The Breakdown - Does El Salvador's Bitcoin Adoption Threaten the US Dollar?

Starting point is 00:00:00 My bias when it comes to this study, although it does certainly seem to come from a place of hostility, is that more information is almost always better than less. What's more, elected officials having the discussion of the U.S. dollar and its role in the world in public is better than three-letter agencies having that same discussion in private. Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the Big Picture Power Shifts remaking our world. The breakdown is sponsored by nexo.io, Arculus, and FTX, and produced and distributed by CoinDesk. What's going on, guys? It is Thursday, February 17th, and today we are talking about the latest in Bitcoin's geopolitical bid. Before we get into the show, however, if you are enjoying the breakdown, please go subscribe to it, give it five stars, leave a good review, or if you want to get into the conversation on a deeper level, join the Breakers Discord. You can find a link in the show notes or go to BitRit.

Starting point is 00:01:00 dot lee slash breakdown pod. So this is the year of the geopolitical trade. And this is something we've been talking about a lot, but Suu from Three Arrows summed it up really well. When he tweeted, generalized epics of crypto bidding, 2020, macro bid, 2021, tech bid, 22, geopolitical bid. Another framing? 2020, uninflatable.

Starting point is 00:01:23 2021, programmable. 2022, censorship resistance. The idea here is that the particular properties of Bitcoin and crypto that people are finding value in is shifting from a narrative perspective. And boy, has that been on display this week. So let's talk about the geopolitical conversations that are shaping the industry right now. And let's start with Russia and Ukraine. There has been a lot of cynicism from the Twitterati this week, basically claiming that this is a manufactured war,

Starting point is 00:01:53 and it's certainly fair to be skeptical. I'm sympathetic to those who point out mainstream media's propensity. to tell stories of war in a way that seems to be egging it on, picking up and massively amplifying every detail that would send us cascading into some dramatic conflict. But there is a real fog of war in this situation, and it's not at all clear to me that this is just some manufactured thing meant to distract the population from inflation, and frankly, it seems sort of dangerously naive to view it as such. So what's going on right now is that the Kremlin is insisting that troops are pulling back while Western officials are disputing that claim. On Wednesday,

Starting point is 00:02:28 American official who would not be quoted by name told reporters that not only was Moscow not winding down its deployment, it had actually added 7,000 combatants. In comments this morning, President Biden said that the threat of invasion is still, quote, very high, saying every indication we have is that they're prepared to go into Ukraine. He added, however, there is a path there is still a way through this. That path, however, seems to be getting narrower. The U.S.'s number two diplomat in Russia was just expelled. And in Ukraine, the tension with the military, is something to behold. Nolan Peterson, a war reporter who has been based in Ukraine since 2014, said, quote, we should appreciate the psychological strain that Ukrainian soldiers are under.

Starting point is 00:03:09 When attacked by the Russian side, they must hold their ground and are under orders to not shoot back so as not to give Moscow the propaganda pretense at once in order to justify a full-scale attack. It's also important to note that war is already underway in areas beyond the front lines. Ukraine experienced the worst DDoS attack in its history against banks and government websites starting Tuesday and moving into Wednesday. Ukraine's Minister of Digital Transformation said, this attack was unprecedented. It was prepared well in advance, and its key goal was destabilization,

Starting point is 00:03:41 so in panic and creating chaos in our country. Indeed, the attack was called, quote, purely psychological. Dmitri Kofinas, the host of hidden forces, said, If you believe that what is happening in Ukraine is some kind of hoax, then you don't understand what's happening. We are witnessing the onset of the first truly modern war. Such wars start in the information space, transition into cyberspace, and only then become fully kinetic. Now, the market's reaction remains fairly muted and in kind of a wait-and-sea mood. Bloomberg reports that stocks are dropping and bonds are climbing amid geopolitical jitters.

