Governments, Digital Currencies And Economics


Over the past 13 years, the world has witnessed the evolution of Bitcoin along other digital currencies as an emerging storehold of wealth. This adoption has progressed through technologists, retail investors, corporations, and now institutional investors. In the months and years ahead, many predict that Bitcoin’s volatility will further stabilize, its legitimacy will strengthen, and its market capitalization will continue to expand.

As Bitcoin continues to mature as a mainstream investment, I have explored when and to what extent governments and government-controlled institutions will invest in Bitcoin as a treasury reserve asset of the future.

I asked professionals from the financial sector and scientists around the world about the potential implications of sovereign investors – such as central banks, sovereign wealth funds, state, and municipal level treasuries – investing in Bitcoin in the upcoming 10 years. The goal was to map the Bitcoin investment landscape at the government level in the upcoming decade and explore the potential implications of sovereign investors, such as states and central banks, investing in Bitcoin in the upcoming decade.

KEY STRATEGIC TAKEAWAYS

Bitcoin and gold can complement each other. Countries with gold and oil reserves are more likely to move toward owning Bitcoin in the short term, but gold will not be necessarily replaced. According to the experts, Bitcoin and gold could be complementary, as gold has certain desirable properties that bitcoin lacks.

Sovereign wealth funds will increase their exposure to Bitcoin. In the short term, sovereign wealth funds will view bitcoin as an inflation hedge, and will increase exposure to bitcoin as it continues to outperform gold and precious metals. They may prefer to invest in bitcoin trusts instead of investing in bitcoin directly.

Uncertainties will persist in Europe, but not for too long. In some countries like France, there have already been petitions launched thanks to the efforts of the private sector that ask the central bank to invest in Bitcoin. The majority of experts thinks that, over the next five years, other countries could follow this example.

The volatility of Bitcoin remains a problem. According to the experts, Bitcoin value is volatile, and concerns about it persist. Furthermore, there is the risk that certain players, such as Russia, could act through large purchases and sales to manipulate prices and put under pressure the Western system.

According to the experts, following the advancement of BTC, as well as mutating interests within society, China and the USA could intensify their efforts to develop their own cryptocurrencies, which in turn would be preferred by their partners. This would lead to a situation within which two different blocks could emerge in the cryptocurrencies realm, shaped by geopolitical dynamics.

Crypto-areas in the world. In the short term, crypto-forwarded cities could emerge (for example, Miami), while in the long term entire countries could move to BTC to solve their economic problems, leveraging mining firms’ potential. This could be the case of Egypt.

IS BITCOIN THE NEW GOLD?

According to the experts, countries with gold and oil reserves are more likely to move toward owning Bitcoin in the next 1-3 years, and they will try not to publicly disclose it. The experts mentioned countries such as Iran, North Korea, Russia, and Singapore as examples of countries that will soon or have already made investments in Bitcoin.

CENTRAL BANK DIGITAL CURRENCIES

The majority of the experts think that the advancement of Bitcoin, as well as the challenges posed by the COVID-19, could accelerate the efforts of central banks in developing their own CBDC. According to many experts, China will push its sovereign cryptocurrency to reset the global economy in the post-pandemic world. In response, the US could accelerate its efforts to work on a US digital dollar over the next three to five years. Yet, a small percentage of the experts think that it’s likely that these currencies will weaken Bitcoin or push it aside.

CRYPTO-AREAS COULD EMERGE IN THE NEAR FUTURE

While in the short term, following the case of the city of Miami, crypto-forwarded cities could emerge, in the medium and long term we could see countries moving to BTC. According to some experts, this could be the case of Egypt, which could opt to solve its economic problems by leveraging the Bitcoin mining firms in the country and building the first Bitcoin bank in the Middle East, or the case of Switzerland, where BTC could be extended to government services and tax payments to start a sort of sandbox test area in certain zones that will gradually transform it into a real crypto-nation.

Experts think that it is either likely or very likely that crypto-areas (for example, crypto-nations like Switzerland, crypto-cities like Miami) will emerge over the next three years as major hubs for the industry.

CRYPTOCURRENCIES AS A TOOL OF HYBRID WARFARE

Many experts agreed that certain governments would be interested in Bitcoin investment as a means to achieve geopolitical-financial interests, such as establishing an underground financial network for funding proxy threat actors and to avoid sanctions. The countries that were mentioned by the experts were Iran, Afghanistan, North Korea, Russia, and BRICS.

In addition, following the advancement of BTC, as well as mutating interests and needs of investors and the civil society, some experts argued that China and the US could intensify their efforts to develop their own cryptocurrencies, which in turn would be preferred by their partners leading to a situation within which emerging markets closer to Beijing (even in the framework of the Belt and Road Initiative) would opt for the digital RMB, while Western developed countries would opt for the US digital dollar to support Washington.

According to these experts, this situation could boost the emergence of two different blocks in the cryptocurrency realm, which in the long term could transform cryptocurrencies into a tool of hybrid warfare.

INITIAL SIGNS OF CHANGE IN EUROPEAN COUNTRIES

While many experts think that it’s unlikely that we will see meaningful pressure by private actors on central banks of European countries to invest in Bitcoin (like the recent examples in France), in the short term, the majority of them think that this pressure on central banks will increase in the next five years. Most of the experts think that it is either likely or very likely that other petitions will be launched across European countries to ask central banks to invest in Bitcoin over the next five years.

PAKISTAN AND CRYPTOCURRENCIES

Pakistan has formed a federal committee to formulate a new crypto policy, even as neighboring India is planning to ban cryptocurrencies entirely. Both mining and trading in cryptocurrencies currently exists in a legal grey area in Pakistan. Federal authorities would have to provide a clear path towards legalizing the sector before it could be formally opened to investors.

In 2018, the State Bank of Pakistan said cryptocurrencies were not legal tender and the regulator had not authorized anyone to deal in them in the country. Pakistan also is currently on the global Financial Action Task Force grey list, and one of the areas the global money laundering watchdog has asked Islamabad to better regulate is cryptocurrencies.

Still, mining and trading in cryptocurrencies thrives in Pakistan, with apps like Binance and Coinbase among the most popular downloads in the country, according to web analytics company SimilarWeb.

The Pakistani province of Khyber Pakhtunkhwa is planning to build two hydroelectric-powered pilot “mining farms” to capitalize on a bullish global cryptocurrency market.

“In the light of what’s stated above, Pakistan need to pay close attention to the cryptocurrencies market for economic and strategic reasons”


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