Arthur Hayes: The end of the old monetary system and the rebirth of gold and Bitcoin

The last major hydrocarbon energy shock was because Arab suppliers hit the West. The Gulf states "lived their values" in the political situation in Israel at the time. This time, the West decided to "live their values" by canceling the world's largest energy producer. Don't let your views on the justice of the military action between Russia and Ukraine overshadow the fact that this time Western energy consumers decided to strike.

I am 100% certain that the losses faced by commodity producers and traders involved in every aspect of the globalized financial system will lead to a financial crisis of epic proportions. You cannot remove the world’s largest energy producer – and the collateral that these commodity resources represent – ​​from the financial system without causing severe, unintended consequences.

Just look at the antics of the London Metal Exchange (LME) with the nickel contract. Jim Bianco put it well in this tweet. The LME is a dying exchange and it is the canary in the coal mine for commodity derivatives.

During this new global financial crisis, if you are serious about the future of money from the various factions around the world, then reading the correspondence of Zoltan Pozsar, a money market and interest rate strategist at Credit Suisse Group, is a must. He has an excellent understanding of the intricate plumbing of global money markets and writes in a clear and concise style. I don't know if he coined the terms "inside money" and "outside money".

Internal money is a monetary instrument that exists as a liability on the balance sheet of another participant. A government bond is a liability of the sovereign, but it is an asset in the banking system and trades like cash, depending on the credit quality of the issuer.

“External currencies” are instruments that are not liabilities on the balance sheets of other participants. Gold and Bitcoin are perfect examples.

Last week, the current petrodollar/Eurodollar monetary system came to an end as the United States and the European Union seized the Russian Central Bank’s fiat reserves and removed certain Russian banks from the SWIFT network. A generation from now, when this tragic episode in human history hopefully ends, historians will point to February 26, 2022 as the date when the system ended and a new, currently unknown system began to take shape .

Obviously, I am making predictions about future developments, which is what this article is about. Your moral opinions on the right or wrong actions of different flags during this war should not distract you from the huge implications for your personal finances.

As always, my task is to synthesize the views of a wide range of macroeconomic thinkers who know the situation better than I do, then put their ideas into my own language and relate these ideas to crypto capital markets. No matter how quickly this war subsides, the warring monetary rules will not return to the post-1971 oil/Eurodollar system. A new neutral reserve asset (which I believe will be gold) will be used to facilitate global energy and food trade. From a philosophical perspective, central banks and sovereign states appreciate the value of gold, but not the value of Bitcoin. Human civilization has a history of about 10,000 years, and gold has always been regarded as a monetary tool. Bitcoin has been around for less than 20 years, but don't worry, as gold has succeeded, so will Bitcoin . I will explain why.

First, let’s consider the prescient words of Zoltan in his note dated March 7, 2022, titled “Bretton Woods III”:

“From the Bretton Woods era with gold backing, to the Bretton Woods II era with internal currency backing (Treasuries with unhedgeable confiscation risk), to the Bretton Woods III era with external currency backing (gold and other commodities).
”

After the war, "money" will never be the same again...

…and Bitcoin (if it still exists), will likely benefit from all of this.

It's all about balance

The global economy is not a magic beancurd that produces only abundant and delicious consumer goods. It is a balanced system where some countries produce more than they consume, and others consume more than they produce. Both sides must be balanced, just like all parts of life and the universe. Everything is relative, and nothing is created or destroyed, only changed.

Each country usually has its own national currency, which we call fiat currency. Based on the natural endowments of geographical location and other cultural factors, countries import and export different types of products and services in the global market. If each country traded in its own currency, it would introduce additional friction and costs. Instead, there will be a country's fiat currency that becomes the reserve currency, and most trade is conducted in this currency.

Owning the world’s reserve currency is a great privilege and comes with devastating costs. It is true that the U.S. dollar is the most used currency in global trade. It is also true that most hydrocarbons are priced in dollars. As a result, the rest of the world uses dollars to price all commodities traded in global markets.

The post-1971 dollar is not backed by gold, but by U.S. Treasuries. Until recently, energy producers earned more in dollars than they spent on the world market. So they saved dollars. Before China took over, the U.S. consumed the most energy of any country. So it made sense for the largest consumer (and largest economy) to pay for energy imports with its own fiat currency. There are other non-monetary incentives, such as access to advanced weapons, that keep oil producers pegged to the dollar.

