GEAB 181

Bitcoin: Double-edged institutionalisation

The United States’ recognition of Bitcoin’s legitimacy via the ETFs[1] will be a double-edged sword: it will consolidate the Bitcoin’s value and status in the short term[2]; in the long run, on the other hand, it could result in the United States taking control of this crypto. In terms of recommendations, we encourage readers who own Bitcoin to hold on to it, and those who don’t, to invest. It is always useful to hold some directly, but it will also be useful to invest in ETFs as soon as possible. A US takeover would go against Bitcoin’s raison d’être, but to have any interest in doing so, Uncle Sam first needs a strong Bitcoin. We are therefore betting that its value will rise over the course of 2024, though not without fluctuations, of course.

Figure 1: Daily value of Bitcoin (BTC) in US dollars over the period from 28 September 2020 to 10 January 2024 – Source: Statista

Consequences for the crypto world

This Bitcoin news will have repercussions for the crypto world. While we are aware that the US can take control of Bitcoin we are not alone. So decentralisation purists are likely to take action, with the possibility of a major migration to other cryptos. On the other hand, this decision will make the crypto sphere much more serious and interesting to a new audience of investors. We therefore anticipate that, despite fluctuations due to potential internal movements, this decision will be positive for the crypto ecosystem as a whole. The second strongest is Ether, which has already reacted very positively to the announcement of the launch of Bitcoin ETFs.

Revealing state strategies, suspension in India

The US decision on Bitcoin will also prompt other countries to react, either to follow suit or to counter/compete with it. A case in point is the disappearance of the Binance application from the Indian version of the Apple Store[3], following formal notices issued to a dozen crypto exchanges, including Binance, as part of the fight against money laundering[4], which also took place on 10 January. Indian platforms like KoinBX and CoinDCX have taken advantage of the opportunity to showcase their projects. This is a trend worth watching in 2024, as governments take back control of crypto tools. We must not forget that, despite the decentralisation of this type of currency, in reality users very often use an intermediary. This trend needs to be taken into account by all crypto investors: which state is going to offer the best conditions for investment in energy/mining infrastructure? Which platform, in which country, is driven by the best dynamics? If the dreams of decentralisation are gradually dashed, this will also involve a new, indirect form of “nationalisation” of these projects, which you should take into account in your investment strategies.

Inflation and interest rates: putting indicators before words

Last month we reported on the announced stand-by in the rise in interest rates. It does indeed seem to be taking shape, but we believe that hopes of a rate cut are exaggerated. The reason is that, despite a fall in inflation during 2023 in the eurozone, prices are already starting to rise again[5] and should continue to do so at the beginning of 2024, a similar trend in the United States[6]. This is an argument in favour of keeping interest rates “high” (remember that we are starting from such a low base that we have not yet climbed very high…). As the ECB is already not being heard on European decisions such as the authorisation of public subsidies on energy prices (which it believes is fuelling inflation), we are not betting for the time being that it will cut interest rates to satisfy the markets and governments. Investing in bonds should therefore remain profitable for the foreseeable future. So don’t be fooled by announcements and spin, but concentrate on the indicators and concrete signals which, for the time being, do not point to a significant fall in rates.

The Euro turns 25: The Age of digitalisation?

After 25 years of existence, the results of the euro are clear, albeit mixed: a clear success due to its existence and stability, where very few economists believed in it at the time of its launch; but a relative benefit, difficult to define, given its failure to unify the economies, fiscal systems and social policies of the Member States. But the most interesting thing is to look to the future, since it is now generally accepted that this currency has a future. That future is undoubtedly the digital euro. The ECB has reaffirmed its intentions and the resources being deployed to implement it, and if the currency does not see the light of day in 2024, 2025 or 2026 could mark its launch. Ultimately, this timetable makes it a well-placed MDBC that should be seen in the context of the global trend for governments to redefine their digital currency strategy described above. All those observers who find it difficult to see the merits of the project are concentrating too much on its technical aspects (the benefits of which are certainly debatable) and paying too little attention to its political dimension.

