Part 1 - Forces that are Causing Crypto to Explode
Technology acts as a force multiplier, capable of being harnessed for beneficial or detrimental purposes. It can enforce controls and restrictions, or alternatively, foster freedom and productivity. The prevailing values and ethics within a society dictate the balance between control and liberty. It is likely that societies, nations, and the global community will favor a balanced approach, regulating specific behaviors while encouraging the expansion of others. As technology becomes increasingly integrated into our daily lives, the effects of these regulatory decisions become more significant.
Last week, Donald Trump was elected to return to the White House. Over the past year, Trump has aligned with technologist and futurist Elon Musk, most recently appointing him as to head the Department of Government Efficiency (DOGE). The recent shift has sparked a wave of inquiries within Australia's tech sector. Questions arise such as the implications of 'increased crypto adoption' for the global economy and the extent of investment in new digital payment technologies. We will explore these issues in several segments, beginning with the impact of figures like Trump and Musk on blockchain and cryptocurrencies.
Blockchain
During his candidacy, Donald Trump addressed the 2024 Bitcoin Conference in Nashville, Tennessee, making two key announcements that aligned him with pro-crypto interests. The first was the establishment of a digital Fort Knox by the US government, serving as a strategic bitcoin reserve. The second was a commitment to relax regulations on the cryptocurrency industry. While the Democratic party is not anti-crypto, the regulatory ambiguities following the FTX scandal have led to a cautious approach from the crypto industry, hesitant to invest further due to the risks associated with regulatory uncertainty.
Bitcoin as a Strategic Reserve
Trump has expressed his intention to designate a significant amount of Bitcoin (BTC) as a strategic reserve asset for the United States. Presently, the United States ranks as the 4th largest holder of BTC, with a reserve of 208,000 BTC. Considering the finite supply of 21 million coins, some of which remain unmined, the US's holdings constitute 1% of all possible Bitcoins. Should the Trump administration decide to solidify its BTC reserves, it would likely seek to increase its holdings before implementing such a policy shift.
Following Trump's electoral success, the anticipated increase in demand led to a nearly 33% spike in Bitcoin's price within a week, reaching an all-time high of AUD$136,000 per coin. If the US debt situation becomes untenable over the long haul, there is a possibility that the USD could be anchored to a strategic Bitcoin reserve, akin to the gold standard of the 1970s.
Should the US attempt to dominate the bitcoin market, it could trigger a competition among nations to acquire the cryptocurrency as a reserve asset. This scenario is not limited to nation-states; for instance, earlier this year, Blackrock launched its retirement BTC ETF. Concurrent surges in demand for bitcoin could potentially lead to even more dramatic increases in its price.
The USD vs. BRICS
A strategic Bitcoin reserve is part of a larger geopolitical context. As the USD and sanctions are increasingly utilized as a weapon, many nations are exploring trade alternatives to the US dollar. Last month, BRICS-aligned nations convened in Kazan, Russia, to further their mBridge payment platform plans, aiming to create an alternative to the USD SWIFT system that has dominated global trade since World War II's conclusion.
To safeguard BRICS members from sanctions and unilateral national currency manipulation, transactions processed through mBridge will be recorded on a digital ledger. To maintain confidence in their system, the traded units on this ledger will likely be backed by commodities or a mix of commodities, including gold, oil, BTC, or any tokenizable Real-World Asset (RWA). Tokenized RWAs will become crucial, enabling nations to issue bonds to fund government operations. The blockchain ledger ensures accountability for all member states and their assets, preventing covert currency devaluation for unfair trade benefits.
Whether the USD system or the nascent BRICS system becomes predominant in the next decade, both will require skilled blockchain developers, significantly impacting the global and Australia's FinTech sector. The Reserve Bank of Australia (RBA) has been developing and testing a central bank digital currency (CBDC) named eAUD on the Ethereum platform, with numerous central banks initiating similar projects.
While Trump has shown enthusiasm for Bitcoin and skepticism towards a digital USD (CBDC), it remains uncertain whether non-governmental currencies like BTC or governmental currencies (CBDCs), or a combination of both, will be adopted in the forthcoming digital global order.
Crypto Regulation
It appears that the nation which first develops a widely accepted Central Bank Digital Currency (CBDC) may emerge as the next global financial leader. However, caution is advised. A laissez-faire approach to cryptocurrency development can lead to risks such as scams, corruption, and loss of funds through unregulated exchanges. Striking the right balance between fostering FinTech innovation and preventing stifling regulations is crucial to not surrender the digital FinTech future to other countries.
At a Bitcoin conference in July, Trump announced his intention to dismiss SEC Chairman Gary Gensler, eliciting enthusiastic approval from the cryptocurrency enthusiasts. Gensler's cautious stance on Bitcoin has been noted, and his potential successor is expected to relax regulations, thereby accelerating innovation, development, and adoption of blockchain technology.
The New South Wales branch of the Australian Computer Society recently conducted forums for its members on Tokenisation and Real-World Assets. A significant discussion point was the role of the Australian technology sector in assisting the federal government to establish suitable standards and regulations for this nascent technology.
The next members forum for the NSW branch on Thursday November 20th will continue to explore this emerging space as it relates to Australian career perspective. Registration for this event closes on Wednesday November 19th. Blockchain Fundamentals from a Career Planning Perspective
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