April 21st – April 27th
PERSPECTIVES by Eric F. Risley
Does the reshaping of foreign and economic policy create a fresh catalyst for the crypto industry? Does what appears to be a new era echo the 2008 financial crisis as a “reason for being”?
Bridgewater Associates published a transcript of an interview with co-CIO Karen Karniol-Tambour regarding this emerging new secular era, what Bridgewater is calling “Modern Mercantilism.”
- New Economic Paradigm: The world has shifted from decades of US-led globalization and disinflation to a new era of “modern mercantilism,” where states prioritize national wealth, geopolitical strength, and economic self-sufficiency over free-market globalization.
- Irreversible Shift: This transition is not just the result of recent policies or a single administration; it reflects deep, long-term dissatisfaction with the old system. The loss of trust in US reliability and the chaotic implementation of new policies means there is “no going back” to the previous global order.
- Portfolio Risks: The new environment poses urgent threats to investment portfolios, especially those heavily concentrated in US equities and illiquid assets. US assets are particularly vulnerable due to their dependence on foreign capital and the risk of capital outflows.
- Policy-Induced Slowdown: Bridgewater expects a policy-driven global economic slowdown, with rising recession risks. The Federal Reserve is more constrained than in the past and may struggle to respond proactively to downturns due to inflationary pressures and new risks to US assets.
- Dollar and US Asset Vulnerability: The longstanding strength of US assets and the dollar is under threat. The dollar may face slow, secular decline as foreign investors reassess their exposure, and the traditional safe-haven status of US assets is challenged.
- Gold’s Renewed Role: Gold is regaining appeal as an alternative store of value, especially as trust in the US and the dollar wanes. Even small reallocations to gold can have outsized effects due to the market’s size.
- Persistent Modern Mercantilism: The forces driving modern mercantilism are likely to persist regardless of political changes, as rebuilding global trust in the US would take years of consistent policy and direction.
Questions relating to the opportunity for crypto:
- If the eight decades of trust earned by the US and the US dollar have been broken, what country or currency takes its place? Is this a window of opportunity for Bitcoin to become a “safe haven” or, even more impactful, a unit of account for payments?
- Crypto has zero affiliation or agenda unique to any country—a truly global phenomenon. Does this unique characteristic offer advantage in an increasingly nationalist, isolationist world?
- Does the shift from a global disinflationary to inflationary secular trend enhance the thesis of Bitcoin being an inflation hedge alongside gold?
- Innovation often starts with small, highly targeted market niches to prove value proposition. Sometimes it feels like crypto is trying to “boil the ocean.” What are these niches that allow focus and demonstrable value?
Getting back to M&A, do we have the return of the Special Purpose Acquisition Corporation (SPAC)? The big news this week was Twenty One, a Strategy clone (at least initially) with big-name backers. In the case of Twenty One, you can buy Bitcoin at 3x its current value; Strategy at 2x. Does the leverage on either company justify these premiums? Time will tell.
Architect Partners will be at Consensus Toronto; if desired, please contact ryan@architectpartners.com to schedule a meeting.
