Economic frailty could soon give Bitcoin a new role in global trade

The chaos we’ve experienced in global markets this year – global chaos that has been exacerbated by the disruption of supply chains, rising prices and heavy national debt burdens – seems to signal the start of a new era. All of this is within the context of the US dollar serving as the world’s main reserve currency, currently accounting for around 40% of exports.

But financial history tells us that many world reserves can exist at the same time. Many countries are actively pursuing a reserve stabilization arrangement that is protected from global political conflicts. Bitcoin (BTC) would fit the bill, and if it is accepted as an alternative currency – even within limits – we will see the release of Bitcoin-based commerce and the rise of a new geopolitical reality.

The Bitcoin network is ready for this moment.

What is Bitcoin-based trading?

There are many reserve currencies in the world, from the US dollar to the Chinese yuan, the Japanese yen and more. But the dollar is by far the most popular in terms of exchange.

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Bitcoin-based trading centers on the idea that BTC can also act as a reserve currency that works in parallel with other reserve currencies. The resulting reality of the country’s situation will be one in which supply and demand dominate the influence between nations. Those who have raw materials, manufacturing capacity or any number of other inputs important to world trade will be able to negotiate based on the demand for those inputs. This will be enforced by the unit of exchange, Bitcoin, which remains an apolitical settlement network.

The importance of time

There are many challenges facing the global economy. Two, in particular, are the product of a once-in-a-generation combination of unique circumstances. The first is the need for an effective, efficient, anti-corruption financial system. The second is the growing challenge of the demand for critical inputs in the global economy. These are inputs such as raw materials, manufacturing costs, special manufacturing processes, intellectual property protection, etc. The sources of critical inputs necessary for all world trade are in flux. The timing may be right for the geopolitical leverage that has traditionally come from global demand for dollars to be dramatically reduced by the new unit of exchange, Bitcoin.

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Whether the dollar should be removed from the current reserve currency regime is another matter for another time. Even just a few years ago, considering Bitcoin as a meaningful addition to existing savings accounts was impossible. However, Bitcoin is now an effective entrant due to the size and level of network expansion.

Regardless of any public doubt or regulatory inertia, Bitcoin’s Blockchain was too slow and too powerful to be an available currency to save the world. To date, the network has a set that can provide the unique solutions necessary for this very purpose.

Simply put, the Bitcoin network is getting stronger and more active by the day. The rise of the electronic network makes it easier for participants to effectively manage their inflows and outflows. This is important because as countries and large businesses adopt the Bitcoin network, smaller countries and companies will follow. The Lightning Network continues to expand rapidly and will soon be able to handle this volume fast enough to compete with fiat currencies at many levels of commerce.

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The second challenge is the growing need for critical inputs in the global economy. These are inputs that represent the supply side of the market. This includes raw materials such as oil, computer chips, lithium and aluminum – as well as direct manufacturing processes that require a high level of expertise or low-cost manufacturing. It also includes the ability to legally protect ideas. There are many types of significant supply-side inputs, but the main one is this: Without using the power of monetary policy and a restricted trade solution, the power of these countries with significant supply-side inputs to negotiate nationally is greatly increased.

The sea change it will open cannot be overstated. This would mean that institutions such as the Bank for International Settlements (the central bank), the International Monetary Fund, the World Bank and other international financial institutions would lose their political power. This is important because, as history has shown, these institutions wield tremendous political influence that is out of sync with the economic reality they claim to support.

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Let’s take the example of the IMF. Alex Gladstein has done extensive research to better understand the complex relationship between institutions such as the BIS, the IMF, the World Bank and the nations they borrow from. According to Gladstein, the IMF has extended loans to “41 countries in Africa, 28 countries in Central America, 20 countries in Asia, eight countries in the Middle East and five countries in Europe, affecting 3 billion people, or two countries each — to a third of the world’s population.”

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In order to do business with the IMF, a country must join the IMF. One of the requirements to join is a deposit in local currency and “hard assets” such as gold, dollars or European currencies. There are 190 countries that have joined so far. When a member nation needs a loan for an emergency or major infrastructure project, they usually get that loan at interest rate levels and repayment terms that are difficult to meet. Countries that do not meet this obligation are penalized. Penalties vary but are often paid in the form of increased interest rates, devaluations, restrictions on government spending and more.

Therefore, the borrowing nation becomes more indebted and restricted in its ability to repay the loan. Remember that the dollar is the reserve currency. It is the United States that has the most difficult vote in the IMF. And so, it seems, global financial control is strengthened and maintained because of debt.

Considering this through the lens of game theory, it makes sense. Those who are in power and have access to that power will do what they can and feel they have to maintain that position. It was all business as usual until 2022, when critical inputs began to be more important than the unit of exchange used for trading and directing.

Leverage has changed

The race will be rescheduled to a new location that appears. Key inputs are more important than ever. Against the background of a change in US monetary policy, the dynamics may change. A sharp rise in interest rates is damaging global markets. Pressure is building on countries with dollar loans – such as those from the IMF. But many of these countries have important contributions that the world is looking for. Countries like Russia, China, India and Saudi Arabia are now looking for alternatives to the dollar. Market analysts like Luke Gromen think the switch is inevitable.

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Gromen suggests that another shortcut would be gold. In the medium to long term, it could be an asset like Bitcoin. Alternatives can be explored due to changes in air quality that countries have an interest in and are now willing to take full advantage of. Gold is considered a viable option because the track record suggests it. But as countries recognize the qualities Bitcoin has, the pivot to gold may be temporary.

And if that happens and we see a move to Bitcoin-based marketing, all bets are off. A new geopolitical reality will emerge. Multilateral world trade governance will pave the way for new alliances between nations. New alliances will mean new trade partners will build new trade routes. Monetary policy as a means of improvement will be relaxed. Those countries with significant contributions will be stronger than ever before.

Change will be chaotic, and the outcome is unpredictable. But one thing is certain: We are witnessing a once-in-a-lifetime restructuring of global trade.

Now is the time to take a closer look at where Bitcoin can take that paradigm.

Joseph Bradley is head of business development at Heirloom, a software-as-a-service startup. He started in the cryptocurrency industry in 2014 as an independent researcher before going to work at Gem (which was later acquired by Blockdaemon) and then moving into the hedge fund industry. He received his master’s degree from the University of Southern California with a concentration in portfolio construction and alternative asset management.

This article is for general information purposes and is not intended and should not be construed as legal or investment advice. The views, thoughts and opinions expressed herein are those of the author alone and do not reflect or represent the views and opinions of Cointelegraph.

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