But where does the demand for US Treasuries come from? If you have a bunch of dollars, and by "pile" I mean billions, trillions of dollars, there are very few markets with enough liquidity to process your trade. As Beyonce said, "I don't think you're ready for this jelly.".

More importantly, most countries are unwilling to bear the costs of becoming the issuer of a reserve currency.

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

In some cases, this works great for governments. The US essentially prints as many dollars as it can at zero cost, assuming correctly that there will be a large number of foreign savers who will have to buy this debt. While getting something for nothing is nice, the cost is that your economy becomes financialized.

The US became the world's factory after WWII, then it became a financial services nation rather than a factory nation. The chart above shows the slow decline of US manufacturing to irrelevance. Since the US went off the gold standard in 1971, US manufacturing as a share of nominal GDP has more than halved.

At the macro level, America exports finance to the world, not goods. If your secret lies in open, deep, and liquid capital markets, then you are prioritizing the interests of the financial services industry over manufacturing. Ask any former employee of a Rust Belt manufacturer whose factory was offshored to China because of Ricardian Equivalence. It’s a euphemism for “their jobs cost less in China. So, to increase corporate profits, we shipped your jobs overseas.”

There is a reason America is full of business schools. The business of America is the optimization of corporate finance at the expense of making real things. This benefits an elite group at the expense of the majority. But it has to happen so that America can continue to function as host to the world's reserve currency.

The above is a brief explanation of why the US capital market has accumulated trillions of sovereign savings in the form of US dollars. Readers should also ask why countries that produce goods and earn US dollars do not invest these dollars back into their own countries?

Interestingly, the biggest “savers” are saving at the expense of domestic workers. There are many different ways that countries reduce their overall wage levels. There is no free lunch. These “savings” are essentially the difference between the wage levels of deficit countries like the United States and surplus countries like China. If China wanted, it could convert trillions of dollars into RMB. This would push up the price of the RMB and hurt exporters. But it would make consumer goods (imports) cheaper for workers.

This is mercantilism 101. China is not the first country to pursue this strategy, countries like Germany, Japan, South Korea, etc. are doing the same thing, just on a much smaller scale. Speaking of my favorite volatility hedge fund manager, a big part of his business model is taking the other side of fixed income derivatives trades from pension funds in big exporting countries. These countries refuse to let wages grow at a rate equal to or higher than productivity growth, so they have to reinvest more and more money (usually in dollars) in bonds that yield lower and lower yields. So while they chase yield, they sell volatility at rock-bottom prices to investment banks for income, who then recycle it back to certain volatility hedge funds to meet their internal risk limits.

As you can see, very simply put, the large imbalances left to finance or invest in global capital markets are usually at the expense of middle-income workers at home. Leave aside the "moral" connotations of saving and spending. Abnormally large deficits or surpluses always come at the expense of some segment of society.

The above data comes from the World Bank.

As you can see, the largest 10 countries have to invest about $1 trillion in savings each year.

On the other side are the countries that buy commodities and manufactured goods from these exporting giants.

As you can see, the ten largest countries have to finance purchases worth about $900 billion per year. The United States is by far the largest deficit country, and this is because it is both the world's largest economy and the issuer of the world's reserve currency. If the United States had to finance its deficits like other countries, the yield on the US 10-year Treasury bond would certainly not be a mere 2%.

Keep these tables in mind, we will discuss them later.

Analog Networks vs Digital Networks

Currency can be divided into two parts. One is the unit of account, and the other is the network in which its token flows. The network is more important than the unit of account. Let me explain.

Before computers and the internet, all forms of money used physical networks. That is, if I wanted to "send" you something, like an ounce of gold, a cowrie shell, etc., I could walk over and hand it to you. But if you lived far away, I could ride a horse, sail on a boat, drive a car, etc. But movement is physical.

Best of all, when all else fails, I can always walk. So as long as I have enough calories to put one foot in front of the other, I can always move some tokens around the network.

This physical analog network was censorship-resistant, anonymous, but very slow and limited in a globalized economy. Mainframe computers, and more recently the Internet, enabled society to digitize the network. We created digital forms of the most common units of account, paper money, and gold, and began to “send” value electronically through centralized permissioned digital networks, such as the Society for Worldwide Interbank Financial Telecommunication, or SWIFT.

The SWIFT network is a communications layer that allows messages about fiat currency credits and debits to be sent between financial intermediaries. SWIFT is co-owned by many countries but effectively controlled by the United States and the European Union.