Starting point is 00:04:15 Now, in other parts of the economy, inflation is still the big ticket item. In the U.S., mortgage rates claimed their highest level since May 2019, with the average for a 30-year loan hitting 3.92%, which is up from 3.69% last week. New home construction also fell for the first time in four months, and jobless claims unexpectedly went up. You're starting to see more calls for Volker-style engagement around inflation. A strategist from Credit Suisse said, as quoted in Bloomberg, that the Fed needed to deliver a Volker-style shock to drive down asset prices if it wants to slow inflation without causing recession. These comments, of course, harkened back to Paul Volker, who broke the back of U.S. inflation as the head of the Fed in the late 70s and early 80s with massive interest rate increases. Nexo is a trusted and easy-to-use crypto platform where you can buy cryptocurrencies at the touch of a button

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Starting point is 00:06:30 There are no fixed minimum fees, no ACH transaction fees, and no withdrawal fees. One of the largest exchanges in the U.S. FDXUS is also the only leading exchange that supports both Ethereum and Solana NFTs. When you trade NFTs on FTCX, you pay no gas fees. Download the FTCX app today and use referral code breakdown to support the show. There is another big geopolitical situation that we've been watching all week, and that is, of course, the Canada anti-vaccination mandate protests. These are led by truckers on the Canadian border,

Starting point is 00:07:05 whose now three-week protest has been disrupting the flow of goods between the U.S. and Canada. Justin Trudeau has taken a hard-line stance on this, engaging the Emergencies Act from 1988 that has never been used before. There was an intense debate around the act in Parliament, where Trudeau accused the conservatives in that body of, quote, standing with people who wave swastikas. Now, one thing that is clear is that there's

Starting point is 00:07:28 starting to go after crypto addresses associated with supporting the protests. The Globe and Mail writes, A letter sent to several cryptocurrency exchanges and obtained by the Globe and Mail notes that both the RCMP and the Ontario Provincial Police are investigating cryptocurrency donations, quote, in relation to illegal acts falling under the scope of the Emergency Measures Act. The letter instructs the exchange operations to, quote, cease facilitating any transactions with more than 30 specific cryptocurrency wallet addresses that it lists.

Starting point is 00:07:55 Quote, any information about a transaction or proposed transaction and receipts. of these addresses is to be disclosed immediately to the commissioner of the Royal Canadian Mounted Police. The letter continues. One interesting and important detailed since we last talked about this situation is that mainstream press like Bloomberg are noticing that we're not just talking about bank account seizures, we're talking really about all financial property. From Bloomberg, the new rules make demands of a broad list of entities, including banks, investment firms, credit unions, loan companies, securities dealers, fundraising platforms, insurance companies, and fraternal benefit societies. They must determine whether they're in,

Starting point is 00:08:31 quote, possession or control of property, end quote, of a person who's attending an illegal protest, or providing supplies to demonstrators according to orders published by the government late last night. I think it doesn't even need to be said that this is such an intense and extreme level of criminal targeting, again, applied extrajudicially. It shouldn't be just crypto folks who are asking serious questions about this when it's such a big cross-section of the financial sector who's implicated in this dragnet. Perhaps because of this, there is a ton of chatter right now around bank runs. James Melville pointed out charts of Scotia Bank, Royal Bank of Canada, Bank of Montreal, and TD Canada,

Starting point is 00:09:08 all showing major outages starting Friday night and said what the hell is happening with Canada's banks right now. Josh D. writes Canada's three largest banks have all simultaneously gone offline. You cannot access any online services. Royal Bank, BMO Bank of Montreal, and CIBC Bank. It is possible they have been hacked in response to their participation with the government freezing of accounts. It seems to be rolling. As of right now, it's just Scotia and RBC that are offline. Reported outages for Canada's major banks are going through the roof this evening. Capitalist exploits said they will never admit to their being a bank run. It will be blamed on a cyber attack.

Starting point is 00:09:41 Watch. Greg Foss, who's one of the organizers of a Bitcoin fundraiser for the protesters, said, let's review what causes a bankrun, a crisis in confidence. What causes a crisis in confidence to tyrannical leadership? Correlation does not equal causation, but it sure smells, eh? Now, importantly, the political right in Canada is aggressively pushing this bankrun narrative. Not only does that not mean it's real, it might even be more of a reason for skepticism. But it does warrant paying attention to, as bankrun discussions can have an element of self-fulfilling prophecy. However, that's not the only opinion. Adam Cochran, a crypto investor writes,

Starting point is 00:10:16 people hoping for a bank run have, one, no idea how Canadian banking reserve rates or banking insurance work, two, actually think we had major bank outages today. Three are in a small echo chamber. Still, however, even holding aside the bank run narrative, there is plenty for Twitter to be upset about. Bologi Shrinivasa tweeted, Canada is ordering banks to freeze accounts without court order. And by granting broad immunity, they're formally deputizing financial institutions as digital police. All pretense of democracy is gone. There is no consent of the governed. It's just wokes versus workers now. They're doing their best to accelerate the transition to the crypto economy. It's remarkable. Now, I will say that I'm pretty cognizant of the fact that the group of people that I

