Since the end of the second world war, the United States has consistently been the dominant global superpower. The Soviet Union vied for superiority during the Cold War but ultimately failed as it lost control of its satellite states. This was evident when the Berlin Wall came down in 1989.
In recent years, American hegemony has been challenged by China, a nation which has accumulated tremendous wealth since opening up its economy to the world. China now seems poised to usurp global power as it continues to engage in a form of financial imperialism across the globe (for more, read Joanna Chiu’s “China Unbound”). Today, both Russia and China are part of a global cadre known as BRICS, which includes Brazil, India and South Africa — with other countries, such as Turkey and Saudi Arabia, perhaps waiting in the wings to join as well.
In case you haven’t been paying attention, the world is undergoing a major paradigm shift, with BRICS at the center. Banks across the world are failing, Saudi Arabia and Iran are negotiating historic peace talks and countries are beginning to deviate from the U.S. dollar as the world reserve currency.
An important question to consider, then, is how does the current state of geopolitics and macroeconomics shape the future of a hyperbitcoinized world? I acknowledge that nobody can predict the future with any real certainty, however, I would like to share my vision of how game theory plays out over time.
I believe that, over the next few decades, the emergence of BRICS as an alternative to U.S. hegemony will cause the global economy to evolve in three phases: Phase one will be a pivot from a unipolar financial world to a multipolar one. In phase two, Bitcoin becomes a medium of exchange and unit of account for many nations. In the third and final phase, we experience real hyperbitcoinization.
PHASE ONE: FROM USD TO GOLD
Most people have no idea that this is even happening, but we are already in the early stages of phase one and the creation of a multipolar world.
In the 1970s, under President Nixon, Saudi Arabia agreed to price its oil in U.S. dollars in exchange for military defense. Essentially, every other country was forced to hold U.S. dollars as a result, thereby making it the global reserve currency. Having such an exorbitant privilege means that every time the U.S. government decides to print money, it can essentially purchase oil for free. As a result of being the global reserve currency, U.S. treasuries became the safest asset for investors to own (I know this statement seems comical today). The consensus has been that there is zero chance that the United States will default on its own debt, since it can print ad infinitum. Nation states have purchased enormous levels of U.S. debt for over 50 years.
This is no longer true for all nations, however. China and Russia have been purchasing fewer treasuries over the past decade. Rather than holding U.S. debt as an asset, they have been increasing their gold reserves. India, too, is amassing a stockpile of gold. It appears that the BRICS nations are working toward returning to a gold standard. Under this regime, currencies would once again be pegged to a scarce commodity that many have used as a store of value for thousands of years. But it is unlikely that these states will settle the majority of transactions using physical gold, given the difficulty of transporting and securing it. What is certain, though, is that Russia is now allowing countries to purchase its oil in rubles, yuan and, perhaps soon, rupees. In this phase, a minority of nations will continue to decrease their U.S. treasury holdings, transact in foreign currencies and acquire as much gold as humanly possible.
The rest of the world, particularly in the West, will continue to function as they have since the 1970s. Many countries will still be forced to hold U.S. dollars to purchase oil. American debt, equities and real estate will continue to serve as a store of value for most citizens. And fiat currencies, particularly the U.S. dollar, will serve as the dominant units of account. I predict that this first phase will last no longer than 20 more years.
During the course of this phase, many countries will likely default on their debts and experience currency collapses. They will start transacting locally in U.S. dollars the way that some nations do even today. Rising debt-to-GDP and inflation levels, coupled with tax increases and unemployment, will lead to massive unrest. Governments will be in desperate need of a solution to an unsolvable problem.
PHASE TWO: THE BEGINNING OF A NEW ERA
Phase two marks the beginning of a new era; this is when there will be no other choice but to switch to a fundamentally different monetary system. At this point in time, the non-BRICS nations will quickly adopt bitcoin as both a medium of exchange and unit of account. This means that everyone is paid in bitcoin and uses it as a store of value. Real estate will still be owned, but people will buy it as a place to call home, rather than as a place to park their wealth. Equities will still be bought and traded, but bitcoin will be regarded as the primary savings vehicle for everyone. Sovereigns and individuals (like yourself, most likely) that have stacked bitcoin for years will become insanely wealthy within a very short timespan.
In this phase, globalization will not be as impactful as it is today since the BRICS countries will be alienated from the rest of the world. China and Russia will be conducting trade almost exclusively with their allies, which will ultimately weaken their economies. These states will compete in gold production, and the dominant unit of exchange will vary from time to time. Phase two will happen more quickly than phase one, perhaps in as little as 10 years.
PHRASE THREE: HYPERBITCOINIZATION
The third and final phase is less complicated. Most of the world will have already transitioned to a bitcoin standard. For nations that have not already done so, they will notice the increased wealth and standard of living abroad. By this point in time, El Salvador will have become one of the richest countries on earth. Nations still on a gold standard will suffer as a result of being isolated from the rest of the world. Trust in the current system will disappear.
Additionally, people will recognize that, compared to bitcoin, gold is an inferior store of value. Verifying the authenticity of gold is difficult. Transporting and securing it is even more burdensome. Russia, China and its allies will have no other option but to embrace bitcoin as their local medium of exchange and unit of account. Phase three will also happen rapidly. I predict this will occur over five to 10 years.
This is how I envision the game theory playing out over the next 20 to 30 years. Perhaps most, if not all, of my predictions will be wrong. What I am certain of, however, is that our world is indeed changing rapidly. Our monetary system is broken. This is reflected in the current banking crisis.
Even if most of my predictions are incorrect, we are in desperate need of a return to a sound money system. Bitcoin is the only viable solution in my humble opinion. It may be wise to stack a few sats now while you still can. You or your children may benefit from it greatly in the future.