The Great Currency Realignment – Does Bitcoin Have a Role ?

The Great Currency Realignment – Does Bitcoin Have a Role ?

The global monetary system has experienced substantial upheaval 3 times since 1900.  These currency realignments took place in 1914, 1934-1939, and 1971.  Each period was accompanied by geopolitical unrest, economic instability, and financial market tension.  As part of our ongoing multi-market, multi-asset class analysis of complex adaptive systems, it is our contention that 2008 marked the opening salvo in the current chapter for a currency realignment which is expected to reach fruition by 2024, if not earlier.  The fundamental issue involves the constitution of “money”, a measure which has evolved from the gift and barter system, to barley, to receipts, and then to a fixed reference point, measured in ounces of gold, and most recently to a fiat system, impacted by the proliferation of credit-based “money”, and asset-backed securities, and the mountain of worldwide derivatives.  The size of this total liquidity pyramid far outstretches total GDP and as such is increasingly contributing to the volatility experienced in currency markets, and via a complex transmission mechanism, the volatility in all asset markets.

Bitcoin is among the first digital currencies introduced in the peer-to-peer framework and in part has disrupted the traditional definition of “money”.  In fact, Bitcoin accounts for approximately 0.00004% of the world’s total M3 (broad money) supply.  As the public has seen quite clearly over the past few years, Bitcoin is a digital store of value, highly volatile, in part due to its emerging status, and can act as an electronic cash-like currency with very low cost of use. Bitcoin’s “block chain” characteristics which allow no single point of failure, and its decentralized status, are highly prized in a world in which traditional centers of money creation are effectively unlimited in their capacity to run the printing presses.  It is, in part, this unbridled proliferation of monetary aggregates, and the leverage upon leverage piled on by derivatives, that is contributing to the widespread rumbling in the global financial system.  The financial system, due to its widespread interconnectedness, has become increasingly unstable as the inherent nature of complex adaptive systems which are susceptible to dramatic changes from somewhat innocuous actions.  As such, we are likely to witness increasing bouts of volatility, across asset classes, as the global financial systems seeks a new, higher level, of order, and in that path, Bitcoin may yet make headlines, not so much as to achieve widespread use, but to influence the evolution of the currency monetary system to a new regime as we head into 2024.