Starting point is 00:10:56 tend to draw from for this show are going to be extraordinarily disinclined to give a government the benefit of the doubt when it comes to this sort of financial seizure. I've seen from folks like Adam Cochran a counterpoint based on a different expectation of a social contract in Canada, and I'd be interested to know if there are other Canadians out there that have a different perspective than this Bitcoin or narrative. Is this something where the average Canadian actually trusts the Trudeau government to only apply this to protesters? Is it something that they support being applied to these protests? If you represent any of those perspectives, please let me know, especially if you could join the Discord and share there, it would be great. But let's wrap up by talking about El Salvador

Starting point is 00:11:37 for a minute. U.S. Senators Jim Reisch, a Republican from Idaho and Bob Menendez, a Democrat from New Jersey, who are the ranking member and the chairman of the Senate Foreign Relations Committee respectively, alongside Bill Cassidy, who's a Republican from Louisiana, today introduced the accountability for cryptocurrency in El Salvador or Aces Act, which would be legislation that required the State Department to issue a report on El Salvador's adoption of Bitcoin, as well as a plan to mitigate potential risks to the U.S. financial system. Reish said in a prepared statement, Salvador's adoption of Bitcoin as legal tender raises significant concerns about the economic stability and financial integrity of a vulnerable U.S. trading partner in Central America.

Starting point is 00:12:16 This new policy has the potential to weaken U.S. sanctions policy, empower malign actors like China and organized criminal organizations. Our bipartisan legislation seeks greater clarity on El Salvador's policy and requires the administration to mitigate potential risk to the U.S. financial system. Cassidy said El Salvador recognizing Bitcoin as official currency opens the door for money laundering cartels and undermines U.S. interests. If the United States wishes to combat money laundering and preserve the role of the dollar as a reserve currency of the world, we must tackle this issue head on. So what the bill would actually require is, quote, not later than 90 days after the submittal of the report required by subsection 19A of the Secretary of State in

Starting point is 00:12:53 coordination with the heads of other relevant federal departments and agencies, shall submit to the appropriate committees of Congress a plan to mitigate any potential risk to the United States financial system posed by the adoption of a cryptocurrency as legal tender in El Salvador and any other country that uses the United States dollar as legal tender. As you can probably imagine, Naïbe Bucle, the president of El Salvador, was not happy about this, tweeting, okay, boomers, you have zero jurisdiction on a sovereign and independent nation. We are not your colony, your back door, or your front yard. Stay out of our internal affairs, and don't try to control something you can't control. BTC Gandalf reflected the opinion of many bitcoins out there when he said,

Starting point is 00:13:31 did the U.S. just admit Bitcoin is a threat to the dollar's reserve currency status? Alex Gladstein from the Human Rights Foundation writes, 2009, Bitcoin launched his free and open source software, no monetary value. 2010, $1 million market cap. 2013, $1 billion market cap. 2021, $1 trillion market cap nation state adoption. 2022, U.S. Senator warns Bitcoin threatens dollars' role as reserve currency. 2025, question mark.

Starting point is 00:13:58 Now, not everyone thinks this is as bad as that sort of aggressive. reaction from Buckele would suggest. Ron Hammond, the director of government relations at the Blockchain Association, says, study bills in Congress rarely go anywhere, but tweets like this encourage action. This bill wasn't crafted in malice, and the State Department has been looking at this space for years. Framing the study as a detriment to the crypto industry only hurts, transparency is important. So to me, at the heart of the issue is the dominance of the U.S. dollar-led world order. There is an active and open question about what the U.S. is and isn't willing to do to keep the dollar central to the next version of that world order. As time goes on,

Starting point is 00:14:35 the stablecoin debate in the U.S. becomes more about this as well. Specifically, do U.S. denominated stable coins actually help preserve and extend the hegemony of the U.S. dollar based on taking it into a new digital era. My bias when it comes to this study, although it does certainly seem to come from a place of hostility, is that more information is almost always better than less. What's more, officials having the discussion of the U.S. dollar and its role in the world in public is better than three-letter agencies having that same discussion in private. For now, I want to say thanks to my sponsors, nexus.com.com, and ftX. And thanks to you guys for listening. Until tomorrow, be safe and take care of each other. Peace.

The Breakdown - Does El Salvador's Bitcoin Adoption Threaten the US Dollar?

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