Economic weakness may soon give Bitcoin a new role in global commerce

The chaos we’ve experienced in global markets this year—a growing global geopolitical upheaval fueled by the confluence of disrupted supply chains, inflation and heavy national debt burdens—signals the dawn of a new era. All this in the context of the US dollar, which currently serves as the main global reserve currency, accounting for about 40% of global exports.

But monetary history tells us that there can be more than one global reserve currency. Many countries are actively seeking a backup solution isolated from global political strife. Bitcoin (BTC) may fit the bill, and if it is accepted as an alternative reserve currency – even on the fringes – we will see the launch of Bitcoin-based commerce and the rise of a new geopolitical reality.

The Bitcoin network is ready for now.

What is Bitcoin based trading?

From US Dollars to Chinese Yuan, Japanese Yen and more around the world. There are many reserve currencies such as But the dollar is the most popular in terms of exchange.

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Bitcoin-based trading focuses on the idea that BTC can also function as a reserve currency that works in parallel with other reserve currencies. The resulting geopolitical reality would be one in which supply and demand are at the forefront of the levers of influence between nations. Those with raw materials, manufacturing capabilities, or any number of other critical inputs for global trade will be able to negotiate demand for those inputs. This will be done by Bitcoin, the unit of exchange that remains largely an apolitical settlement network.

The importance of timing

There are many challenges facing the global economy. Two in particular are the product of a once-in-a-generation adaptation of unique circumstances. The first is the need for an efficient, relatively apolitical, non-fragile reserve currency system. The second is the increasingly difficult demands for critical inputs for the global economy. These include raw materials, production costs, specialized production processes, protection of intellectual property, etc. as inputs. Sources for critical inputs necessary for all global trade are in transition. The timing may just be right for geopolitical leverage, traditionally fueled by the global need for the dollar.

Whether or not the dollar is removed from the current reserve currency hierarchy is a matter for another time. Even a few years ago, Bitcoin could not be considered a meaningful addition to existing reserve currencies. Nevertheless, Bitcoin is now a valid participant due to the size and level of decentralization of the network.

Apart from any public skepticism or regulatory inertia, the Bitcoin blockchain was too slow and too energy intensive to become a viable global reserve currency. Today’s fast-moving web has a set of features that can power unique solutions for just this purpose.

Simply put, the Bitcoin network is becoming more robust and multi-functional by the day. The rise of the Lightning network makes it easier for participants to actively manage incoming and outgoing liquidity. 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 quickly enough to compete with fiat currencies at many trading levels.

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The second major challenge is the growing demand for critical inputs from 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, and very specific manufacturing processes that require a high degree of specialization or very cheap production. It also includes the ability to legally protect ideas. There are many categories of critical supply-side inputs, but the bottom line is this: countries with critical supply-side inputs dramatically increase their ability to negotiate geopolitically without using monetary policy and limited trade adjustment levers.

The sea change this will unlock cannot be overstated. This would mean that institutions such as the Bank for International Settlements (a bank for central banks), the International Monetary Fund, the World Bank and many other global financial institutions would lose some of their political power. This is important because, as history has shown, these institutions wield enormous political influence that is inconsistent with the economic reality they claim to defend.

Take the IMF as an example. Alex Gladstein has done extensive research to better understand the complex relationships between institutions such as the BIS, the IMF, the World Bank and the countries they lend to. According to Gladstein, the IMF “provided loans to 41 countries in Africa, 28 countries in Latin America, 20 countries in Asia, eight countries in the Middle East, and five countries in Europe, to 3 billion people, or two-thirds of the world’s population at the time.”

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To do business with the IMF, a country must join the IMF. One of the requirements to join is a deposit denominated in the country’s national currency, as well as “harder assets” such as gold, the dollar or a European currency. To date, 190 countries have joined. When a member country needs a loan for an emergency or major infrastructure project, they usually get that loan at low interest rates and difficult repayment terms. Countries that do not fulfill this obligation are punished. Penalties vary, but often include interest rate hikes, currency devaluation, restrictions on government spending, etc. is applied in the form of

Thus, the borrowing country becomes more indebted and its ability to actually repay the loan is limited. Recall that the dollar is a global reserve currency. The United States has the most weighty voice in the IMF. And so, it seems, the global monetary hierarchy is strengthened and maintained through debt.

If we take it through the lens of game theory, it makes sense. Those in power and those who benefit from that power will do everything in their power to maintain that position, and they feel it. It was all business as usual until 2022, when critical inputs became more important than the unit of exchange used to trade and route them.

Leverage has changed

The race is about to change its place within the emerging new paradigm. Critical inputs are more important than ever. Leverage may simply change due to changes in US monetary policy. Aggressive hikes in interest rates are wreaking havoc on global markets. Pressures are increasing on countries that take loans in dollars, such as those from the IMF. But many of these countries have important inputs that the world needs. Countries such as Russia, China, India and Saudi Arabia are currently actively looking for alternatives to the dollar. Market analysts such as Luke Gromen believe that a shift to alternative is inevitable.

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Gromen suggests that the short-term alternative would be gold. In the medium to long term, it could be an asset like Bitcoin. Alternatives can be explored as there are variable levers that interested countries have and are now ready to make full use of. Gold is considered a favorable option because historical preference suggests it. But as countries recognize the properties that Bitcoin possesses, the transition to gold may very well be temporary.

And if that happens and we see a move towards Bitcoin-based commerce, all bets are off. A new geopolitical reality will emerge. A multipolar global trade regime will give way to new alliances between nations. New alliances will mean new trading partners will establish new trade routes. Monetary policy will be defanged as a method of leverage. Countries with critical inputs will gain leverage like never before.

The transition will be chaotic and the outcome cannot be predicted. But one thing is certain: we are witnessing once-in-a-lifetime changes in global trade.

Now is the time to pay close attention to the place Bitcoin can occupy in this paradigm.

Joseph Bradley is head of business development at software-as-a-service Heirloom. He began his career in 2014 as an independent researcher in the cryptocurrency industry before joining Gem (later acquired by Blockdaemon) and later transitioning into the hedge fund industry. He earned his master’s degree in portfolio construction and alternative asset management from the University of Southern California.

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

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