Arthur Hayes Long Article: Sanctions, Gold and Bitcoin

Abstract: Hayes believes that the US sanctions against Russia and the freezing of foreign exchange reserves will trigger the decline of legal currencies such as the US dollar, which is good for gold and bitcoin. “My expectation is that a bitcoin is worth millions of dollars, and an ounce of gold is worth thousands of dollars. “.

Additionally, Hayes outlines the gist of his series of blog posts: My task is to synthesize a variety of macroeconomic thinkers better informed than I do, articulate their ideas in my own words, and relate them to Crypto Capital Connect with the market.

The full text is as follows:

The last major oil and gas energy shock was due to pressure from Arab suppliers on Western countries. The Gulf states “practiced their values” in the political situation in Israel at the time. This time, the West decided to “live their values” by sanctioning the world’s largest energy producer. Don’t let your perception of the justice (or injustice) of the military action between Russia and Ukraine undermine the fact that Western energy consumers have decided to strike this time around.

I am 100% sure that there will be a financial crisis of unprecedented scale, based on the losses faced by commodity producers and traders who touch every aspect of the globalized financial system. You can’t take the world’s largest energy producer and the collateral that these commodity resources represent from the financial system without serious, unintended consequences.

Just look at the antics of the London Metal Exchange (LME) over nickel contracts. A reading of Zoltan Pozsar is a must if you keep an eye on future monetary conditions around the world amid the evolution of this new global financial crisis. He is a Currency Markets and Rates Strategist at Credit Suisse with an excellent understanding of the intricacies of global currency markets, written in a clear and concise style. I don’t know if he coined the terms “Inside Money” and “Outside Money”, but I prefer these simple and meaningful descriptions of money and collateral.

Inside Money is a monetary instrument that exists as a liability on another player’s balance sheet. Government bonds are sovereign debt, but an asset in the banking system that can be traded like cash, depending on the credit quality of the issuer.

Outside Money is an instrument that has no liabilities on the balance sheet of another participant. Gold and Bitcoin are perfect examples.

Last week marked the end of the petrodollar/Eurodollar monetary system as the US and EU seized the Russian central bank’s fiat currency reserves and removed certain Russian banks from the SWIFT network. In a generation to come, when this tragic chapter of human history comes to a hopeful conclusion, historians will point to February 26, 2022, as the date on which this system ends, a new and currently unknown The system begins to sprout.

Obviously, I have some predictions about the development of this matter, which is the subject of this article. Your moral views on the right or wrong of the actions of different nations in this war should not be distracted from the enormous impact on your personal finances.

As always, my task is to synthesize a variety of macroeconomic thinkers better informed than I do, formulate their ideas in my own words, and connect them to crypto capital markets. No matter how fast this war is subsided, monetary rules will not return to the post-1971 oil/Eurodollar system. A new neutral reserve asset, which I think will be gold, will be used to facilitate global energy and food trade. From a philosophical point of view, central banks and sovereigns appreciate the value of gold, but not Bitcoin. Human civilization has a history of about 10,000 years, and gold has always been valued as a monetary tool. Bitcoin is less than 20 years old. But don’t worry: as gold succeeds, so will Bitcoin. And I’ll explain why.

First, let’s consider what Zoltan said in his March 7, 2022 report entitled Bretton Woods III:

  • From the gold-backed Bretton Woods era, to the internal currency-backed Bretton Woods II (treasury bonds with non-hedgeable forfeiture risk), to the external currency-backed Bretton Woods III (gold and other commodities).
  • After this war, “money” will no longer be what it used to be…
  • And Bitcoin (if it still exists) might benefit from it.

     

Production and sales balance

The global economy is a balanced system, with some countries producing more than consuming and others consuming more than producing. The two must be balanced, just like life and all parts of the universe. Everything is relative, nothing is created or destroyed, just transformed.

Each country usually has its own national currency, which we call legal tender. Different types of products and services are marked on the global market based on the natural endowments of the region and other cultural factors. If everyone transacted in their own currency, there would be additional friction and costs. Instead, a country’s fiat currency becomes the reserve currency, and most trade is conducted in this currency.

