De-dollarization, Bitcoin, and ‘Hyperbitcoinization’

You can learn a lot about a country’s policies and goals by reading its state-sponsored media. It’s like a cheat code to identify the approved and official version of events in that nation.

With that in mind, here’s a headline and excerpt from a recent article in China’s Global Times.

US dollar hegemony starts to crumble amid developing economies’ shift to other currencies for settlements

Countries across the world have accelerated de-dollarization and increasingly shifted to other currencies that would provide stability, which, according to some experts, is a result of the US’ irresponsible monetary policies, including monetary and fiscal splurges in the previous years and unrelenting sanctions on Russia by weaponizing the dollar.

To say the dollar is “crumbling” is hyperbole at this point.

The dollar remains the undisputed world champion of reserve currencies. Here’s just how dominant the greenback has been in international trade over the past few decades, via Reuters.

“The Fed estimates that between 1999 and 2019 the dollar accounted for 96% of trade invoicing in the Americas, 74% in the Asia-Pacific region, and 79% in the rest of the world. Banks used the greenback for around 60% of all international deposits and loans.”

With that said, there is a plan afoot to overthrow the dollar-based monetary order.

The prime “conspirators” appear to be China, Russia, India, and Iran, along with various allies. And possibly Brazil, which recently announced it would conduct trade with China in their own currencies, rather than using the customary US dollar.

For now, the game plan seems to be switching from dollar-intermediated trade, to using each country’s currency. 

For example, Saudi Arabia is reportedly in advanced discussions with China to sell oil to the country in yuan. That alone would be a tremendous change from the current petrodollar-based system. And apparently the BRICS are planning to eventually build their own common reserve currency (possibly a gold-backed one).

If this de-dollarization trend continues, and the world continues to decrease their purchases of US debt, things may get a bit crazy over this decade. The dollar could fall in value significantly. At the same time, the Federal Reserve may be forced to purchase an increasingly large percentage of US debt, essentially financing growing deficits with freshly printed money. Inflation could become increasingly problematic.

But it’s not going to happen overnight. The dollar is still firmly entrenched in the world’s financial system, and it’s going to take a Herculean effort, and time, to attempt to dislodge it.

Not Ready for Hyperbitcoinization

The idea of a dollar collapse has gotten some Bitcoin folks overly excited.

For example, last month, noted venture capitalist and Bitcoin advocate Balaji Srinivasan made a $1M bet that Bitcoin would hit $1M in 90 days. 

Balaji’s argument is essentially that the banking system is cooked, and so is the dollar. You can read his full thread on Twitter. Eyebrows were raised because Balaji is considered a tech thought leader, was the CTO of Coinbase, and also a general partner at leading VC firm Andreessen Horowitz.

But let’s think this through. If Bitcoin hit $1M, its market cap would be approximately $19 trillion. That’s almost half the value of the $40 trillion US stock market, and 1.5x the value of all the gold in the world. 

So if Bitcoin hits $1M anytime soon, something has gone horribly wrong. It’s not happening. I suspect this was essentially a PR stunt by Balaji.

With that said, Bitcoin does have a chance to do quite well over the next few years. It is designed for precisely these conditions, as we noted in our last newsletter.

Bitcoin is scarce, digital, self-custodiable, and apolitical. Those are attractive traits in a chaotic financial environment. 

But we must remember that Bitcoin is not yet the king of hard money. That title today goes to gold. All the gold above-ground is worth around $13 trillion, compared to Bitcoin’s $564 billion. That makes gold’s market capitalization 23x the size of Bitcoin’s.

Countries moving away from the dollar are building up gold reserves, not Bitcoin. So today Bitcoin is still much smaller than gold in the global marketplace, but that’s to be expected. Bitcoin has really only been in the public consciousness since 2017 or so. 

Personally, I appreciate the fact that Bitcoin is still a much smaller player. It leaves plenty of room for potential growth.

For further speculation on these topics, see our newsletter from March of 2022 titled Has De-Dollarization Begun?


Adam Sharp
The HIVE Newsletter