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While institutional investors and large corporations increasingly adopt bitcoin, emerging economies can still gain a first-mover advantage in building a bitcoin centric economy.
Governments around the world have dealt with bitcoin and cryptocurrency adoption substantially in 3 ways: (i) countries like Switzerland and Liechtenstein have been first movers and have fully and openly adopted cryptos thereby creating thousands of new businesses and jobs in their prosperous crypto-valleys, (ii) countries like the USA and Europe have tended to regulate the sector albeit remaining permissive, despite an emerging tendency to over-regulate and the occasional talk of some sort of possible bans, (iii) few countries have banned in one way or another cryptos like China did in the past and India and Nigeria more recently.
Despite governments spreading the usual narratives via the ever compliant, unquestioning and corrupted mainstream media — such as the need to “protect us” from the “bad guys”, the money launderers, the criminals or newly branded terrorist groups such as the (so far harmless) “proud boys” — anyone who knows a bit of monetary history and economics knows very well that government-controlled fiat money is the essential tool that enables the political and financial elites a totalitarian, albeit indirect, control over the economy and the expropriation of resources via monetary inflation, together with a bunch of additional “GDP beneficial” enterprises, such as fighting an artificially pumped up pandemic and delivering billions of fake money to their pharma cronies, or inflating asset bubbles via QEs infinity delivering billions to their financial cronies or financing endless wars against who happens to be the most convenient terrorist group of the moment (beware bitcoiners as you might also be branded a terrorist group) thereby delivering billions to their arms and oil industries cronies. This, in an endless vicious circle of fake money, cronyism and corruption which has become the foundation of the current western financial capitalism and “democracies”. Therefore the issue of controlling monetary supply is merely political, it is simply about power, vested interests, control and oppression. No more, no less.
Luckily though bitcoin is an epochal paradigm-shift which introduces a new and unique game-theoretical challenge for governments around the world, especially for those among emerging economies which are (i) more detached from the above mentioned “vicious circle” which dominates western financial capitalism and (ii) are adversely impacted by a chronic weakness of the local currency and are often subject to currency substitution (i.e dollarization) which brings adverse geopolitical and economical effects.
On one side such countries have the option to follow China, India and Nigeria— or other overly regulating jurisdiction— down the “prohibitionist/strict regulation” rabbit hole, thereby losing on a multi-trillion dollar business opportunity and exposing themselves to the geopolitical risks of currency substitution with either foreign stablecoins or crypto (I have explained in this article here the inevitable path towards currency substitution with foreign stablecoins and the uselessness of capital controls).
On the other side they can follow the path of more progressive countries and therefore put themselves at the forefront of a multi-trillion dollar technological movement that will bring massive economical benefits to their nations and at the same time it will make their fiat currency stronger and interchangeable with foreign stablecoins and cryptocurrencies.
The choice that local politicians have to make, inevitably sets the stage for a new level of competition between countries in order to attract both bitcoin denominated capitals and related human talents. Clearly, with the growth of bitcoins´market capitalization and the daily news of some new prominent Wallstreeter or leading tech company like Tesla joining the bitcoiners ranks, following the first option together with Nigeria and India looks increasingly suicidal. Indian entrepreneur Balaji S. Srinivasan describes unarguably well in this article what India stands to lose — not only by banning it but — by not fully embracing bitcoin:
“To summarize, India is on the verge of
banning a trillion dollar industry instead of using it to strengthen its national security, economy, currency, technology, and foreign policy.”
While Switzerland and Liechtenstein remain very good examples for what can be achieved by embracing cyptocurrencies, emerging economies have to adopt a much more thorough and aggressive path which will deliver even more gains to their economies and societies. They should make bitcoin the foundational digital store of value upon which their digital monetary system will be built. At least — in addition to being sound money — bitcoin is both no one´s and every one´s money and it does not carry geopolitical bias nor risk.
