What’s Bitcoin Role After End of Petrodollar System? Arthur Hayes Says

Bitcoin could have a bigger role in the international board as superpowers compete for dominance over the financial system. The benchmark crypto has seen some relief in the last day, as the U.S. Federal Reserve (FED) tightens, and the shadow of war looms over Europe.

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At the time of writing, Bitcoin trades at $40,700 with a 1% profit over the past day and a 3% loss in the past week.

As Gold Rises, So Will Bitcoin…

In a recent from BitMEX Co-Founder Arthur Hayes, there is a prediction for Bitcoin for the coming years, and a declaration with potential implications for the whole world: the financial system supported by oil and dollars came to an end. Otherwise known as “Petrodollars”, the term describes the way our current financial ecosystem is supported by the exchange of the U.S. dollar for this commodity, the world’s main source of energy. Big oil producers accept this currency, almost exclusively, for their products.

This gives the U.S. dollar a prime position in the financial system, contributing to its global reserve currency status. The Society for Worldwide Interbank Financial Telecommunications (SWIFT) is another major component of that system. For some, Bitcoin is a direct competitor and a threat to this status quo.

In his essay, titled “Energy Cancelled”, Hayes claims the Petrodollar system came to an end. The invasion of Ukraine by the Russian army led to the imposition of sanctions from the international community to the Vladimir Putin-led country. Russian banks and a portion of the country’s fiat currency reserve were seized by the U.S. and European Union (EU). The weaponization of the U.S. dollars has led Russia and China, contesting the role of this currency on the global scene, to find alternatives and possibly push for a new financial system. See more

8/12 Now add in the news that Saudi Arabia is considering accepting instead of Dollars for Chinese oil and you have an accelerator for more economic problems and market uncertainty. — Material Indicators (@MI_Algos)

Hayes believes this new system is yet to be named but could potentially be supported by a “neutral” medium of exchanges, such as Gold. This would directly impact Bitcoin, Hayes said:

A new neutral reserve asset, which I believe will be gold, will be used to facilitate global trade in energy and foodstuffs. From a philosophical standpoint, central banks and sovereigns appreciate the value of gold, but not that of Bitcoin (…). Bitcoin is less than two decades old. But don’t worry: as gold succeeds so will Bitcoin.

Money Has Changed Forever, Why Bitcoin Will Benefit

Later, Hayes breaks down the evolution of money and the network that supports money, from its physical to its digital phase. In the latter, individuals, entities, and small countries have money stored on centralized, permissioned networks, and can potentially be locked out of their wealth, if a bank or government decides to. In case the dominant countries on this network, the U.S. and E.U. or China for the current financial system, decide to block network access to a participant, questions about the status quo emerge. Russia’s recent sanctions, the essay claims, is a one-of-a-kind case in history. The digitalization of the monetary network has made it possible to “cancel”, to “shun”, the country at this scale. Hayes said:

Money is a medium of energy storage, and the most-used monetary instruments now lack the largest energy producer globally as a user. Why should any central bank “save” in any Western fiat currency, when their savings can be expropriated arbitrarily and unilaterally by the operators of the digital fiat monetary networks?

Data shared by Hayes estimates current savings in $12 trillion, most countries store these funds on a network controlled by a superpower. These funds will be moved, says Hayes, to a new network. Gold is the potentially direct benefactor, as mentioned, China and other countries could begin injecting buying pressure into the Gold spot market. Long Gold could be this decade’s most important trade. Wheat, grains, and other commodities could follow.

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In the long term, Hayes expects Gold to reach $10,000 on the spot. The rise of the precious metal will spill into all hard money assets, Bitcoin included. The cryptocurrency could hit $1 million per coin, as Gold moves upward. Hayes added:

(…) any and all hard monetary assets believed to protect portfolios from this pestilence will get bid to astronomical levels. And that is the mental shift that breaks the correlation of Bitcoin with traditional risk-on / off assets, such as US equities and nominal interest rates.