Bitcoin and cryptocurrency prices are on a tear this week.
Bitcoin’s price rocketed up past $40,000, gaining 11.7% from its lowest March point. Other major cryptos also rose but trailed in bitcoin’s wake. Ethereum’s price rose 7.7%, BNB 4.8%, cardano 2.4%, XRP 2.7%, and solana 3.3% over the week
Cryptos jumped after Biden signed the long-awaited (and dreaded) executive order, which came out more pro-crypto than expected. The directive calls on federal agencies to coordinate crypto oversight, but it didn’t lay out any specific regulations.
In fact, policymakers appear to recognize digital assets’ role in monetary innovation. As Coindesk reported: “one part of the order will direct the Treasury Department to create a report on the “future of money,” including how the current financial system might not meet consumer needs.”
Biden’s crypto agenda seems to back the bold claim of Zoltan Pozsar, global head of short-term interest rate strategy at the giant investment bank Credit Suisse that “we are witnessing the birth of Bretton Woods III – a new world (monetary) order.”
And that bitcoin may largely benefit from it.
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Zooming Out
Pozsar argues Bretton Woods II crumbled when the G7 countries seized Russia’s foreign exchange reserves. Keeping money inside financial institutions like the IMF was considered risk free. That is clearly no longer the case.
Similarly, Bretton Woods I collapsed when Nixon took the US of the gold standard back in 1971 when dollars were convertible to gold at a fixed exchange rate of $35 an ounce. This led to Bretton Woods II, backed by “inside money” or the dollar, which itself is not linked to gold or any other commodity.
Now the basis of this system, which has operated for the past 50 years, is being called into question. An article by Wall Street Journal writer Jon Sindreu, for example, said the sanctions on Russia, which showed that reserves accumulated by central banks can simply be taken away, raised the question of “what is money?”
That question may explain why Pozsar believes a huge shift in the way the world organizes money and reserves is now underway, “creating a “Bretton Woods III backed by outside money,” (gold and other commodities).
He added that: “We are witnessing the birth of Bretton Woods III – a new world (monetary) order centered around commodity-based currencies in the East that will likely weaken the Eurodollar system and also contribute to inflationary forces in the West.”
China, Pozsar says, will have two ways of protecting its interests – either selling Treasury bonds to buy Russian commodities, or doing its own quantitative easing, for example, printing renminbi to buy Russian commodities. Pozsar expects both scenarios will mean higher bond yields and higher inflation in the West.
“When this crisis (and war) is over, the U.S. dollar should be much weaker and, on the flipside, the renminbi much stronger, backed by a basket of commodities,” Pozsar wrote. “After this war is over, ‘money’ will never be the same again…and bitcoin (if it still exists then) will probably benefit from all this.”
Looking ahead
That should be music to the ears of crypto investors.
After all, crypto advocates argue digital assets serve as a hedge against the debasement of fiat currencies and inflation. And that they will eventually take over from gold as a 21st century safe haven.
Still, prior to Biden’s executive order, bitcoin and other major cryptos hadn’t behaved anything like a reliable store of value—much less a gold successor.
Since Moscow began its onslaught, gold has been steadily rising. It has now shot past $2,000 an ounce, gaining 13.8% from its 2022 low. By contrast, the price of bitcoin and other currencies have been on a rollercoaster.
That isn’t likely to encourage investors to ditch gold in favor of cryptos. However, the volatility might partly reflect the lack of regularity clarity.
So, if policymakers really do start drawing up plans to further legitimize cryptocurrencies and Pozsar’s “Bretton Woods III” prediction comes true, bitcoin and other other cryptos may emerge as one of the most reliable stores of value.
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