Is GOLD the New Global Stablecoin?
"Rising from the Ashes: The Phoenix's Role in a Multipolar Financial Landscape"
“You cannot change how people think, all you can do is give them a tool, the use of which will change their thinking.” - Richard Fuller.
It's been over 35 years since the publication of The Economist magazine with the cover "Get Ready for the Phoenix," where the coin is stamped with the name Phoenix and a 2018 release date. This magazine greatly influenced the trust in Bitcoin and cryptocurrencies, yet many remain unaware of this history to this day. The primary cryptocurrency hype took place precisely in 2017-2018, and the peak of the cryptocurrency market capitalization was formed on January 8, 2018. The magazine was published on January 9, 1988, stating that in 30 years, people would be purchasing goods online, and all price tags would be in the new global currency, Phoenix. Fiat currencies would not disappear, making it easier for states to manage their economies. Perhaps this was exploited by a market maker; many believed in the advent of a new global currency due to the article from the past and bought cryptocurrencies at peak prices. Although the main Bitcoin network was launched on January 3, 2009, and today is 2023 with calculations still predominantly in dollars, people continue to believe that Bitcoin is that very Phoenix.
However, there's another theory that might be a tad disappointing to crypto enthusiasts. I believe that the new global currency being hinted at is simply gold but in a digital/tokenized form. In this format, it can be broken down to the minutest unit and used for instantaneous transactions, with its authenticity verified on the blockchain. Today, we trust the value of USDT, which is issued in this manner on a blockchain, backed by financial instruments. As of now, USDT's market cap constitutes 7% of the entire cryptocurrency market's capitalization. Currently, Tether holds more US Treasury bonds than the governments of Australia, UAE, and Spain.
Another theory suggests that the new global currency might be the Chinese digital Yuan. A currency gains global prominence when it's actively used in cross-border trade and holds a significant share in central banks' reserves. Another critical factor is the ability to use this reserve currency during financial crises, as a safe-haven asset. In October 2016, the International Monetary Fund added the Yuan to its basket of reserve currencies used to calculate Special Drawing Rights (SDR), but it was not designated as a global currency at the time. Between 2015 and 2017, the Yuan was included in the reserves of the ECB, Germany, and France. Today, most central banks hold some amount of Yuan.
According to the Governor of the Bank of England, the dollar should be replaced by a new digital currency based on a global basket of goods. He emphasized that trade wars are undermining business confidence worldwide. Supply disruptions in certain sectors affect even those countries not directly involved. "These consequences impact all global economies, regardless of whether you're directly involved or not; it affects the outlook," Carney stated in 2019.
If the yuan becomes the new global currency, it fundamentally changes nothing. I've considered a currency tied to a global basket of goods, but there are many complexities and uncertainties with that approach. No matter how you spin the wheel, gold emerges as the solution. Gold has always served such purposes. There was a time when there simply wasn't enough gold to meet global demand. But now, technology allows for the creation of derivative financial instruments, especially on the blockchain.
"You can never change anything by fighting the existing reality. To change something, build a new model that makes the old one obsolete." - Richard Fuller.
A year ago, expressing such thoughts would have been pointless, as the crypto community would not have accepted them; I've been sensing this since 2019. But today, there are already statements that the BRICS countries are planning to launch their own currency, and some sources claim that it will be tied to the price of gold or backed by gold reserves. In this scenario, BRICS moves to an exchange of goods and resources, essentially a barter payment system between countries. Gold will act as a unit of measure in mutual settlements. Thus, everything will return to the original idea when the dollar was backed by gold, but there's one big catch.
The main shift in the current paradigm will not be the transition to gold, but in the consensus that will be embedded in the new payment system. Here lies the fundamental understanding of what is meant by the multipolar world, which is now a topic of much discussion.
The most suitable architecture for constructing such a payment system is a blockchain with a DPoS (Delegated Proof-of-Stake) consensus mechanism. This consensus algorithm was first developed by Dan Larimer in 2013 for his BitShares project. The DPoS protocol is also referred to as a form of "digital democracy". The distinction between DPoS and PoS is the separation of network participants into block producers and voters. In the case of a supranational digital currency, citizens of countries elect (delegate) their government, and the government sets up a node to validate transactions (becoming a validator). Sooner or later, government elections will also be conducted on the blockchain, making such consensus more transparent.
The architecture embedded in the EOS cryptocurrency would be well-suited for such a payment network, which I call an advanced hybrid of XRP+ETH. In EOS, 21 validators participate in the creation of each new block. Nodes are built on high-performance servers oriented towards smart contract processing, and transactions within the network are free. A wallet cannot be activated without a certain amount of EOS on it. This is perfect for both central and commercial banks. They will hold the issuance of the main coins and activate new wallets only after undergoing KYC or obtaining a business license. On such a "blockchain", it will be possible to issue tokenized gold backed by physical storage in bank vaults or through unique CeFi protocols, and possibly even DeFi, backed by tokenized oil, gas, and other futures. How exactly this will be implemented is currently a matter for speculation. It's important to understand that the new currency will be backed by commodities or raw materials, not the growth of a single country's economy. This won't be on the EOS, ETH, or XRP blockchain; I just provided this as an example for clarity. There will be a separate network where each BRICS participant will hold a masternode.
"When it's embedded in the consensus that even if ONE participant (node) of the network confirms a transaction (excluding the sender), and all others disagree, and such a transaction goes through, this will be called a multipolar world. In such a network, money won't be frozen by the decision of just one side, as in the case with the dollar or euro. This will be the creation of a new model, in which the old one simply becomes outdated and ceases to be popular.