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

This is still how most money moves between network participants. These digital networks are operated by commercial banks that are regulated by the government. You may think you have a net worth of $100, but if the bank or government decides to ban you from accessing the digital network for some reason, your net worth will become $0.

Sovereign fiat currencies are also purely digital. No one is sending out pallets of physical banknotes to pay for their imports. Physical gold still runs on a network of horse-drawn carriages. That’s why governments go to the trouble of storing gold “savings” locally. If governments trust each other a lot, smaller countries will store their gold savings in large financial centers. That can get a little tricky when countries ask for the gold back.

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

If you are a nation that "saves" in the global reserve currency and any associated assets, you do not actually own your savings . You own things at the disposal of the operating cyber-state. You trust that the flag in power will not confiscate your "savings", and therefore you trust that your net worth as a nation is greater than zero in nominal terms in the global reserve currency.

As long as depositors trust that the ruling flag will respect foreigners’ property rights, global trade will be frictionless. However, if the ruling nation decides to block any participant from accessing the network, it then begs the question: should you “keep” your assets on this centralized, permissioned digital currency network ?

Remember this, you own nothing, you simply “rent” your net worth as an individual or sovereign from the entities that operate centralized, permissioned fiat digital currency networks.

Twelve trillion dollars

As you can see, this article focuses on the finances of sovereigns, nation states… far fewer entities to analyze, given their large impact on the prices of various assets. Their decisions are much more predictable.

Thanks to Luke Gromen of FFTT for this chart.

Excluding gold, about $12 trillion worth of “savings” are held by nations in a handful of fiat currencies, with the U.S. dollar accounting for the vast majority of that.

As I explained in the previous section, these “assets” sit on multiple centralized, permissioned digital networks. If you deposit dollars, the United States controls the network. If you deposit euros, the European Union controls the network. If you deposit yuan, China controls the network. Get it?

Most sovereign savings are denominated in the currencies of the United States, the European Union, or their allies. I refer to them collectively as “the West.” The rest, for lack of a better term, are often referred to as part of the “Global South” (read Noam Chomsky’s article to better understand the linguistics behind these terms, and how they affect our behavior). The largest country in the Global South is China, which, while still poor on a per capita basis, increasingly uses its own fiat currency, the renminbi, for trade because of its importance in the global economy.

Since everyone trades with China, many central banks hold some of the RMB as a reserve currency. As a result, the RMB is effectively the only legal tender in a developing country that is held in significant amounts by other central banks.

On February 26, 2022, the West decided to confiscate the currency reserves of a sovereign state, and the Russian Central Bank lost $630 billion in foreign exchange reserves. In addition, several large, systemically important Russian commercial banks were kicked out of the SWIFT network. Then, many private companies voluntarily decided to stop trading with Russia or Russian companies in any capacity. JP Morgan and Goldman Sachs are recent examples of American banks blocking Russia.

Russia is the largest country in terms of land area and it exports the most raw energy in the world (mainly in the form of hydrocarbons - oil and gas - and is also one of the largest food producers). The West (including the richest countries in the world) consumes energy and food and buys these resources 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.

Money is a medium for storing energy, and the most commonly used monetary instruments currently lack the world’s largest energy producers as users. Why would other central banks want to “save” in any Western fiat currency when the operators of digital fiat currency networks can arbitrarily and unilaterally confiscate their savings?

The inconsistency was so glaring that even the financial news puppets of the Western establishment understood exactly what was happening and predicted, as I did, that any rational country with a capital account surplus would now have to save in another currency.

1. If Russia’s currency reserves aren’t real money, the world will be shocked (Wall Street Journal)

2. Russia’s money is gone (Bloomberg)

3. Can foreign exchange reserves be justified by sanctions? (The Economist)

The next step is to estimate the scale of the flows and the mechanisms central banks have to move reserves away from fiat currencies where their governments do not operate value transfer networks.

Position size

As many of my readers know, I began my career as an emerging market equity trader. One lesson you quickly learn is that there is always a big door in and a small door out. Therefore, you must size your positions with the exit in mind. While liquidity is great when entering a trade and you may be lulled into thinking you can size up, when it comes time to exit, the exit may be small. Unfortunately, in this case, a trade that was profitable on paper turns into a complete disaster because there is no way to exit the position without incurring a significant loss.

To illustrate the dilemma facing sovereigns with large reserves, let us look at China and its international currency flows in more detail.

