There's a famous quote, often attributed to Russian revolutionary Vladimir Lenin: "There are decades where nothing happens, and there are weeks where decades happen."
The past few months have been chock-full of the latter sort of weeks.
With that context in mind, Canadian Prime Minister Mark Carney argued at the World Economic Forum in Davos, Switzerland, on Tuesday that the U.S.-led "rules-based international order" created after World War II is now decisively ending, and that the world is moving into a more transactional (and somewhat anarchic) era of power politics. Carney's comments can be seen as marking a clean break with the past, and the globe's undeniable transition toward a new set of dynamics that are likely to be far less favorable for the U.S.
So, which assets are best positioned to flourish in this new world order, which actually seems to be characterized by a lack of order more than anything else?
Well, given that global disorder can be viewed as strengthening the long-run case for financial tools and assets that no single state controls, Bitcoin (BTC 0.35%) could be one of the winners.
Image source: Getty Images.
The bullish case is about neutrality
If Carney is right -- and he is -- international payments and capital flows are more likely to get politicized than they are to remain insensitive to which entities are transacting with which and why. When access to the systems through which capital moves becomes a bargaining chip, countries will look for alternatives that reduce their dependence on rivals. In some cases, an acceptable alternative for those nations could be Bitcoin.
You can already see this impulse in the policy conversation. On Jan. 19, India's central bank proposed linking the central bank digital currencies (CBDCs) of the BRICS nations. (That group previously comprised Brazil, Russia, India, China, and South Africa, but Egypt, Ethiopia, Indonesia, Iran, and the United Arab Emirates have joined the bloc in the past couple of years.) This is just another piece of evidence in a growing pile pointing toward the conclusion that the global financial system is about to get tangibly more fragmented. The implication is that it could soon be harder for U.S.-based investors to get exposure to all sorts of different international investments, potentially because they'll be explicitly excluded from access due to geopolitical considerations.
But Bitcoin isn't a CBDC, nor is it a fiat currency at all, and for the purposes of this conversation, that difference is a big reason why it's now looking more appealing than ever before.
CRYPTO: BTC
Key Data Points
As you're probably already aware, the cryptocurrency's protocol sets a hard cap of 21 million coins. No more Bitcoin than that can ever exist. It also reduces the rate at which new coins are mined via scheduled halvings that take place about once every four years. That creates an increasing level of scarcity that no government can alter or manipulate directly based on political whims. Bitcoin has also proven resistant to efforts aimed at containing its reach, not to mention resistant to efforts to ban it altogether, as was attempted in China. In a world where trust in fiat currencies and settlement networks gets tested more and more often, a borderless asset that's not anchored to any single country or group of investors of a single nationality can become more useful. There aren't many other assets like Bitcoin, and none has a market cap that's nearly as big.
The bear case is that fear takes the wheel
Geopolitical shocks often trigger dashes for liquidity, and Bitcoin can trade like a risk asset during those moments. The major cryptocurrencies have become more correlated with stocks over time. So, if the global financial reordering sparks some panic at some point, as it is practically guaranteed to do at least temporarily, it's highly probable that Bitcoin will experience some volatility to the downside.
Still, its emerging role as a neutral asset is ultimately more likely to help its price than to harm it.
The investment thesis for buying a neutral, fixed-supply asset strengthens as geopolitical conditions get messier and messier. But beware that holding it may well hurt quite badly in the early innings of the next shock. It isn't ever going to be as stable as a hard asset like gold, even if in the long run it's going to be worth more.
Therefore, you should treat Bitcoin as a diversifier for your portfolio rather than an emergency parachute or a solution to all of the market volatility that geopolitics are bound to continue causing in the short, medium, and long terms.
The end of the U.S.-led international order isn't something to cheer about. Nonetheless, Bitcoin will survive it, and despite the expected periods of volatility, its odds of thriving over the long run are trending even further upwards.