Owning the world’s reserve currency is a huge privilege and a devastating price. The U.S. dollar is the most used currency in global trade; most oil and gas energy is denominated in U.S. dollars; therefore, the rest of the world uses U.S. dollars to price all commodities traded in global markets.

The post-1971 dollar was not backed by gold, but by US Treasuries. Until recently, energy producers earned more in dollar terms than they spent on world markets. So they save dollars. Before China became king, the United States was the world’s most energy-consuming country. So it makes sense that the world’s largest consumer (and largest economy) pays for energy imports in its own fiat currency. In addition, there are other non-monetary incentives, such as access to advanced weapons and equipment that peg oil-producing countries to the dollar.

But where does the demand for U.S. Treasuries come from? If you have billions or trillions of dollars, few markets are liquid enough to handle the flow of your money. And, for commodity exporters, most domestic capital markets are woefully illiquid to store excess income. What’s more, most countries are reluctant to bear the cost of being a reserve currency issuer.

The U.S. Treasury market is the largest and deepest market in the world. As a result, the global surplus of dollar savings flows in. If you want to be the global reserve currency, you have to allow foreigners to invest in your capital markets as they please. In economics terms, your capital account must be open.

In some cases, this is a good thing for the government. The US essentially prints as many dollars as it wants (at zero cost) because it correctly assumes that there will be a large number of foreign savers who will have to buy these debts. While getting something for nothing is a good thing, the price is that your economy becomes financialized.

Arthur Hayes Long Article: Sanctions, Gold and Bitcoin

Arthur Hayes Long Article: Sanctions, Gold and Bitcoin

America became the factory of the world after World War II. Then it became a nation of financial services, not a factory. And the chart above, showing the slow decline of U.S. manufacturing, becomes irrelevant. Manufacturing’s share of nominal GDP has more than halved since the US went off the gold standard in 1971.

The US exports finance to the world on a macro scale, not commodities. If your recipe is open, deep and liquid capital markets, then you will prioritize the interests of financial services over manufacturing. Ask any former employee of a rust belt manufacturer whose factory was outsourced to China for Ricardian equivalence. That’s a euphemism for “in China, they work less. So, to increase corporate profits, we ship your work abroad”.

There’s a reason America is full of business schools. The business of America is the financial optimization of businesses at the expense of making the real thing. This favors a very fixed minority at the expense of the majority. But this must happen in order for the United States to maintain its status as the nation’s global reserve currency.

This is a simple explanation for why US capital markets have accumulated trillions of sovereign savings in the form of dollars. Readers should also ask, why don’t the countries that produce the goods that earn dollars invest those dollars back into their own countries?

Interestingly, the biggest “savers” are saving at the expense of the domestic working class. There are many ways that countries can lower their general wage levels. There is no free lunch in the world. These “savings” are essentially the difference between wages in a deficit country like the US and a surplus country like China. If China wants to, it can convert trillions of dollars into yuan. This will push up the price of the yuan, hurting exporters. But it will make consumer goods (imports) cheaper for workers.

This is an introductory tutorial on mercantilism. China is not the first country to adopt this strategy, Germany, Japan, South Korea, Taiwan, etc. are all doing the same thing, only on a much smaller scale. When it comes to my favorite volatility hedge fund manager, his business model is largely antithetical to the fixed-income derivatives trades of export-power pension funds. These countries refuse to allow wages to grow at or above productivity, so they must reinvest more and more money (usually dollars) into lower-yielding bonds. So when they’re after yield, they sell volatility at very low prices to investment banks for yield, and investment banks recycle volatility back into some volatility hedge funds to meet their internal risk constraints .

As you can see, very simply, a huge imbalance in financing or investing in global capital markets, often at the expense of domestic middle-income workers. Unusually large deficits or surpluses always come at the expense of some sectors of society.

Arthur Hayes Long Article: Sanctions, Gold and Bitcoin

These data come from the World Bank. As you can see, the top 10 countries have to invest about $1 trillion in savings each year. On the other side are those countries that buy goods and manufactured goods from these big exporters.

