Recent geopolitical events have made one thing obvious: Western governments can seize all your assets… even if you’re part of the traditional financial system.
Just days after Russian tanks rolled into Ukraine, the United States and its allies sanctioned the country’s central bank.
They froze about $600 billion worth of Russia’s foreign currency reserves.
These reserves aren’t piles of cash sitting in Moscow vaults… Most of them are electronic balances in commercial and central bank accounts in the U.S. and other Western nations.
The U.S. dollar is the world’s reserve currency. And Washington controls the dollar-based financial system.
If you want to use that system, you have to play by Washington’s rules.
Of course, weaponizing the dollar-based financial system may be beneficial in the short term. The West wants to punish Russia for its aggression against Ukraine.
I understand that. What’s going on in Ukraine is a humanitarian tragedy. And we all hope it ends soon.
Regardless of what you think about the invasion, though, weaponizing the dollar is an awful decision in the long term.
From a humanitarian standpoint, it’ll cause millions of innocent Russian civilians to suffer economically.
We’re already seeing long lines for basic food items like sugar in Russian cities. These people had nothing to do with the government’s decision to invade Ukraine.
Also, the sanctions weaken trust in the global financial system built by the U.S. after the end of World War II.
Other governments are now thinking, “If the U.S. could freeze Russian assets – and Russia is a key exporter of natural resources – what could they do to us?”
They’re also thinking about alternatives to traditional central banking systems that rely on the U.S. dollar as its main reserve.
And that’ll ultimately be a huge catalyst for bitcoin…
Can Bitcoin Defend Against a Weaponized Dollar?
Sanctions only work if people are using your currency. But what happens if Russia (or China) decides to create its own digital currency? Sanctions will no longer pack a punch.
Plus, there’s already a world-class digital currency out there: Bitcoin.
And Russia believes bitcoin could help save its economy.
Last month, the chair of Russia’s Duma Committee on energy said that when it comes to “friendly” countries such as China or Turkey… Russia is willing to be more flexible with payment options for its energy exports.
Those options include the fiat currency of the buyer as well as bitcoin.
Bitcoin is essentially a central bank in cyberspace. That’s why I believe many countries will turn to it as an alternative reserve asset.
You see, bitcoin is minted at a pre-set rate. A schedule is hardwired into bitcoin’s code that determines when it’s issued. Unlike a human-run central bank, nobody can manipulate it.
Bitcoin is also a decentralized network. So it’s tamper-proof and censorship-resistant. It allows you to store value in a way that doesn’t let other people confiscate it from you.
Imagine if Russia was sitting on $600 billion in BTC instead of $600 billion in USD. It would have a lot more financial sovereignty than it does today.
Russia thought it had $600 billion in savings. But it forgot that most of that cash was someone else’s liability.
Bitcoin, by contrast, is wealth you store yourself using a personal and private cryptographic key.
Let me be clear: The only government in the world with true financial sovereignty is the United States.
Even American citizens – and I’m one of them – don’t have true financial sovereignty.
The U.S. government can freeze our bank accounts anytime it wants. That’s crazy.
Nobody should get to say what I do with my money. That’s how it ought to be in a free country. But that’s not our reality.
So the world is waking up to the need for an alternative.
Now, some people will say gold is the alternative to the dollar-based system we use…
But at a fundamental level, gold isn’t as convenient to use as bitcoin.
Like gold, bitcoin is nobody else’s liability. That makes it hard to confiscate.
And unlike gold, you don’t need vaults to store your bitcoin… You don’t need armored vehicles or armed guards to transport it safely.
You can store billions of dollars in crypto wealth on a thumb drive.
Bitcoin is more liquid than physical gold, too. You can trade it online 24/7 without lugging around heavy bars.
That said, I do think we’ll see more countries buying gold.
They realize it’s the only asset Russia has that nobody else can touch. So that buying will push the price of gold up. But it will do much more for the price of bitcoin.
It’s very difficult to settle a multibillion-dollar trade deal in physical gold… The transportation costs and security risks are massive.
That’s why I would not be surprised if countries start buying more gold for their reserves, and then use bitcoin as a tamper-proof global settlement network.
So bitcoin could essentially become the independent global payment network they use. And that’s for the simple reason that none of them control the network.
It’s the “neutral” zone of global payment networks, and that use case alone makes it very valuable.
That’s why I predict we will see central banks adding bitcoin to their balance sheets.
Sovereign wealth funds – which invest a country’s cash savings in stocks, bonds, real estate, and so on – will do the same.
Just as U.S. Treasurys, European bonds, and gold are major reserve assets today… bitcoin will be part of a country’s reserves in the future.
For years, I’ve shown my readers why bitcoin is an important “chaos hedge” for their portfolios.
Now, governments want their own “chaos hedge” to defend their economies against the types of sanctions the U.S. and its allies levied on Russia.
My bet is they will turn to bitcoin.
Let the Game Come to You!
Editor, Palm Beach Daily