China is the world’s low-cost factory. Since the United States admitted China into the World Trade Organization in 2001, China’s exports have grown rapidly. Despite its huge demand for industrial commodities and energy, China has accumulated net foreign exchange reserves internationally. China is required to reinvest these fiat currency savings in assets such as U.S. Treasuries. China is one of the largest holders of U.S. government debt. These $3-4 trillion in savings could now be confiscated by the West at any time.

While Beijing is certainly aware of the risks of accumulating Western fiat currency reserves, it also has to assume that it is not in the Western world’s interest to undermine its claims on its assets. But who would have thought that the current situation with Russia would unfold in the way it has? Now, China has noticed that their “savings” are not safe.

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

Instead, one thing China will do is accept fiat currencies as its commodity and immediately exchange them for harder assets. Given that gold is humanity's hard currency of choice, China and other similar countries will begin to make substantial offers in the physical gold market. China will buy gold in the spot market and deliver it in the paper gold derivatives market in exchange for Western fiat currencies.

Source: FRED

Since early 2009, the year that marked the end of the 2008 global financial crisis, the following changes have occurred in the holders of the massive amount of debt issued by the U.S. Treasury.

1. Domestic entity holdings decreased by 10%

2. Foreign ownership decreased by 23%

3. The Fed’s holdings increased by more than 207%

The Fed is clearly the unwanted marginal buyer of debt for both Americans and foreigners. If foreigners feel unsafe holding their accumulated savings in U.S. Treasuries, the Fed Chair will let Miss Daisy go even further.

Let’s forget the $12 trillion existing stock of “savings.” On an annualized basis, the global net surplus is $967 billion (I’ll provide calculations in the next section). Transactions in Western fiat currencies are immediately convertible into gold, or perhaps into storable foods (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 reserves of gold or commodities. Over time, countries like China will have the "hardest" fiat currencies due to the asset composition of their reserves. As gold and commodities flow from the West to the East, the currencies of global deficit countries, especially those in the West, will be the weakest.

The price of gold will be many times higher than it is today. Trading takes place at the margins, and facing indiscriminate buyers (all countries that earn fiat currencies internationally), gold will inevitably go higher. This is a mid- to long-term play (over the next decade), while in the short term it will slowly appreciate.

It is not in anyone's interest for gold prices to move rapidly higher. If you are a sovereign with a current account deficit and want to continue to finance yourself at low rates, a high gold price discourages investors from parking money in your government bonds which have a negative real yield. If you are a sovereign with a current account surplus, you want to buy gold at the cheapest price possible because you want to sell your fiat currency at a better price.

Regarding the stock of existing Western fiat currency reserves, I do not know if any large “owner” of these reserves can materially exit their positions without disrupting Western global debt and financial markets. Instead, I would take a more modest approach, let my debt mature like it would otherwise, and invest the principal in gold or storable commodities.

As I explained, surplus countries now have a security problem with their international fiat currency savings.

The table below, from the International Monetary Fund, details the breakdown of reserves held in fiat currencies.

Using these weights as a proxy, let's assume that countries with surpluses each year also make a profit with these currency weights. This allows us to remove any net goods or services paid for in a domestic fiat currency that they fully control. Doing the math, that reduced $967 billion must be saved somewhere each year.

As I have argued in this article, countries that wish to stop accumulating confiscable fiat currencies will buy gold or storable commodities.

The table above estimates the impact of surplus countries stopping saving in fiat currencies they do not control. Does this mean that if 100% of the annual surplus was stored in gold, the price of gold would only increase 4 times? Absolutely not, there are many other players around the world consuming the gold that is being pulled out of the ground. We have just added another indiscriminate buyer to the physical market.

Please note that this is an analysis of annual inflows. The global economy did not stop on January 1, 2023, but will continue to grow rapidly. And the price of gold will continue to rise.

This also assumes that the large gold producing countries will allow the gold they mine to be exported so that other countries can reduce their exposure to fiat currency savings. In a new era of globalized supply chain docking, where countries restrict exports of key commodities in order to first become self-sufficient domestically, it is a foolish idea to assume that all gold produced is fair game for all countries in a global free market environment.

Countries that have cleverly stopped accumulating foreign fiat reserves will compete to buy gold from the mines by taking delivery in the paper gold futures market. This competition will push the last marginal price above $10,000 and we will see amazing prices for gold. Watch for more dysfunction in the gold futures market as entities actually start taking physical delivery. We may finally find out if the gold that is being traded actually exists. The LME is just the prelude, and the financial system will be filled with commodity exchange zombies that cannot deliver on their promises to participants .