Arthur Hayes Long Article: Sanctions, Gold and Bitcoin

As you can see, the 10 largest countries have to finance purchases worth about $900 billion a year. The United States is undoubtedly the largest deficit country, which is possible because it is both the world’s largest economy and the issuer of the world’s reserve currency. If the U.S. had to finance its deficits like the average country, the 10-year U.S. Treasury bond would certainly not be yielding a measly 2%.

Remember these tables, we’ll get to them later.

Physical vs Digital

Money can be divided into two parts: the unit of account and the network on which the token moves. Networks are more important than units. Let’s check it out.

Before the advent of computers and the Internet, all forms of money used physical networks. That is, if I want to “send” you a dollar, for example, an ounce of gold, a seashell, etc., I can walk over and hand it to you. If you live far away, I can ride a horse, ride a boat, drive a car, etc., but the movement is physical.

This physical simulation network is censorship-resistant, anonymous, but very slow and limited in a globalized economy. Mainframe computers, and more recently the Internet, have enabled society to digitize the web. We created digital forms of the most common units of account, paper money and gold, and began to electronically “send” value through centrally authorized digital networks, such as the System for International Settlement of Funds (SWIFT).

The SWIFT network is a communication layer that allows credit and debit information about fiat currencies to be sent between financial intermediaries. It is jointly owned by many countries, but is actually controlled by the United States and the European Union.

Money is no longer a “thing” we hold and observe, it becomes electronic data.

This is still how most funds flow among network participants. These digital networks are operated by government-regulated commercial banks. You may think your net worth is $100, but if the bank or government decides that you can no longer access the digital network for some reason, your net worth becomes $0.

Fiat currencies at the sovereign level are also purely digital currencies. No one sent a sack of physical banknotes to pay for their imports. Physical gold still relies on the wagon of the Internet. This is why the government spends energy storing gold “savings” locally. If governments trust each other very much, smaller countries will keep their gold savings in large financial centers. When some countries ask to get their gold back, it gets a little tricky.

All underlying fiat currency derivatives, such as government bonds and corporate stocks, also rely on centrally authorized digital networks. These are regulated domestic exchanges on which such assets are traded. If you hold these assets, you are just renting them from the network, and the network can decide to unilaterally remove you at any time.

If you are a country that “saves” in the global reserve currency and any related assets, then you do not own your savings. What you are allowed to have is governed by the country that operates the network. You trust that the ruler’s country will not expropriate your “savings”, so you believe that your net worth as a nation is greater than zero in nominal terms of a global reserve currency.

As long as savers trust that governments will respect foreigners’ property rights, global trade will happen without friction. However, if the ruling state decides to block any participant from accessing the network, it begs the question: Can you keep your assets on this centralized, permissioned digital currency network?

Remember, you have nothing, you are simply “renting” your wealth assets as an individual or sovereign from entities operating a centralized, permissioned fiat digital currency network.

12 trillion

Yes, the focus of this article is on the finances of sovereign assets, nations, nation-states. There are far fewer entities to analyze, and their decisions are more predictable given their large number of concepts and impact on various asset prices.

Arthur Hayes Long Article: Sanctions, Gold and Bitcoin

Excluding gold, about $12 trillion in “savings” is held in fiat currencies in a small number of countries. The U.S. dollar controls a huge share of this amount.

As I explained in the previous section, these “assets” rely on multiple centralized, permissioned digital networks. If you save in dollars, the US controls the network. If you save in euros, the EU controls the network. If you save in yuan, China controls the network.

Most sovereign savings are denominated in the currencies of the United States, the European Union or their allies. I will call them “Western”. For lack of a better term, others are often referred to as part of the “Global South.” The biggest winner in the global South is China, even though it is a poor country on a per capita basis. Due to its importance in the global economy, China is increasingly using the fiat currency, the renminbi, for trade.

Because everyone trades with China, many central banks hold some of their renminbi reserves. As such, it is effectively the only fiat currency in developing countries that is held in large quantities by other central banks.

On February 26, 2022, the West decided to confiscate various G10 currency reserves held by a sovereign state. Russia’s central bank lost $630 billion worth of foreign reserves. (The information quoted by Hayes here is skewed, Russian Finance Minister Siluanov said in an interview: “Russian foreign exchange reserves under sanctions are about half of our reserves. Our total gold and foreign exchange reserves are about $640 billion. . Currently, we cannot use about $300 billion of these reserves.”)

