War & Reserve Currencies

Last night's jaw dropping news that the U.S. ordered the hit on Iran's #2, Qassem Suleimani, is sobering. We've been at war in the Middle East for nearly 20 years, and it's alarming to think the violence in the region may ramp back up again - perhaps to new heights - as a result.

I won't weigh in on the politics or strategy because a) that's not why you read this newsletter, b) no one seems to know what they're talking about or what happens next, and c) it's unlikely we'll ever know the truth about the timing and motives around why the Trump administration decided to take this guy out now.

If you're looking to quickly get up to speed on what's happening: here's what the attack means according to one of the most insightful WaPo reporters that covers the Middle East; and here's a bit more color on who Suleimani even was via an excellent New Yorker article from 2013. (I had never heard of him until last night.)

It doesn't seem like a bad thing for humanity that Suleimani is gone. But then again, setting off World War III seems as if it would be a pretty bad thing, too.

It was a bit of an eerie coincidence that just yesterday afternoon I was reading up on the dates of some of the major inflationary events in modern history. It turns out the vast majority of these 20th century hyperinflation occurred following the *end* of major world wars in the most distressed regions:

+ WWI (Germany, Poland, Austria, Russia)
+ WWII (Hungary, Greece, China, Taiwan)
+ Cold War (most Eastern European states)

Perhaps we shouldn’t be rooting for hyperinflation (a catalyst for hyperbitcoinization) so quickly if it means we first need to survive another major global conflict?

A change in reserve currency - to a new fiat currency or crypto-currency - will likely come only after millions have died in some global conflict or a major nuclear superpower disintegrates. Not ideal.

More immediately, I'd worry about what an escalation in the U.S.-Iran conflict - even a limited one - would do to the crypto industry.

Bitcoin and its brethren are risk assets, and they would be among the first to get market sold in the event of an uptick in global economic and regulatory uncertainty. That cyclical pain could be exacerbated by further crackdowns on the industry. Even threats of wholesale restrictions on crypto business activity and/or ownership would create existential fear for many current investors.

Some might say this is FUD because Iran's maximum possible crypto usage would be limited by bitcoin's low market cap. But stats don't really matter for politicians. Imagine a story similar to the one from the New York Times last year about how "bitcoin could help Iran evade sanctions" breaking after a retaliatory / terrorist attack on a regional embassy or worse.

If we got the Patriot Act after 9/11, I'm terrified to think about what sort of executive orders and legislation we'd have to ward off if it came to light that crypto usage in Iran was spiking - even anecdotally - as seems to be the case today.

At the same I may be even more terrified of a future where crypto is severely restricted. Bitcoin is trading at nearly $24,000 in the USD equivalent of Iranian Rials on LocalBitcoins today. It's unlikely those purchases are paying for the Iranian military's response. Instead, it might be innocent (and desperate) Iranians looking for a way out of the coming chaos.

We can only hope peace and sanity prevails as we navigate the Fourth Turning in the decade ahead.

-TBI

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