Gold prices above $10,000 will psychologically shock global asset markets. As global asset allocators are now primarily concerned with inflation and real yields, any hard currency asset that is believed to protect the portfolio from this plague will reach astronomical levels. This is the psychological shift that breaks Bitcoin's correlation with traditional risk assets such as US stocks and nominal interest rates.

Above is a chart of the 10-day correlation between 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 very closely correlated with large-cap tech risk assets. If we believe that nominal interest rates will go higher and cause a bear market in equities and a recession, then Bitcoin will follow large-cap tech companies into the toilet. The only way to break this correlation is to shift the narrative around Bitcoin’s value. A bull run in gold in the face of rising nominal interest rates and global stagflation will break this relationship.

As gold breaks $10,000, Bitcoin will rise to $1 million. The bear market in fiat currencies will trigger the largest transfer of wealth the world has ever seen.

Reduced demand

The West has put itself in a difficult position.

Energy costs more, food costs more, and increased military spending will further squeeze the national economy. Citizens will protest to their elected representatives about the high and rising cost of living. Politicians will use their easy buttons to implement energy subsidies for consumers, and in the worst case, they will use price controls. The sum of these popular quick fixes for inflation will increase government spending. Someone has to lend to the government at an interest rate the government can afford…

Previously, when surplus countries believed in the sanctity of their reserves, the United States could count on foreigners to finance these deficits by purchasing their debt. The United States both issues the reserve currency and has the largest current account deficit, so it is the only important marker in this analysis.

But now the surplus countries will store gold and storable commodities. Even those who consider themselves to be allies of the West will not be immune from confiscation if they do not directly control the fiat currency transfer networks in which they accumulate their reserves.

With foreign buyers on strike, the government must allow interest rates to rise to levels that will attract domestic demand for bonds. But higher interest rates squeeze money out of private business. That leads to a recession as all available capital flows to high-yielding government risk-free bonds.

This is not a good thing.

As a result, the central bank will once again be required to finance the government, either explicitly or implicitly, through bond purchases financed by the “printing press.” The government’s interest payments are contained on a nominal basis, private businesses do not face higher nominal borrowing costs, and economic activity as measured by GDP can continue to grow on a nominal basis.

The first priority for politicians is to get re-elected. People will vote with their wallets. Interest rates on government debt will rise to pay for the increased spending, but this will cause a recession. Most politicians will not be able to keep their seats if this happens. This is especially true because their opponents will tell people that they have a solution (i.e. more government spending, but pay for it through central bank money printing). This is now called "Modern Monetary Theory", although it used to be called money printing. Same sauce, just different packaging.

As I explained in my last article, Annihilation, even if central banks raise interest rates slightly on a nominal basis, real interest rates are still negative. They will remain that way for a long time because the structure of Western economies is set up to point directly to a long period of high inflation.

The US current account deficit of $616 billion per year is going to become increasingly expensive. In 2021, the US government spent 168% more than it collected in taxes. In 2021, the US had to sell about $2.8 trillion worth of bonds to finance the deficit that year. Don’t forget that debt that matures each year must be rolled over or paid in full, which also increases the total issuance of the US Treasury each year.

If we assume that foreign countries refuse to increase their exposure to USD fiat currency, and domestic entities do not increase or decrease their purchases, then who fills the gap?

You all know the answer to this question.

It is time for the Fed to once again cross the monetary line and indirectly finance its domestic government. Once crossed, the path is certain to lead to ruin and hyperinflation. Any classically trained economist knows this is a big no-no. But the Fed or any central bank does not dictate, always bending to the wishes of the politicians in power at home.

But shouldn't the Fed stop buying government bonds? Yes, that was the plan before the largest energy producer was sanctioned. Unless the US government wants to significantly increase interest payments, the Fed must buy the balance of bonds that cannot attract buyers.

There are all sorts of entities that could be secretly increasing their balance sheets to buy US bonds with negative real yields so that on the surface the Fed is not increasing its balance sheet. I am not an expert on money markets, but I do hope that strategists like Zoltan can expose these machinations. The math suggests that interest rates stay negative so that the US government can deleverage its balance sheet. As I wrote in this post, the Fed merged with the Treasury to create severely negative real interest rates for nearly a decade in order to pay for the costs of WWII.

Whether or not the United States is involved in the conflict, the U.S. government can use this fire as an argument for why this kind of financial and fiscal coordination is necessary. Bills must be paid, and citizens always pay, either explicitly (through higher taxes) or implicitly (through financial repression). I hope these big numbers make both the problem and the solution clear.