In addition, various systemically important large Russian commercial banks were removed from the SWIFT network. Then, many private companies voluntarily decided to stop doing any kind of transactions with Russia or with Russian-registered businesses. JPMorgan and Goldman Sachs are recent examples of U.S. banks that “canceled” their Russian operations.

Russia is the world’s largest country by land area, exports the most raw energy (mainly oil and gas, such as oil and natural gas) to the world, and is one of the world’s largest food producers. The West includes the richest countries in the world, which consume energy and food and buy them with their own fiat currencies. Due to the digital nature of fiat currency payments, it has never been possible to avoid such a country before.

Currency is a medium for storing energy, and the most commonly used monetary instrument (i.e. the dollar) is now missing the world’s largest energy producer (i.e. Russia). Why should any central bank “save” in any Western fiat currency when their savings can be arbitrarily and unilaterally seized by operators of digital fiat currency networks?

The dissonance is so obvious that even the financial news puppets of Western institutions fully understand what’s going on and predict, as I do, that rational capital account surplus countries must now save in another currency.

The next step in this process is to assess the size of the flow of funds and what mechanisms central banks must employ to move reserves away from value-transfer networks that their governments are not running.

position size

As many readers know, I started my career as a stock trader in emerging markets. One of the lessons you learn very quickly is that the door in is always big and the door out is always small. Therefore, you must weigh your position when considering an exit. When you enter a trade, the liquidity is so good that you can be misled into thinking you can evaluate it, but when you exit, the bids may disappear. Unfortunately, in this case, what was a lucrative trade on paper turned into a total disaster, as there was no way to get out of the position without incurring significant losses.

To illustrate the dilemma facing sovereign states that accumulate large foreign exchange reserves, let us examine China and its international currency flows in more detail.

Arthur Hayes Long Article: Sanctions, Gold and Bitcoin

Arthur Hayes Long Article: Sanctions, Gold and Bitcoin

China is the world’s low-cost factory. Since the United States allowed China to join the World Trade Organization in 2001, China’s exports have grown rapidly. Despite China’s huge appetite for industrial commodities and energy, it is still accumulating net foreign exchange reserves internationally. As required, China must reinvest these statutory savings in assets such as U.S. Treasuries. China is also one of the largest holders of US Treasuries, and these $3 to $4 trillion in savings could now be seized by Western countries at any time.

While the Chinese government is certainly aware of the risks of accumulating foreign exchange reserves in Western fiat currencies, it also has to assume that it is not in the interest of the Western world to damage its assets. But who would have thought that relations with Russia would develop the way they are now? This is a moment of qualitative change and China has noticed that their “savings” are not safe.

Don’t make the problem worse. When you inherit a bad position, as a trader, you can’t improve immediately, you simply don’t get any deeper. In the context of China and other surplus countries, this means not letting your fiat currency positions grow while you earn international income.

Instead, all China has to do is accept a fiat currency in exchange for their goods and instantly exchange it for a harder asset. Given that gold is the hard currency of choice for mankind, China and other similar countries will begin to offer sizable offers in the physical gold market. China will buy gold in the spot market and deliver it in the paper derivatives market in Western fiat currencies.

Arthur Hayes Long Article: Sanctions, Gold and Bitcoin

Since the beginning of 2009 and the end of the global financial crisis in 2008, the following changes have occurred in the holders of the huge bond issued by the US Treasury:

Domestic entities reduce their holdings by 10%.

Foreign entity holdings fell by 23%.

The Federal Reserve Bank’s holdings of U.S. Treasuries rose by 207%.

The Fed is clearly a marginal buyer of bonds that both Americans and foreigners are reluctant to buy. If foreigners feel it is not safe to invest their accumulated savings in U.S. Treasuries, the Fed will also take the plunge.

Let’s forget the $12 trillion in existing “savings”. On an annual basis, the global net surplus was $967 billion. Transaction volumes in Western fiat currencies would be immediately exchanged for gold, or potentially for storable food products (like wheat and other grains) or storable industrial commodities (like oil, copper, nickel, etc.).

