Rapture #271: More Geopolitical Action in Crypto
Market wise, we are looking good in my opinion. Inflation came in right around expectations. While terminal rate forecasts are increasing, so far traditional equity markets have not reacted adversely, which is interesting. Additionally, the dollar started rising again, which usually indicates in the short term risk assets are about to be negatively impacted, but crypto hasn't been moving down.
Despite those looming risks, I am roughly more than 50% allocated at this point in time. I am feeling particularly good with my LIT position. Gas fees on Ethereum are rising, volume profiles for the major coins are growing, positive tech narratives are forming, and nation states are increasingly getting more directly involved. I believe this China narrative. When nation states get publicly involved that means in the background their intelligence arms likely are taking an even more active role in shaping the market to benefit that particular country and to hurt its adversaries. If crypto becomes the monetary arms in a geopolitical arms race, I expect price to benefit.
Every day, I see more news coming out about nation states getting more directly involved in crypto. Brazil, China, Singapore, Russia, Japan, and more have all had major announcements on crypto/CBDC projects this past week.
Lets touch upon some of the major items that came out this week.
Brazil, Russia, and Japan to launch CBDC projects
Some of the largest and most influential economies in the world are about to see their governments launch their initial versions of CBDCs. For example, the Central Bank of Brazil's President announced that the digital Real pilot tests were starting now and that the project should be ready for December 2023. This timeline is much quicker than I think many anticipated.
In addition to Brazil, Russia plans to roll out the first consumer pilot for the digital ruble with thirteen local banks starting in April. Transactions will be executed by individual transfers as will payments in service and trade enterprises. The rollout of the digital ruble has accelerated since sanctions have been levied upon Russia that restricts it from accessing the SWIFT payments system. Russia, in addition to their digital ruble, is considering launching a gold backed token in an attempt to create a new international settlement system.
Finally, Japan will also start their pilot program to test the digital yen in April after two years of experiments by the BOJ. This pilot program will allow the BOJ to conduct simulated transactions with private entities in a test environment and will last for several years.
Takeaways
Clearly, major nation states are becoming more involved with the launching of CBDC projects and other currency experiments. I believe that rivals to the US view CBDCs and other currency experiments on blockchain technology as a potential avenue to dethrone the dollar as the global reserve currency.
Alternatively, many allies to the US likely view the CBDCs as a new tool to confront the likely upcoming currency crises they will face in the future.
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