Bitcoin has risen significantly since Trump's victory. Gold has fallen. The dollar has appreciated. We believe that these trends correspond to the monetary dimension of the currency war between the dollar, the basis of the West's superpower, and China's attempts to rebuild the global monetary order.
A currency is defined by 3 functions:
1. Payment instrument,
2. Savings instrument
3. and valuation instrument.
What is the best currency as a payment instrument?
Cryptocurrencies have a clear advantage on this fundamental dimension of money. Blockchain technology makes it possible to create a decentralized payment system alternative to the current financial system. The cost of a blockchain transaction depends on the technology used. Bitcoin is expensive in this area. It is above all Ethereum which seems to be establishing itself as the most efficient ecosystem. This gives it a real use and therefore financial value. It is thus possible to refinance trade in exotic currencies directly via the blockchain.
Gold is clearly a less performing payment asset. There is a much greater risk of theft and fraud.
The dollar remains by far the most efficient means of payment. But crypto-currencies backed by the American financial system will be the best response to the risk of competition from China.
What is the best currency as a savings instrument?
Gold is the oldest currency and will always remain the “ultimate currency”. However, gold remains a “barbaric asset” in the words of Keynes. Gold has a value linked to long-term inflation. The real price of gold deflated by US inflation is currently very overvalued.
Gold price for 100 years. Gold seems overvalued to us in terms of price adjusted via inflation
Source : Bloomberg LLP
The dollar makes it possible to maintain the purchasing power of a saver via the extreme liquidity, efficiency and decorrelation of the American financial markets. The emergence of mega index ETFs from Vanguard and Blackrock gives them an incomparable and unbeatable advantage. These funds have become extremely attractive in terms of mega liquidity and also transaction fees.
The notion of saving on cryptos is a big, almost ideological debate. For libertarians who dream of a decentralized financial world without state or laws, cryptos are the holy grail. Nothing allows anyone to steal bitcoin assets stored on a Ledger type USB key. It is as inviolable as a stock of gold in a Geneva bank safe.
But this speech must be nuanced. First of all, the bitcoin market is opaque. We can prove mathematically that it is manipulated and manipulable. These are the famous “whales”, hidden financial monsters who participated in the launch of bitcoin at very low initial prices. We also have all the “dark money” which has always favored crypto, financial assets that are less controlled and less controllable than the dollar or gold.
The fundamental problem with bitcoin is that it has no intrinsic value outside of its status as the premier crypto currency.
Bitcoin for 10 years. It is very difficult to estimate the value and therefore the price of Bitcoin.
Source : Bloomberg LLP
Bitcoin therefore has the same intrinsic value as the tulips of the Dutch bubble in the 16th century, or the shares of the East India Company of Law's bankruptcy in 1719. In his book “Mania panics and crashes”, Kindleberger showed the mechanisms of collective financial hysteria which are then put in place. Who doesn't know a young geek who won and then lost fortunes on bitcoin? The mechanism is often the same: contemptuous of the financial orthodoxy which says that the return must reflect the risk, that the price must reflect the value, these speculators invest with a leverage of 4 or 5 times their stake on a bitcoin which has already a volatility of 100%, by far the greatest of all financial assets. During a bitcoin consolidation, the leveraged positions are automatically closed by the intermediation platforms. The forced sales thus generated liquidate positions at the lowest levels. The virtual fortunes created then disappear like hot air from a hot air balloon.
What is the best currency as a valuation instrument?
It is difficult to see how prices could be displayed in bitcoin, a currency which has the highest volatility of all financial assets. Thus, Elon Musk opened the possibility of paying for Teslas in bitcoins, but he never proposed setting the sales price in bitcoin.
Only a stable currency like USDC could hope to play such a role, but again, this is not really possible. The weak point of USDC is that the assets which serve as collateral for USDC issuances are not audited by the SEC unlike a regulated fund. We therefore have the possibility of a financial scandal where the USDC drops compared to its theoretical value due to rumors of losses on backed monetary investments.
This is a recurring problem in the crypto ecosystem: as libertarians refute any state control, they open the door to plunder by crooks. The bankruptcy of FTX is a clear testimony to this. FTX used the financial assets of investors on the platform to speculate in its own name on private equity investments, or even financing from the Democratic Party…
What investment strategy?
Crypto assets will become an essential financial asset because they are technologically superior to the financial systems of emerging countries. For businesses, they can become a real tool for financing their trade where currencies are difficult to convert.
Elon Musk convinced Trump II of this monetary dimension of MAGA. The USA has the means to project its financial hyperpower onto the world. They thus counter China's attempt to unite the BRICS in a monetary order alternative to the dollar.
Trump will be the “Crypto President”. The message of Trump goodies is clear.
Source : Truth Social, President Donald Trump
The historic “legacy system” banking model could be called into question during a possible financial crisis. large ideological gap between Americanist MAGA and the European Union's Green Plan creates the conditions for a major earthquake via ideological plate tectonics:
exit of a country from the EU (Netherlands), systemic crisis on euro funds, asymmetric shock on the euro monetary zone (disparate dependence on China or Ukraine), divergence in competitiveness between the USA and the Eurozone, overthrow of the globalist establishments in power for 30 years, spread of Trumpism in Europe, growing conflict between the Commission's “Energiewende” and the energy competitiveness policy of the USA.
Europe has transferred this systemic risk to the middle classes via very technical but very powerful regulatory changes. Following the Greek crisis, bank deposits (deposit guarantee limit of EUR 100.00) and government bonds (collective action clauses) can be restructured at the discretion of the ECB (which has assumed a protected status in the face of these spoliations). Euro funds may be blocked from sale by the Banque de France in the event of a crisis calling into question their capital guarantee. Unit-linked contracts can also be restructured since they are not confined to the insurer's assets (unlike in Luxembourg).
Blockchain assets are difficult to steal and seize. As soon as we do not deal via an OTC platform such as FTX but directly on the blockchain via a centralized or decentralized Ethereum platform, we completely limit our risk from the moment we then transfer the assets to a Ledger key (world leading company crypto safes on USD keys).
Such a USB key then gives the same protection as a gold coin. It is liquid worldwide, cannot be seized even in the event of a financial tsunami since it can be transferred to a vault worldwide.
Conclusion
Trumpism is a major ideological revolution. Trump brings together the Old Establishment faithful to the values of the Founding Fathers of American Independence (largely inspired by France and the thoughts of the Enlightenment). Elon Musk embodies a new big tech establishment that refuses the Wokizing drift of another part of Big Tech.
The crypto currency ecosystem will benefit from this ideological revolution. This will be a means of projecting American financial hyperpower against China's desire to create a new world monetary order of the BRICs as an alternative to the king dollar. The currency war will perhaps be the most important and complex dimension of MAGA (“Make America Great Again”) to restore the leadership of the West in the face of the risk of a shift towards a Wokist post-democracy.
Evariste Quant Research is an independent financial analysis and research firm based on Artificial Intelligence solutions applied to asset management.
Disclaimer.
This financial analysis is not investment advice. Evariste Quant Research and their clients may hold securities mentioned in this analysis.