Essentially, the fiat currencies of the largest surplus countries will implicitly increase their support for gold or commodities. Over time, countries like China, due to the asset composition of their foreign exchange reserves, will have the “hardest” fiat currency. As gold and commodities flow from the West to the East, the currencies of the world’s deficit countries, especially those in the West, will be weakest.

The price of gold will be several times higher than it is now. Trade takes place on the fringes and in the face of indiscriminate buyers (all countries earning fiat currency internationally), it will inexorably move higher. This is a medium-to-long-term game (over the next 10 years); in the short-term, the RMB is expected to appreciate slowly and slowly, with several rounds of extreme downside volatility.

A rapid rise in the price of gold is not in anyone’s interest. If you’re a sovereign with a current account deficit and want to continue financing at low interest rates, high gold prices prevent investors from putting money into government bonds with negative real yields. If you are a sovereign country with a surplus account, you want to buy gold at the cheapest price because you want to sell your fiat at the highest possible price.

Regarding the existing stock of Western fiat currency reserves, I do not know whether any large “owners” of these reserves would be able to substantially exit their positions without causing a collapse in Western global debt and financial markets. Instead, I’d take a softer approach, let my debt mature, as it would do, and invest the principal in gold or a storable commodity.

Cash flow

Arthur Hayes Long Article: Sanctions, Gold and Bitcoin

As I explained, surplus countries currently have security issues with their international fiat currency savings.

The table below, from the International Monetary Fund, details fiat currency reserves.

Arthur Hayes Long Article: Sanctions, Gold and Bitcoin

Represented by these weights, we assume that countries with annual surpluses also make money in these currency weights. This allows us to remove any net goods or services paid in domestic fiat currency that they have full control over. After doing the math, the annual savings that must be found is reduced to $967 billion, which is only 10% less of the problem.

As I said in this article, countries that want to stop accumulating forfeitable fiat balances will buy gold or storable commodities.

Arthur Hayes Long Article: Sanctions, Gold and Bitcoin

The table above estimates the impact of surplus countries stopping saving fiat currencies they do not control in gold. Does this mean that if 100% of the surplus is kept in gold every year, the price of gold will only increase by 4x? Of course not, there are many other players around the world consuming gold mined from the ground. We just added another indiscriminate buyer to the physical market.

Note that this is an annual analysis of the flow of funds. The global economy will not stop on January 1, 2023, it will keep going. And gold keeps pouring out.

It also assumes that big gold producing countries will allow the gold they mine to be exported so other countries can reduce their exposure to gold. In a new era where globalized supply chains are local, countries are restricting exports of key commodities in order to become self-sufficient domestically first. In a global free market environment, it would be foolish to think that all gold produced is a fair competition for all nations.

Countries that shrewdly stop accumulating reserves of foreign fiat currencies will race to buy gold in gold mines by taking delivery on the futures market. This competition will push the marginal price of gold above $10,000, and we may see staggering prices for gold that seem elusive. There will be more dysfunction in the gold futures market as entities begin to make physical deliveries. We may finally know if the gold is really there. The LME is just a prelude, the financial system will be filled with zombies of commodity exchanges that fail to deliver on their promises to participants.

A $10,000 gold price would psychologically hit global asset markets. With global asset allocators now looking primarily at inflation and real yields, any hard-currency asset deemed capable of protecting portfolios from the plague will be astronomically sought after. It was this shift in thinking that broke Bitcoin’s correlation with traditional risk on/off assets like U.S. stocks and nominal interest rates.

Arthur Hayes Long Article: Sanctions, Gold and Bitcoin

The above chart is a 10-day correlation graph of Bitcoin and the Nasdaq 100 (perfectly correlated assets have a correlation of +1, and perfectly negatively correlated assets have a correlation of -1). As you can see, Bitcoin is currently tied to large tech venture assets. If we think nominal interest rates will go higher, leading to a bear market in the stock market and a recession, Bitcoin will follow the big tech slump. The only way to break this correlation is through a narrative shift in what Bitcoin is worth. A bull market in gold will break this relationship amid rising nominal interest rates and global stagflation.

As the price of gold tops $10,000, Bitcoin will also top $1 million. A bear market for fiat currencies will trigger the largest transfer of wealth the world has ever seen.

narrow demand

Western countries have put themselves in a bind.

