The COVID pandemic has accelerated the shift to digital settlements and crypto coins triggering a debate about whether traditional means of payment and safe havens will soon become a thing of the past. Independent political risk analyst Eric Kraus has weighed up whether Bitcoin will replace gold and whether crypto yuan can depose the dollar.
On 8 June, the World Bank suggested that the COVID-related global recession would be the deepest since the Second World War with the highest share of economies seeing contractions in annual per capita gross domestic product (GDP) since 1870.
Under these circumstances, investors are seeking safe havens to shield their assets from the perfect economic storm. One would expect that they would opt for gold; however, the yellow metal is growing slowly and has yet to see the levels it reached in August 2011. Meanwhile, crypto-currencies appear to be gaining steam with macro investors, such as Paul Tudor Jones, buying Bitcoin as “a hedge against inflation”. Even China which has previously dragged its feet about embracing crypto currencies has doubled down on testing and developing a sovereign blockchain technology.
Will Bitcoin Replace Gold?
One might wonder whether the world is turning digital and whether the shift from the yellow metal to Bitcoin – that some call the digital equivalent of bullion – is around the corner.
“Not in the least – it is instead an excellent example of the current casino capitalism driven by the unprecedented monetary creation and the suicidal budget deficits of the G7 countries”, responds Eric Kraus, an independent political risk analyst and financial expert.
Kraus argues that “current cryptos are pure gambling assets”: “They have no backing nor any use in commerce or as a store of value – extremely volatile, to provide a fun game for small traders – not a meaningful financial market”, he emphasises.
“The relative weakness of Gold and strength of the cryptocurrencies is reminiscent of the soaring price of Hertz and other bankrupt American companies, pricing of which is driven by a new generation of small day traders who, with professional sports being cancelled, have instead chosen to gamble on the stock market”, he points out. “When you buy US equities, you are no longer betting on companies – you are betting on what other investors will do – and especially, for how long the Fed can continue to flood the market with liquidity. You might as well bet on ‘red’ or ‘black’ in roulette. What could go right?”
The financial expert elaborates that Modern Monetary Theory “declares that the rule-book has been thrown out – hundreds of years of economic practice are irrelevant, and one can borrow one’s way to infinite riches”. However, this view represents the failure of Western governance since “a robust political system must be able to accept a certain amount of pain”, according to him.
“Economies are cyclical”, Kraus explains. “Recessions are an unfortunate fact of life, removing…