In reality, the ECB and the European institutions will gain more control and influence. This strengthening of their power over the economy and the financial sector will be a much more effective way of reforming the banking system in Europe and bringing coherence to the policies of the Member States. In very concrete terms, what we anticipate for 2024 is that the central issue will remain inflation to guarantee the stability of the currency and prepare for the launch of the digital euro. In the longer term, we anticipate that the euro will succeed in staying in the race with the global monetary system and even, if the parallel reforms prove effective, in making progress.

The most critical point in this development is the social tensions that will develop on the continent throughout the year. But the digital Euro could prove a useful tool in the authoritarian and institutional political response that the majority of Member States are likely to opt for[7]. As far as the banking system is concerned, there is bound to be a gap between the banks, those which are 100% on board the digital train[8], those which are more reserved (which are arguing, for example, for limits on deposits in digital euros – see BNP[9]), and those which are cautious, such as certain commercial banks[10].

PetroDollar VS PetroYuan: Relocation = de-dollarisation?

Figure 2: World currency reserves, 3Q2023. Source: IMF

The trend towards de-dollarisation is continuing and will become clearer in 2024, with a form of relocation and concentration on the domestic rather than the international role of the greenback. Dollar-denominated foreign exchange reserves are at an all-time low, but still well ahead of other currencies. Two trends will nevertheless accelerate the shift this year: US efforts to relocate manufacturing are bearing fruit, and inflation, even if it has risen again in recent weeks, remains under control, so the dollar remains perfectly solid in its role for the US economy. As we have already said, our team is doubting about a significant rate cut, so we believe that this stability will be maintained throughout 2024.

Internationally, however, 2024 is also the first year of the BRICS+. As always with the BRICS, much of the groundwork has been done in advance, and when events of this kind occur, they have the effect of implementing agreements that have already been made. Significant currency swaps have been put in place in recent weeks, months and years[11]. This year could see a major rise in the petro-yuan, with the Saudi and UAE currencies being pegged to the dollar. This would also be in line with US strategic preparations to switch to a global currency other than the dollar, namely Bitcoin.

British Pound: An illusion of control?

In this global system, the British pound will find it increasingly difficult to find a path independent of the dollar or the euro. As we have shown in the trends section, the UK’s return to the fold of the EU should be seen on the international monetary stage. If the country manages to resist inflation well[12], it will announce a rate cut that leaves us, like its western partners, sceptical. In a British election year, it is going to be difficult to take any significant break with the past, especially if its European and American partners hold back. One of the strengths of the pound was the UK’s pre-eminence in the financial sector, and this has clearly suffered because of Brexit[13]. While the UK has regained control over certain aspects of its destiny, the currency is certainly not the best example. We therefore recommend caution when it comes to investments linked to the pound.

Gold, the undisputed safe haven

Finally, in a year divided between a wait-and-see attitude and plate tectonics, gold will not disappoint. After a record year in 2023, the safe-haven par excellence will not fail in 2024. Although Bitcoin is itself playing the role of digital gold, this in no way undermines the credibility of physical gold. Major and highly advanced technological steps are indicative of a much broader, almost philosophical trend, which is to question and step back from them (see our trends). The same applies to the financial sectors: the same people who are ready to move forward with crypto-currencies, like MDBCs, still need a safety net. We therefore anticipate a general rise in the value of gold over 2024, which still lends itself to long-term investments and higher risk-taking counterparties.

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[1]     On Wednesday 10 January, the US Securities and Exchange Commission (SEC) validated 11 Bitcoin ETFs from major asset managers for the first time. Source: Reuters, 12/01/2024

[2]     The cryptocurrency has soared by more than 150% over the year 2023. Source: Capital, 02/01/2024

[3]     Source: Quartz, 10/01/2024

[4]     Sources: Cointelegraph10/01/2024 and Indian Ministry of Finance, 28/12/2023

[5]     Source: Eurostat, 05/01/2024

[6]     Source: White House, 11/01/2024

[7]     And that worries citizens’ organisations. Source: Netzpolitik, 26/06/2023

[8]     Like the Spanish banks. Source: Ledger Insights, 10/10/2023

[9]     Source: Les Echos, 04/10/2023

[10]   Sources: FAZ, 03/08/2023 or Kleine Zeitung, 11/10/2023

[11]   The latest being a currency swap between China and Saudi Arabia. Bloomberg, 20/11/2023

[12]   Source: The Guardian, 20/12/2023

[13]   Source: The Guardian, 08/11/2023