Energy prices will rise, food prices will rise, and increased military spending will further squeeze the private economy. Citizens will protest the rising cost of living to their elected representatives. Politicians will resort to their simple tactics, discrediting producers, imposing energy subsidies on consumers and, at worst, using price controls. The sum of these common solutions to inflation is to increase government spending. Someone has to lend it money at rates the government can afford…

Previously, when surplus countries believed their reserves were sacrosanct, the United States could rely on foreigners (aka capital account surplus countries) to finance these deficits by buying debt. The United States is both the issuer of the reserve currency and the country with the largest current account deficit, so it is the only country that matters in this analysis.

But now, surplus countries will save gold and storable commodities. Even countries that consider themselves Western allies cannot avoid confiscation if they do not directly control the fiat currency transfer network used to accumulate foreign reserves.

With foreign buyers on strike, the government must allow interest rates to rise to levels that attract domestic bond demand. But higher interest rates crowd out private business funds. This would lead to a recession, as all available capital would flow into high-yielding risk-free government bonds.

This is not a good thing.

So the central bank will again be required to finance the government, either explicitly or implicitly, by buying bonds funded by the “money printing press”. Government interest charges are contained on a nominal basis, private firms do not face higher nominal borrowing costs, and economic activity as measured by GDP can continue to grow on a nominal basis.

The top priority for politicians is to be re-elected. People vote with wallets. Interest rates on government debt will rise to cover the increased spending, but this will lead to a recession. If that happens, most politicians won’t be able to keep their seats. This is especially true because their opponents will tell the populace that they have a solution by increasing government spending, but paying for it with central bank printing. Now they call it “Modern Monetary Theory” even though it used to be called money printing.

Even if the central bank raises interest rates slightly on a nominal basis, real interest rates remain negative. They will remain that way for a long, long time, as the structure of Western economies points directly to a prolonged period of high and persistent inflation.

talk about finance

The U.S. current account deficit is as high as $616 billion a year, and financing costs will get higher and higher. The US government will spend 168% more than tax revenue in 2021. In 2021, the US will have to sell $2.8 trillion worth of bonds to pay for that year’s deficit. Don’t forget that debt due each year must be rolled over or paid in full, which also adds to the total annual issuance by the U.S. Treasury.

If we assume that foreign governments refuse to increase their exposure to the dollar and domestic entities do not increase or decrease their purchases, who will fill the gap?

You all know the answer.

Now is the time for the Fed to cross the monetary red line again and indirectly fund domestic governments. Once this road is crossed, it is bound to lead to destruction and hyperinflation. As any orthodox-educated economist knows, this is a big problem. But in this regard, neither the Fed nor any central bank dictates and always bows to the wishes of those in power at home.

But shouldn’t the Fed stop buying government bonds? Yes, it was a plan before the biggest energy producer was financially sanctioned. Unless the U.S. government wants to significantly increase interest payments, the Fed must buy bond balances that cannot attract buyers.

There are many entities that may be secretly increasing their balance sheets, buying U.S. bonds with negative real yields so that, on the surface, the Fed doesn’t increase their balance sheets. I’m no currency market expert, but I do think strategists like Zoltan will expose these conspiracies. The math suggests that interest rates should stay negative so the U.S. government can deleverage its balance sheet. To cover the costs of World War II, the Federal Reserve merged with the Treasury Department and engineered severely negative real interest rates for nearly a decade.

Whether or not the U.S. is involved in the conflict, the U.S. government can use the conflict as a justification for why such financial and fiscal coordination is needed. Bills must be paid, and citizens always pay explicitly (through tax increases), or implicitly (through financial repression). I hope these huge numbers clearly illustrate the problem and the solution.

All that’s happening now is just a drama about raising nominal interest rates. Don’t get distracted, it’s all about real interest rates. And mathematically, they must remain negative for many years.

Gold vs Bitcoin

Gold: “If you don’t own it, you don’t own it.”

比特币:“Not your keys, not your coins.”

