Bitcoin is the most indestructible financial ledger on the planet. That characteristic alone gives it a massive value proposition for America's national defense.
Some have speculated that Russia and its oligarchs are using Bitcoin to circumvent America's sanctions related to the Russian-Ukrainian war. That appears not to be the case on a nation-state scale.
Russia's violation of Ukrainian sovereignty is catastrophic, and the ongoing war is horrific. While the financial crisis pales compared to the horrifying humanitarian crisis within the country, I am concerned about the second-order effects of where this may go on the global monetary stage.
As Ukraine defends itself from becoming a client of Russia, these financial sanctions may be enticing Russia to become a client of China. According to Axios, "Russian companies and banks are turning to China's currency, the yuan (also known as the renminbi), as the doors to the U.S. dollar-based global financial system slam shut due to sanctions."
While the renminbi poses very little threat to the dollar's reserve status today, it's clear with China's Belt and Road Initiative, and now also backstopping Russia's financial system, the CCP wants to export its economic influence across the world. We may see a scenario in the future where China's central bank digital currency (e-RMB) tries to challenge the petrodollar system.
If there is another crisis in the future, such as a sovereign debt crisis in America, Bitcoin may offer a solution.
The Bitcoin Policy Institute published a recent research report on how Bitcoin can strengthen American national security and its financial position in the world.
If one forgets for a moment the novel and unique aspects of Bitcoin, one can see the outlines of an arrangement that closely approximates the current "petrodollar" system. Just as that system is implicitly backed by energy (via the oil trade and the threat of U.S. military kinetic action), Bitcoin is a monetary asset directly linked to energy production (via the integration of mining with domestic grids and energy sources, giving us a plurality of global hashrate). Crypto-eurodollars, aka stablecoins, provide the bridge between the existing implicitly energy-linked dollar system and this new explicitly energy-anchored proof-of-work hybrid Bitcoin-dollar system.
In this system, as Bitcoin continues its volatile monetization and remains a low-velocity asset principally used as a long-term store of value, USD fiat units would continue to serve as a global medium of exchange as well as domestic legal tender. During this period of transition, as the U.S. onshores more of global hash power, accrues a disproportionate share of Bitcoin among its citizens, and uses crypto-eurodollar stablecoins to counter the e-RMB, the USD stands to at least holds its relative position as the reserve currency.
In a sense, we would be inserting a new commodity reserve asset (which in earlier systems was gold, and then oil) at the base of the monetary pyramid that currently rests on U.S. Treasuries.
I highly encourage reading the full report here.
While the research paper admits that this would only be for a "break-glass scenario," it is promising to see the Biden administration issuing an executive order to begin studying the risks and opportunities the Bitcoin monetary system could provide.
It is of the utmost importance for the free world that Bitcoin does not fail. If it does, it increases the risk of China's system of financial surveillance and control being exported across the globe. America's values of freedom, inclusion and free markets align perfectly with the technology of Bitcoin.
"A world where Bitcoin fails is a world where U.S. retrenchment and decline is more likely. A world where Bitcoin succeeds is a world where our role in the global system, while changed, may long endure."
This article, along with all content and opinions from BTC Examiner, is for educational purposes only and is not financial advice. Please reach out to your financial advisor before making any investment.