Bitcoin set to replace gold, Bloomberg strategist says on Bretton Woods 50th anniversary

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Bitcoin (BTC) is replacing gold even as U.S. regulators try to disrupt its lead, Bloomberg Intelligence’s Mike McGlone said on August 16.

The senior commodities market strategist attributed the “digitization of silver and finance” to the superior growth of the Bitcoin market relative to gold, noting that the same factors have helped the US dollar to dominate “quickly and organically “on the precious metal.

Spot gold has fallen over 99% against Bitcoin since August 2011. Source: TradingView.com

McGlone’s comments emerged as takeaways from a recent three-day conference at the Bretton Woods Hotel in New Hampshire, attended by economists, macro analysts and investors, including Jurrien Timmer of Fidelity Investment, Amy Oldenburg of Morgan Stanley, among others.

Bretton Woods is popular among economists for hosting the United Nations Monetary and Financial Conference in 1944, which then led to the requirement that the United States, Canada, Western European countries, Australia and the Japan would link their currencies to gold.

As a result, the new monetary establishment earned the title of “Bretton Woods system”.

But on August 15, 1971, the 37th US President Richard Nixon took the dollar off the gold standard. Many economists hailed the move, appealing to John Maynard Keynes’ benchmark opinion that the gold standard was “a barbaric relic.”

The latest ‘Bretton Woods: The Realignment’ conference served as a metaphorical tribute to the end of the Bretton Woods system while focusing on emerging financial assets like Bitcoin that threaten to shift ‘dollar hegemony’ into the next one. global reserve asset.

In doing so, Bitcoin directly challenged gold’s position as a traditional competitor to the greenback, which, as McGlone said, is already happening.

The #digitalization of money and finance is happening fast and organically, the #dollar is gaining ground, #Bitcoin is replacing gold, and US regulations are unlikely to disrupt its progress. pic.twitter.com/Oy11l68Oqs

– Mike McGlone (@ mikemcglone11) August 16, 2021 Five decades of dollar domination

Princeton University economic historian Harold James argued in his July 2021 article that “digital technologies are starting a new currency revolution that could end the global greenback’s primacy. “, alluding to the role that crypto-assets like Bitcoin and Ethereum could play in reshaping the world. economy.

The statements have emerged despite the dollar’s ability to weather the worst global economic conditions over the past five decades and become the world’s reserve asset.

In detail, the so-called Nixon shock of 1971 led to double-digit inflation in the United States, causing the dollar to fall more than 50% against the Japanese yen and the German mark. But neither currency could replace the greenback in the race for global fiat hegemony.

Performance of the Japanese yen against the USD after the end of the Bretton Woods agreement. Source: FRED

The dollar posted strong rebounds in the early 1980s. It exhibited similar bullish movements in the second half of the 1990s, during the dot-com boom and bust. The greenback also emerged unscathed from the 2008 financial crisis and the economic distress caused by Covid-19.

Dollar shock coming?

But why did the dollar survive? Bloomberg opinion columnist Niall Ferguson provided three reasons in his latest report.

First, the greenback was supported by the Federal Reserve’s higher interest rate policies to reset expectations.

The price of oil is in BTC. Source: Ecoinometry

Second, liberalized capital markets, led by booming Eurodollar and petrodollar markets, boosted the international usefulness of the dollar, prompting foreign central banks to use it to execute international transactions.

And third, the power of the US government to impose financial sanctions on countries it deemed undisciplined with regard to White House policies, particularly following the World Trade Center attacks on September 11, 2001, has turns the dollar into a financial weapon.

But James noted that the dollar has encountered unprecedented economic conditions following the Covid-19 crisis. The past 18 months have seen the US deficit climb to 13.4% of gross domestic product (GDP), the second largest since the end of World War II.

US public debt over the past five decades. Source: FRED

It expects to increase after the $ 1 trillion infrastructure bill the Senate just passed. The Congressional Budget Office said the stimulus would increase the budget deficit by an additional $ 256 billion over the next decade.

Meanwhile, another $ 3.5 trillion package that focuses on poverty alleviation and the climate is expected to be adopted by the end of this year. As a result, James noted that rising deficits have reduced the prospects for the dollar to rise in world markets. He wrote :

“Some dangers are already visible in the Treasury market, where there have been strains on liquidity (in 2020) and weakening foreign demand […]The new currency could therefore end the long period of dollar hegemony. “Bitcoin fights gold as an alternative to the dollar

The Federal Reserve’s lax monetary policies have resulted in supersonic price hikes in the Bitcoin market, as the steep rises beat gold, a traditional hedge asset.

Bitcoin fell from $ 3,858 to $ 64,899 amid rising US deficits. Source: TradingView.com

Anthony Pompliano, partner of Pomp Investments, a longtime Bitcoin advocate, said in a note to clients that if one holds indollars, bonds or gold, their investments will produce “negative real rates of return “.

“You are basically left with bitcoin or stocks, which makes you consider an allocation to bitcoin given the high degree of volatility that will likely be used to outperform stocks over a sufficiently long period of time.”

Pompliano’s statements have emerged despite potential regulatory challenges for emerging digital assets, as McGlone pointed out in his tweet on Monday. The crypto industry has faced a wave of attacks from Treasury Secretary Janet Yellen, Democratic Senator Elizabeth Warren and Gary Gensler, chairman of the Securities and Exchange Commission.

Related: What The SEC Can Learn From The German Regulator

But McGlone noted that the strict regulations couldn’t disrupt Bitcoin’s advance against gold. Additionally, Liam Bussell, head of corporate communications at Banxa, the crypto trading service, noted that US regulators are unwilling to shut down Bitcoin; they want to protect American investors from fraud.

“The illegal schemes resulted in around 82,135 cases of cryptocurrency fraud in 2020 alone,” Bussell said, adding :.

“US regulators that potentially touch on digital assets (CFTC, SEC and FINRA) are open to instrument diversification, as long as those instruments are fair and operate transparently.”

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move comes with risk, you should do your own research before making a decision.

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