Economic Cyber War
Daily Ramble
A couple of weeks ago, in the wake of the US Capital invasion, I wrote about the likelihood of the US entering into either a civil war or a war with China. Despite the breath of fresh air that a successful transition in presidential power has created, I still suspect that the US is plowing the road to war. Why? Because few people in the world understand the US is effectively insolvent. Insolvent, meaning bankrupt. The game can continue to play out but with $27T in debt and the $378B to pay for 2021’s interest, the US is closing in on 10% of its entire budget to pay interest alone. There has never been a nation that has hit the debt to GDP ratio of 130% and recovered. Guess where the US is…
Painting an ugly picture is not the point today, the point is to talk about how the West and East are likely to clash in the coming years as the top-down command-and-control style of communist China is likely to go up against the bottom-up decentralized democracy approach of the US. The US is trying to save the dollar while China is trying to get out from under it. At the highest levels, this is all about the money and who controls the printing. The US has the upper hand at the moment, but China is closing the gap quickly. It is already experimenting with a digital yuan issued directly from the Central Bank of China to its citizens removing the banks in between. Theoretically, this lets yuan travel across the internet outside the frictions of the typical banking system. Once fully available, the digital yuan will allow anyone doing business with Chinese companies to transact in yuan directly instead of the dollar, the current norm. “Uh oh,” says Mr. USA, “fewer dollars used for global trade means a weaker dollar.”
The US is about 5 years behind China on this technology. To make up the gap, just a month ago, the US permitted banks to use public blockchains, like Bitcoin, to transact stablecoins. Stablecoins are a silly name for tokens that represent $1. What’s different from the $s in your bank account is that you can hold stablecoins directly instead of your bank. This is a huge deal that the world doesn’t grasp well yet. It means the banking industry can now work outside of the SWIFT system that international wire transfers have historically run upon. It’s an even bigger deal, because, rather than using a top-down approach to launch a FED coin, it looks like the US is instead going to let competition and banks sort out stablecoins for use in international business.
History will look back at these moves as the beginning of the end game in the cyber economic war between the two powerhouses of the early 22nd century. I look at it as good for Bitcoin — once people are comfortable with managing digital dollars outside the banking system, it becomes much easier to buy and hold Bitcoin.
Favorite Thing on the Interwebs Today
Weird. And I found myself unable to stop looking at the videos @TooSatisfied posted. I need a shower.
Bitcoin Price Prediction
Weekend: $34.5k - $45k
Today: $32.1k - $35k
Tomorrow: $30k - $38k
What a difference a weekend makes. The number went up bigly after the hype of Ray Dalio and Elon Musk’s endorsements for Bitcoin on Friday, but the price has since given back most of those gains. Over the weekend, the price dropped as low as $32.2k and then jumped up to $34.8k. All of this looks like a desperate effort by the bulls to shift the trend bullish, but thus far, every shift above the downtrend has been rejected by the bears. Consolidation under resistance is typically bullish and the odds are we break up in a macro bull market, but it’s still a big chop fest here. Today, I’m fairly confident we see a tight range, but tomorrow, I’m giving space to a break back to the range low or a break up to shift back into a bullish range. The coiling is becoming tighter, so we don’t have long to wait…
Bitcoin Ed Bite
Q: What is counterparty risk and how does that relate to Bitcoin?
A: Counterparty risk is the risk you take by having someone other than yourself hold onto something you own.
Example: Your bank represents a counterparty whose risk you are either accepting consciously or unconsciously for the $ or € balance they maintain for you. Historically, it’s been a small risk but, in 2013, Cyprus banks kept up to 50% of individuals’ deposits in response to economic distress.
Managing your Bitcoin private keys removes the counterparty and the risk associated. It’s like having your cash under the mattress instead of in a bank. It is also why Bitcoin is considered a bearer asset, like cash — you can carry it without needing a counterparty.
Thanks for reading,
Kent
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