Again, as I said in my last article, Annihilation, everything that is happening right now is a theatrical show about raising nominal interest rates. Don’t get distracted, this is all about real interest rates. Mathematically, they must remain deeply negative for many years.

Gold vs Bitcoin

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

Bitcoin: “If you don’t hold the private key, the coin doesn’t belong to you.”

For external money to truly exist externally, it must be in your hands. Legal guarantees that you will receive your assets upon request are not enough if you cannot physically walk into a vault or insert a USB drive to access your savings at any time. There should be no institution, person, or process that prevents you from immediate access to your funds. Any other arrangement would turn your external money into internal money. As I hope you understand after reading this, the value of internal money has dropped dramatically over the past few weeks.

Now back to the general part.

The reason central banks are buying gold, and not Bitcoin, is purely because of historical precedent. I am not a maximalist, both gold and Bitcoin are hard currencies, one is analog (gold) and the other is digital (Bitcoin). If a central bank started to exclusively store gold, and global trade imbalances were also settled in gold, I fully believe that over time some central banks might get tired of shipping gold around the world to pay for it. They would rather conduct small but increasing transactions in digital currency, which is naturally Bitcoin.

I will argue in a subsequent article that countries in the Global South that lack the ability and means to effectively trade and store gold will be attracted to Bitcoin. El Salvador has opened the door to this possibility, and many are watching how their Bitcoin reserves can help or hurt their economy.

Gold is great, but storing it can be a big problem on a personal level. Gold becomes a real hassle if you only accept physical gold to ensure that you actually own it. Most readers don't have a vault in a freeport to store their gold. Instead, you want a more portable hard wealth storage medium.

Whether you want to store 1 satoshi or 1000 BTC, all you need is a string containing a public and private key. This is essentially weightless and you can access it anywhere there is an internet connection. This is Bitcoin and gold from a storage and transfer perspective.

Likewise, I fully believe that on a personal level, if you believe you should spend fiat and store gold, then the mental leap to spend fiat and store Bitcoin is trivial.

My prediction for one Bitcoin is millions of dollars.

For an ounce of gold, my forecast is several thousand dollars.

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

One rebuttal is why China cannot stand up and try to use the RMB as a global reserve currency. Many analysts do not understand that China just wants to trade RMB with trading partners mainly located in Eurasia. China does not want to open its capital account and grant strong property rights to foreigners. Therefore, Beijing does not want to replace the United States as a reserve currency issuer. If the trading partners are unwilling to settle trade in RMB, they will use gold. The Shanghai Gold Futures Exchange is one of the most liquid exchanges in the world. China has established perfect gold trading and saving mechanisms both theoretically and practically.

In the medium term, it's time to support the John Deere Excavator and collect as much gold and bitcoin as possible. That's it, and that's the beginning of the change in the monetary system. Nothing is eternal, the day of the oil/Euro dollar supremacy is over. Phase shift will be chaotic, it will be unstable, it will deform, but it will be 100% huge inflation in the form of fiat currency.

No government has ever been able to resist the temptation of printing money to pay bills and appease its citizens. The government will never voluntarily go bankrupt. It goes without saying. I hope you refute me with evidence.

So if your time frame is a few years, then now is the time. If you anger the bulls, you will be overturned. Remember: it’s not that the price of gold or Bitcoin is rising, but that the fiat value that price them is falling.

If you want to be a smart trader, then I still believe that the direct blow to the global economy of this war will lead to a correlation 1 moment, at which all assets will be sold, and we will determine who will bear the losses caused by commodity derivatives exchanges. Spoiler warning that the victim is always the ordinary citizen because the printing of money that nominally ensures repayment is always the solution, and this will lead to inflation.

However, before the losses are determined, and before the central bank is once again convinced of radical money printing, financial asset prices are already affected. With the re-establishment of rules in the global financial system, be prepared to withstand extreme market conditions. If you are unwilling to take care of your Bitcoin, then close your eyes and press the purchase button to pay attention to the safety of your family from a physical and financial perspective. A few years after the fog of war has faded, when people wake up, there is a situation where hard currency tools dominate all areas of global trade.

You can't get rid of the largest energy producers from the monetary system without large-scale influence. If even the most picky, authoritative, and flattering media can draw 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 and believe that nothing has happened.

Note: The original author is Arthur Hayes, CEO of bitmex.