not-so-sovereign affairs.
When countries such as the US block other countries use of their financial instruments and institutions it becomes an existential threat as the USD “makes up 61% of all known central bank foreign exchange reserves”, thereby making it the defacto World Reserve Currency. Sanctioned countries will look for another way to trade, and what other currency is country agnostic, decentralized, and borderless?
Who and where to turn to?
Well, in Venezuela’s case, they turned to using the Chinese Yuan, the Russian Ruble, and when the Petro failed — increasingly, Bitcoin.
This scenario will be the first turning point of hyperbitcoinization: a country savaged by sanctions and hyperinflation turning to the logical alternative of Bitcoin.
And why not? Stacking Yuans and Rubles fixes Venezuela’s financial star to only China and Russia— a much smaller slice than those that conduct business using the USD and Euro.
Whereas Bitcoin, the apex predator of currencies, crosses borders with ease, consuming fiat in its wake.
Yet, much like Wikileaks ban from using the usual donation payment options of Visa, Mastercard and Paypal led to its forced use of Bitcoin, (and subsequent 50,000% increase in money reserves), countries deemed incompetent, nay criminal, such as Venezuela, Cuba, Syria, South Sudan and Iran, will be the first movers in the use of BTC as an alternative World Reserve Currency. You know, the other World Currency — Bitcoin, aka USD-not!
First you have drug deals (of high purity) on black market sites such as the now shuttered Silk Road, and then you have Fidelity, ICE, CBOE and CME trading Bitcoin.
First you have Wikileaks, and then you have Joe Rogan receiving donations in Bitcoin.
What was once illicit is now above board. Bitcoin is currently being considered by countries with destable economies, and rampant with crime, will then be used by every central bank in the world.
What are we waiting for?
So far, the use of Bitcoin by destabled and hyperinflated countries has not posted a bonafide success story. Greece is still slammed by indebtedness to other Eurozone countries — mainly Germany, and can’t seem to overcome the sisyphian feat of paying off tens of billions of dollars of loans. And the threat of additional sanctions, such as the one by the US to force them to refuse a safe port to an Iranian Tanker, shows the power of a US sanction, and the feebleness of their own sovereignty.
Yet this parallel economy fueled by the trade of bitcoin as a new World Reserve Currency will turn out to be the backdoor that these sanctioned countries turn to to jumpstart their economies. Iran, much like Venezuela, has massive oil reserves, and a limited slate of countries to trade them to. The use of Gold as a reserve currency is limited, and has problems of its own, such as accumulation and transport of a very heavy and physical metal.
Bitcoin, alternatively, is a currency that is not corporeal like coins and paper money, yet is still substantial. Much like a border of a country is invisible, until one tries to cross it without a visa or passport — you soon learn a country’s border, like Bitcoin, is a very real thing.
Yet Bitcoin doesn’t recognize borders.
Bulgaria’s Opportunity Lost
Except for small countries like Malta, there really hasn’t been a major country embracing Bitcoin from a governmental perspective. And Bulgaria wasted their opportunity by selling off the reported 213,000 Bitcoin they had confiscated, at the time worth 804 million dollars, and would currently be close to 2 Billion dollars.
Just think if Bulgaria had simply retained the 213k Bitcoins, since Bitcoin seems to add a zero every couple of years, Bulgaria’s opportunity cost could have sailed into the trillions (or higher).
Interestingly, the FBI had a hand in helping Bulgaria sell its confiscated BTC.
If Malta becomes a Bitcoin success, and then other countries with economic problems find a solution in Bitcoin, larger countries will take notice.
Will China be the first?
China’s President Xi Jinping called for greater levels of research and investment into blockchain during a meeting with Communist Party officials. ~ Business Insider
This is a massive reversal from the highly touted China Ban in 2013, where regulation was imposed to prohibit financial firms holding or trading cryptocurrencies.
Outside of “research and investment,” most likely there will be the development of a digital Yuan. While the digital Yuan will be used in the short term, China will eventually fail in their Digital-yet-still-Centralized currency, mainly due to the existence of Bitcoin.
Bitcoin will inexorably continue its global consumption of fiat from capital inflows from fiat such as USD, and the digital Yuan, because of Bitcoin’s unique qualities of mathematically imposed scarcity, decentralization, and censorship resistance — crossing borders with impunity.
World financial institutions are waking up to the greatest investment of the past 10 years. From the Silk Road and Wikileaks, to the Fidelity’s, BAAKTs, CME and CBOE’s of the world. Nation states to follow.
Ignore BTC at your peril
What is it going to look like for the US to ignore Bitcoin if China or Russia corner the market? It won’t just be limited to simply an embarrassment when other countries demand payment in BTC. Like hackers demanding payment in Bitcoin, other countries will turn their noses up against payment in increasingly worthless USD.
And if you don’t own any? Well, you better get some.
The Final Stages of Hyperbitcoinization
The final stages of Hyperbitcoinization are when Nation states start getting in on the game. China’s turnaround — an unexpected, sudden and whiplash inducing reversal is the crypto flare shot across the bow of other nation states. That this usually more secretive country have laid their hand bare on the world’s poker table suggests that they have been squirreling Bitcoin on the sly.
It’s all part of China’s 100 year plan of world domination. If Bitcoin didn’t exist, then China would have to invent it. And the potential of a BRIC nation cornering the Bitcoin market is a slap in the face of US hegemony. I’m sure China would have loved for the Yuan to be the World Reserve currency of choice, but for China it’s the end not the means. The US ignores China Bitcoin accumulation at its peril.
Any confirmation that China is trying to corner the Bitcoin market, the race between BRIC’s and the West will be on like Kong. And once Bitcoin crosses $100,000 USD, ALL major country’s Central Banks will want in.
Yet, I think they’ll find Bitcoin may turn around to be a Pandora’s box of unexpected consequences.
Pandora’s Box of Unforeseen Consequences
When there’s only 21 Million BTC, and only 4 million yet to be created, hegemonic nation states will covet that which implodes them. When a barrel of oil is worth a million sats, the question of whether to keep your cars on the road, or going to war soon become practical issues. When you simply can’t inflate your currency to do whatever you want to whomever you want then careful choices need to be made.
And when some Bitcoin OG with a quadrillion dollars worth of Sats wants to change the world, at a gesture — the financial seas will part.
Nothing in this article is to be construed as investment advice. Neither the author nor the publication takes any responsibility or liability for any investments, profits or losses you may incur as a result of this information.