Nothing will convert the world to crypto faster than conflict. We are about to see several conflicts occur nearly simultaneously - call it an “omni-event”:
2. Taiwan + China + Korean Peninsula Reconfiguration
3. Israel + Iran Covert Conflict
4. Civil conflict between regulators and crypto users
Now we begin to the anatomy of an omni-event, or many discrete geopolitical and policy events that occur nearly at the same time.
It seems ever more plausible that Russia and China will either plan or undertake events at about the same time. The US and NATO can handle one major conflict at a time. They cannot handle a conflagration involving nearly 200,000 troops backed by nuclear power in Europe alongside an event around Taiwan. The G7 has just issued a clear warning to Russia on this. “Any use of force to change borders is strictly prohibited under international law. Russia should be in no doubt that further military aggression against Ukraine would have massive consequences and severe cost in response.” Finally, the major news outlets are starting to clock the seriousness of the situation. The silence now becomes hyperbole. See this MSCNBC report called, Ukraine’s border is a frozen no man’s land. Pro-Russian forces (or mercenaries) are just 50 yards away: We have trenches with guys, they have trenches with guys,” a soldier said. “If Russia starts a war, of course, we will have casualties, and also they will have casualties.”
Things will be even more complex if the North and South Koreans agree to formally end the Korean War, which they are on the precipice of doing now. That announcement immediately removes the need for the nearly 30,000 US troops that are currently posted on the Korean Peninsula. Their role has been to protect the South from the North. Notice that Korean authorities talk about “peace” while American military leaders refer to an “armistice”. One can imagine an immediate deal between South Korea and China on commerce and even defense cooperation. After all, China seems to have already agreed to help manage the North Korean population in the aftermath of reconciliation between the North and the South. South Korea seems to be betting that its future is brighter in partnership with China than in partnership with the US.
As for Taiwan, we see many news stories about military activity in the air and around the Straights. But, in the background, the perception is that the White House is ambiguous and not fully committed to defending Taiwan. Most Americans are not prepared to shed blood for Taiwan or Ukraine or even South Korea. Could it be that we should remember that President Putin rolled into Crimea only three days after the Sochi Olympic games ended? Notice that South Korea is not joining America’s boycott of the Beijing Olympic Games.
As The Economist put it, “The World that the West Built after Pearl Harbour is Cracking”.
But, events are intensifying across the Middle East too. The agreements that held back Iran’s nuclear program are disintegrating and not being replaced. The old nuclear deal will soon be "an “empty shell”. This is worrying because aerial observations reveal that Iran’s Revolutionary Guard is preparing for a space launch. Israel has again said that it will take action if Iran keeps moving toward a nuclear capability. Military strikes in the Middle East involving super-power-backed are a real possibility again.
As ever, observers are watching to see if Israel can secure mid-air refueling capability. That is the essential key to any possibility of their taking action on Iran’s nuclear program. Israel has ordered two Boeing KC-46A’s which were due to arrive in mid-2022. But, apparently, Israel has now asked the manufacturer to speed up the delivery. Israel’s reconciliation with neighbors such as The Emirates further strengthens the chance of action. The first official visit by an Israeli Prime Minister to the Emirates on December 13th went two hours longer than planned. The Crown Prince and the Prime Minister were photographed smiling.
Any one of these events will cause many people to flee to safety. In the past, that meant the US dollar. No doubt the US dollar will get a big uplift in the event of crises. Institutions still cannot invest in crypto in large part because there is no custodian that can handle digital assets. This is why KKR has just decided to back Anchorage, a firm devoted to handling custody of digital assets for regulated institutions. It is already valued at $3b and already in possession of the various banking licenses and approvals from the OCC. It has conditional approval as The Anchorage Digital Bank. The OCC said, "By bringing this applicant into the federal banking system, the bank and industry will benefit from the OCC’s extensive supervisory experience and expertise."
But, individuals are very likely to view crypto assets as safer than the US Dollar. They will dive in this direction. In a recent Pew Survey, 43% of American men, and 19% or women, between the ages of 19 and 29 say they have invested or transacted in crypto. My sense is that the poor, the unbanked and the underbanked communities are now migrating into Bitcoin and crypto.
This brings us to a civil or civilian conflict that is brewing. It seems the regulators were quite pleased with their success in unbanking the National Rifle Association. The state of New York launched a blacklisting campaign in 2018, which forced the NRA into bankruptcy. The authorities are now considering blacklisting individuals. The criteria will simply be - do you own or transact in crypto? If yes, your bank will send you a letter saying your bank account is going to be closed. There won’t be any discussion or opportunity to back out of crypto to restore your status with the traditional banking system. The working assumption will be that only bad actors are using crypto. This strategy will protect the banks. The banks will still allow you to have a crypto investment strategy. You just have to execute through JP Morgan or some such institution. The working assumption remains that any anonymity in any financial instruments means you are up to no good.
Meanwhile, everyone is becoming ever-more savvy about how to use these new financial mechanisms. In the past, we heard a lot about how terrorists used Hawala networks to move money around. No doubt bad guys use crypto too. But, everyone is evolving. One cannot be surprised that there is a possibility now of self-financing DAOs that can spring up around non-state actors. Will we see a DAO or coins issued for supporters of ISIS? Of Palestine? Of The Navy Seals? Of The Red Cross? People are just starting to realize the power of crypto in conjunction with networks. The revenue that can be raised is nothing short of astonishing. Imagine NFTs of warzones. These will be the Pulitzer Prize-winning images of our time.
Governments are increasingly realizing that the best way to reduce the use of crypto is to introduce digital money, or CBDC themselves. It may be the best way to shut down terrorist finance networks. So, we are bound to see conflict as we race to see whether citizens and groups of citizens can harness the power of crypto before governments cut off their ability to function in the traditional financial system. My guess is that geopolitics will give life to crypto. Government efforts to kill crypto will only accelerate it.
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Great read! One comment I have is related to the regulation section where you discuss banks could blacklist individuals interacting with crypto which will be a strategy used to protect themselves and their business. This could potentially play out, but I believe its' an oversimplification of what would really play out.
Just like with the narrative of "all governments will ban Bitcoin", what is not taken into account is the game theory. If a lot of banks began blacklisting individuals who owned crypto, I could see some institutions taking the opposite approach and welcoming those individuals to their bank. A lot of crypto individuals include high net worth individuals and not everyone would want to pass on doing business with them.
Nice article. What do you think of privacy-centric coins that dont use a transparent ledger ? Only used by terrorists, right ?