To do that they need to develop a competitive framework to jump start the sector and propel a virtuous cycle:
(a) adopt crypto friendly regulations, mainly dealing with the recognition and the legal status of digitally tokenized assets (such as stablecoins and tokenized securities). The regulatory framework implemented by Liechtenstein, Switzerland and US State of Wyoming are good examples (*).
(b) reshape the local banking system to make it bitcoin centric rather than US dollar or Euro centric as I have described in “Bitcoin and the lost art of commercial banking” . Implement an agile crypto bank charter to regulate mainly the issue and the custody of crypto assets, like the one implemented in Wyoming for the SPDIs (Special Purpose Dep. Institutions). AvantiBank was recently granted the charter of crypto bank in Wyoming to custody crypto assets and to issue crypto-fiat dollars. It is important to note that the US OCC has recently issued an opinion letter which allows US banks to use blockchain infrastructure and existing stablecoins or issue their owns. This — if confirmed by coherent governmental policies — might be a radical paradigm change which might trigger a global shift towards crypto banking.
This is an important point that regulators and politicians in emerging economies should carefully consider: the US regulator proposes the easiest and fastest of all the solutions, just plug and play into the Bitcoin blockchain to build a new banking infrastructure. Very smart.
(c ) incentivize the establishment of crypto exchanges with an agile licensing process.
(d) encourage the use of bitcoin to pay for administrative fees and taxes and ensure free and full convertibility between cryptocurrencies and the local fiat currency. Business adoption is also important, specially for expensive items such as paying for real estate investments and expensive cars (see Tesla´s recent move). All this will bring sound money reserves into the government modern digital coffers.
(e) grant incentives to attract both crypto capital/investors and talented human capital. Tax incentives are very important. Money flows where it is treated better. But also human capital relocates where business opportunities and living standards are better or at least where better prospects are offered. Programs such as the residency and citizenship for investment are very important.
There are plenty of very talented individuals and investors in the crypto sector who are ready to leave Europe or the US to relocate where their money is treated better but also where basic freedoms are truly enforced and the environment for crypto investments is more friendly. It is a fast growing global movement of young and talented investors and entrepreneurs whose wealth has increased rapidly by an x factor in the last few years. This wealth will flow to those countries that will offer bitcoiners what they value the most.
Bitcoiners are generally libertarian types of people. They value very much freedoms, they are responsible for their lives, independent and reject big government interventions and bureaucracy. The Covid-19 crisis has made apparent to anyone with a clear mind that both Europe and the US are rapidly becoming oligarchic run, corrupted to the core, “police states” and that high taxes will be introduced to expropriate the leftover wealth from the once productive middle class. This represents a unique opportunity for emerging economies in South America and Asia to offer a safe heaven and attract crypto capitals and human talents. Small, but politically stable countries like Uruguay (also known as the Switzerland of South America), Costa Rica, Dominican Republic, Belize, Paraguay, Georgia, Malaysia or Singapore already have in place very good residency and citizenship for investment programs. What they need now is to implement more crypto focused type of incentives, like the ones that I have mentioned above, in order to offer the best possible value proposition to bitcoiners so that they can flock to that country with their capitals to foster a bitcoin driven societal and economic development which will bring widespread benefits and prosperity to the whole society.
The first movers today will be the leading economies 10 years into the future.
- Why India should buy bitcoins
- Bitcoin and the lost art of commercial banking
- The Bitcoin Standard: the decentralized alternative to central banking
- Central Banks wills soon line up for a piece of the Bitcoin Pie
- King Dollar will be crowned the King of Crypto-Fiat
- Bitcoin Beach: Reforms to Attract Cryptocurrency Innovation and Investment in the Sunshine State
(*) Together with colleagues and fellows at Thinkblocktank.org we have helped governments shape innovative crypto friendly policies and legislations both at EU level and nationally in Switzerland, Liechtenstein, Malta and Luxembourg.
© www.bianconiandrea.com — 2021
Previously published here
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