The name Phoenix on the coin also has a hidden meaning. According to myths, the Phoenix self-immolates upon death, after which it is reborn from its ashes. The interpretation of "Phoenix" represents transformation, power, and renewal. In other words, it represents something new born from something that was destroyed. And since the Phoenix always arises from ashes, it cannot be destroyed. Gold is, in a way, the "life force" of dead stars – a metal that even solar energy cannot form. Only the destructive power of energy at the moment of a supernova explosion or the collision of neutron stars is capable of producing gold. Gold is invincible - it is not subject to corrosion, does not rot, and does not disintegrate into dust. Its essence is unchanged and eternal, being melted over and over again, it gets a second, third, hundredth chance at life in new guises, forms, and alloys. Today is the time to be reborn in digital form."
In May 2021, another intriguing cover of The Economist appeared with the title "Govcoins. The digital currencies that will transform finance". It features a coin with the letter "G", abbreviated from "Government", but "Gold" also fits here. There's also a cover indicating that from the 4th quarter of 2023, the current financial system will begin to collapse, with Russia and China being the least affected. However, this is a topic for a separate, largely conspiratorial article.
Why couldn't BRICS launch its own currency earlier?
The new global currency will act as a standard of value, let's say it's gold (XAU). This means that each participant will support the exchange rate of their fiat in relation to gold based on the demands of their economy. However, all foreign trade will go through CBDC. So, it will look like: CBDC of the buyer -> XAU -> CBDC of the seller. Countries will simply create some liquidity for trade turnover, but everything will operate through local CBDCs. China has long been using the digital yuan. Russia, Brazil, and India launched theirs this year. South Africa is still testing, but the first mentions of CBDC development in South Africa date back to 2017.
It seems that a lot hinged on the launch of CBDCs among the participants, but these are purely my speculations. Also, it's one thing to announce this, and another thing to get it all up and running. It won't happen overnight, but once it's announced what will be the basis of the BRICS currency, many things will start to change and restructure.
In this analysis, I rely on The Economist solely because it aligns with my market expectations. The paradigm shift will pave the way for a significant drop in most fiat currencies. However, for us, it may not be so apparent, as this will manifest through rising prices of gold, oil, gas, and other limited Earth resources. Initially, it might even seem that the dollar is strengthening, but not in relation to gold. Given that Russia possesses the largest reserves of various natural resources, I anticipate a strengthening of the ruble, despite all sanctions.
For 13 years, Bitcoin built and financed the infrastructure for digital codes - the new financial system. Bitcoin can't become the Phoenix from 1988 since its consensus doesn't suit the requirements of a new global currency. In the Bitcoin network, if you send money to a wrong address, you simply lose it. Bitcoin has its destiny, which is to replace cash in the digital world. Still, there's a high chance it will undergo another wave of capitulation, and the debunking of the Phoenix myth will be a part of it. It must remain high-risk and unstable, a playground for speculators. We will see a new historical maximum for BTC only after a correction of its entire 12-year growth. Based on Elliott Wave Theory, after three steps forward, two steps back are required. Everything has its time; it's worth waiting for BTC's new peak no earlier than 2027-2029. A confirmation of this will be if, in September, the SEC again denies all applications for a spot Bitcoin ETF. During the ongoing Bitcoin capitulation, the cryptocurrency market will undergo the establishment of WEB 3. DeFi protocols will start actively minting algorithmic stablecoins with prices pegged to gold. The cryptocurrency market will persist and evolve, but earning in the upcoming years will be challenging.
Throughout human history, over 206,000 tons of gold have been mined. More than half (63%) of this gold was mined in the last 70 years. About 17% of the mined gold is in the international reserves of countries worldwide.
With a price of $1900 per ounce of gold, 1 ton equals $67 million. The world's gold reserves amount to over 34,000 tons, equivalent to $2.3 trillion. At its peak in 2021, Bitcoin's market capitalization was $1.29 trillion. The capitalization of all the gold mined to date is $13.8 trillion.
Every day, just over 8 tons of gold are mined, worth about $550 million. The industry consistently consumes 0.84 tons of gold daily. The jewelry sector uses 6.3 tons every day. Of the mined gold, only 1 ton per day remains for banks and private investments, equivalent to $67 million.
Until the 2024 halving, about 900 BTC are mined every day, and at a price of $27,000, this amounts to $24.3 million. Bitcoin is not used in the industry.
Thus, the current useful 1-day emission of gold for the financial market is only 2.7 times higher than the emission of Bitcoin. Even compared to the banking capitalization of gold, such inflation is less than that of Bitcoin.
Since the 2008 crisis, central banks have been actively purchasing gold. Such a trend in history has only been seen once before, preceding the dollar's detachment from gold backing. For clarity, I've depicted the bank purchases on a gold price chart. The BRICS Summit starts on August 22nd, where it's expected that the principle underlying the new payment system will be announced.
Today, you can buy tokenized gold, for example, PAX Gold (PAXG). Each token is backed by one troy ounce of London Good Delivery gold in 400-ounce bars stored in Brink's vaults. If you own PAXG, you own the underlying physical gold held in custody by Paxos Trust Company. Tether also issues tokenized Tether Gold (XAUt).
I believe that for the coming years, gold is a more promising tool for preserving value than USD and Bitcoin. Personally, I'm moving from USDT to PAXG as a stablecoin, with a backing that is more understandable to me. Another point, the SEC labeled BUSD as a security. USDT is partially backed by various financial instruments. With PAXG, it's simple; it's backed by a commodity in the form of physical gold.
Today, gold is trading at $1900 per ounce. I think until January 2024 the price will show a rise at $2390.
PS: This is not all I wanted to say. There will soon be a link to a more detailed article on Twitter.
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