Last week, global investment bank Credit Suisse made a radical prediction: that the dollar’s era as the world reserve currency is coming to an end and that commodity money – such as gold – will rise to replace it.
This week, BitMEX co-founder Arthur Hayes builds on those predictions. He too believes that hundreds of billions of dollars will flow into both gold and bitcoin over the next decade. However, it is also “100% certain” that the financial crisis and hyperinflation of the US dollar will ensue in the meantime.
Dollar’s Last Days
As explained in his recent BitMEX blog post titled “Energy Cancelled,” the freezing of over $600 billion in Russian foreign reserves will shake other world governments’ trust in storing their value in US treasuries. China in particular – which has the world’s largest budget surplus of over $273 billion annually – will no longer use this to grow its fiat currency position.
As such, Hayes’ calculations predict that China and other trade-surplus nations will turn to gold and other storable commodities to store around $967 billion worth of value per year, which once belonged to fiat currencies.
By contrast, this will severely weaken the strength of the U.S. dollar, which is already combatting the highest inflation it has seen in 40 years.
“The phase change will be chaotic, it will be volatile, it will transform, but it will be 100% MASSIVELY inflationary in terms of fiat money,” says the Exchange founder.
The Federal Reserve recently ended its U.S. Treasury Bond purchase program to help curb skyrocketing prices across the nation. However, as other countries move their wealth away from bonds and into commodities, the Fed will be forced to purchase US bonds again in order to finance its debt. These purchases will be funded, of course, through money printing, which will spiral into “hyperinflation.”
For context, the United States runs a $600 billion account deficit every year and had to sell $2.8 trillion worth of bonds to pay off that deficit in 2021 alone.
There won’t be much the Fed can do, either: Slight interest rate hikes will do nothing to make US bonds more attractive to other nations again. On the other hand, significant rate hikes would cause a recession, which politicians will not allow for.
Hayes: Dump Fiat, Hoard, Gold and Bitcoin
Although Bitcoin is often referred to as “digital gold” by some investors, Hayes says he is not a maximalist. Bitcoin currently trades more like a tech stock than a safe-haven asset, indicating that the world does not yet recognize it for its hard-money properties. As such, governments will for now be pouring most of their money into physical gold, which has philosophical and historical precedent as a monetary instrument.
But that doesn’t mean that digital gold doesn’t benefit: Hayes remains “confident” that if this new gold era takes place, some central banks will choose to start conducting trade in Bitcoin instead of shipping gold around the world to pay one another.
“Again, I fully believe that on a personal level, if you think you should be spending fiat and saving gold, the mental leap to spending fiat and saving bitcoin is tiny,” says he.
The exchange founder concludes that gold will march to $10,000, and Bitcoin to $1,000,000, as the collapse of fiat triggers “the largest wealth transfer the world has ever seen.”
