East Of Eden
I wrote the first draft in late February 2022. After sitting on it for a year, I have decided to update it as the theses are becoming more relevant each day.
The world does not change from one day to the other as radical events often make it seem. Potential energy transforms into kinetic energy in a very short time period and tension accumulated over long time periods can be released at once.
In times of distress, our fundamental theses get tested. The world entering an uneasy period compels me to restate deterministic macro theses about crypto. This way we can embrace the path independence of our conviction.
Idiosyncratic ideas about Web3 turn into more grim theses but are still based on the same fundamental properties of crypto. Narratives must adapt to the needs of the ever-changing world.
Sometimes we instinctively come to question everything in the face of a macro backlash; whether it is a pandemic, economic policy, war, or ultimately - financial meltdown. These are things beyond our control and they do have a material impact on our theses as the world reveals itself as stochastic.
Although crypto as a technology holds no formal or ideological allegiance to anyone, it is too a force seeking to challenge the status quo. It is a technological revisionary force because of credible neutrality, meaning it does not and cannot discriminate against anyone.
Crypto is to a large extent an attempt to revisit and redesign existing monetary and financial order. Ballooning debt and entitlement programs have politicized the economic debate in the West. In an attempt to do good for their constituents, policymakers are starting to compromise the political independence of institutions safeguarding the world's monetary system – like the Federal reserve.
The second-order effects of political affiliation on behalf of these institutions are far-reaching. In a very short span of time, we’ve just witnessed A) the defacto backstop of the US banking system to the tune of 4.4 trillion, B) Signature Bank’s Crypto Execution, and C) the megabank merger in Switzerland, which was forced by the regulator.
The political establishment is now capable not only of monetary debasement, but of selective seizures and value destruction.
From the macro perspective, credible neutrality becomes the most important attribute for crypto’s ascend not only because in the digital age, credibility becomes the scarcest resource, but also because it sometimes pays to be neutral and predictably reliable (e.g. Switzerland in the past).
The world financial system is becoming incredibly biased (truckers, crypto, oligarchs). I am proposing four different theses for the credibly neutral financial system in the face of ongoing global turmoil and politicization of the economy.
Credible neutrality embraced by the contrarian forces and heavily regulated by the western economies
The US remains the biggest revisionary force in the world. The power of this global hegemony relies on its ability to project a monopoly on violence in the world’s ocean and its soft power of the dollar and adjacent banking system.
This military and economic might is still seeking to impose its will on the world. It's only natural. However, there are contrarian forces looking to undermine, or at least resist, the mighty political revisionist force of the US. Thus they turn to the strongest technological revisionist force - crypto.
The West (led by the US) has decided not to tie its future with crypto, granting contrarian forces a powerful ally. Unbaking and overregulating crypto is a desperate move that will, over the long term, backfire.
The bureaucratic tyranny of the KYC and AML regime, which is supposed to make the world safer, will slowly cause an economic pivot from West to East. As monetary and financial affairs in the West are getting increasingly less sovereign and more politicized - their efficiency is weakened. Banks are becoming bureaucratic arms of the government and not businesses.
Crypto is apolitical, thus designated as an enemy of the West which tries to forcefully project its values that it deems universal. The mantra of the West in regard to crypto: if you’re not with us you’re against us. Contrarians will embrace crypto not only out of necessity but also because of pragmatic and opportunistic reasons.
Credible neutrality embraced as a new Switzerland in the upcoming global volatility
As the potential political conflict within the Western economies escalates and the global arena grows volatile, the wealth will seek an exit from fragile economies into a safe haven or a “Swiss bank account in the cloud”.
Credible neutral wealth will become the only non-cancellable wealth with Swiss bank secrecy not viable anymore. It’s not only the sanctioned oligarchs who will seek the apolitical store of value but also Western UHNWIs to hedge growing political risk.
Credible neutrality adopted by the fringe economies
What happened in El Salvador will continue and more countries will choose to partially opt out or decrease their exposure to the global financial system which grows increasingly volatile.
Credible neutrality as a bottom-up regime transition
Crypto will gradually undo the old monetary institutions (in the West) as capital will seek credibly neutral access to markets; depoliticized monetary and financial instruments. The pragmatism of investors will prevail over the ideology:
Investors will seek protection from heavily politicized markets
Investors will seek shelter from the unpredictable monetary institutions
Central banks looking to diversify reserves
I would not expect this to unfold fast or in the near future but as the next wave of QE will probably make inflation even stickier - FED’s tools will increasingly lose their effectiveness. Slowly but surely, its credibility is being questioned.
As the world becomes more volatile amidst raging global economic proxy wars, military conflicts, and collapsing banks - individuals and businesses will seek to store their wealth, settle transactions, and conduct commerce outside of politicized markets. This could slowly invert reliance on centralized monetary tools. Not revolution but a gradual reformation.
Conclusion
Crypto adoption is growing and is becoming too functional to be left alone or not to play a role in the global power struggle. The above theses are fluid and not mutually exclusive. On the contrary; they could play out simultaneously.
If we want credibly neutral money to become mainstream, we must accept that the massive change this represents will have its costs and consequences. Some of these we might not expect or like because we as humans are rarely neutral.
I am confident volatility is still ahead. If the cancel culture becomes institutional, both the elite and the retail globally will be forced to seek cancel-proof alternatives. The US has made a choice that once will be looked upon as a critical decision leading to an economic decline.
Using financial repression as a tool of control; swift seizures of banks, selective bailouts, more monetary alchemy, and heavy-handed regulation of crypto could all lead to the undoing of a powerful economic hegemony as economic innovation pivots East.
Thanks to longsolitude, Jakub, Luffistotle for their valuable input.