For external money to be truly external, it must be in your material possessions. Even a legal guarantee that you’ll get your assets on demand is not enough if you can’t physically access the vault, or insert a USB stick to access your deposits whenever you want. There should be no institution, person or procedure preventing you from accessing your funds immediately. Any other arrangement will turn your external funds into internal funds. I hope you understand after reading this that the value of inside money has dropped dramatically over the past few weeks.

The reason why central banks buy gold instead of Bitcoin is purely based on historical precedent. I am not an extremist. Both are hard currencies, one is physical currency (gold) and the other is digital currency (Bitcoin). If a central bank starts saving entirely in gold and the global trade imbalance is settled in gold, I have every confidence that over time some central banks may get tired of shipping gold around the world to buy commodities. They prefer to conduct a small but growing number of transactions in digital currency, which is naturally Bitcoin.

I will argue in a subsequent article that the southern hemisphere, which lacks the ability and access to efficiently trade and store gold, will be attracted to Bitcoin. El Salvador has opened the door to this possibility, and many are concerned about how the bitcoinization of its foreign exchange reserves could help or hurt its economy.

Gold is great, but its storage on a personal level is a hassle. Gold can become very troublesome if you fully accept that owning physical gold directly is necessary to ensure that you actually own what you think you own. Most readers don’t have Freeport’s vault to store their Hwang Jin. Instead, you’ll want a hardcore store of wealth that’s easier to move.

Whether you have 1 satoshi or 1000 bitcoins to store, all you need is a public and private key consisting of a string of characters. It weighs almost zero and can be accessed anywhere there is internet. From a storage and transfer perspective, this is Bitcoin’s value proposition relative to gold.

Again, I fully believe that on a personal level, if you think you should spend and save gold, the psychological leap to spend and save Bitcoin is trivial.

both

My expectation is that one bitcoin is worth millions of dollars and an ounce of gold is worth thousands of dollars.

This is the scale of fiat-denominated prices that will emerge in the coming years, as global trade will be settled through neutral hard currency instruments rather than Western debt-backed fiat currencies.

One rebuttal is why China cannot step up and try to make the renminbi a global reserve currency. Many analysts don’t understand that China simply wants to use the yuan to trade with its trading partners, mainly in Eurasia. It does not want to open the capital account and give foreigners strong property rights. Therefore, China does not want to replace the United States as a reserve currency issuer. To the extent that trading partners are reluctant to settle trade in RMB, that is gold. The Shanghai Gold Futures Exchange is one of the most liquid exchanges in the world. Both philosophically and practically, China is well suited for trading and saving with gold.

This is the beginning of a monetary system change. Nothing lasts forever, the days of petrodollar/Eurodollar hegemony are over. The transition at this stage will be chaotic, but from a fiat currency perspective, it will be 100% massive inflation.

No government has ever been able to resist the temptation to print money to pay its bills and appease its citizens. Governments will never go bankrupt voluntarily. This is self-evident. I ask you to present evidence against me.

Remember: it’s not the price of gold or bitcoin that is going up, it’s the value of the fiat currencies that are used to price them going down.

If you want to be a shrewd trader, then I still believe that due to the direct hit to the global economy from this war will lead to a relevant moment where all assets will be sold off while we figure out who Will bear the losses caused by the deterioration of commodity derivatives trading. Spoiler alert, it’s always ordinary citizens who are affected, because printing money to ensure nominal repayments is always the solution, which leads to inflation.

Before the losses are distributed, however, the central bank’s religious belief in the aggressive money-printing machine takes a hit, and financial asset prices take a hit. Be prepared to endure extreme drawdowns as the rules of the global financial system are rewritten. If you don’t feel comfortable looking after your bitcoins, close your eyes, hit the buy button, and focus on the security of your home from a material and monetary perspective. Waking up a few years after the fog of war has cleared will present a situation in which the instruments of hard currency rule all global trade.

Don’t let anyone paint you as a gibberish prophet just because you took extreme actions to protect your standard of living by saving using different types of monetary hard assets. Removing the largest energy producer from the monetary system cannot fail to have a huge impact, something everyone needs to be aware of. If even the most vulnerable, authoritative, and flattering media establishments come to the same conclusion as this article, then only those who refuse to open their eyes and ears will be left in the dust of history believing that nothing will happen occur.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/arthur-hayes-long-article-sanctions-gold-and-bitcoin/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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