By now you’ve probably heard of something called The Dollar Milkshake Theory. If you haven’t, we recently covered the fascinating thesis in a recent piece: Will the Dollar Milkshake Seperate Money & State.
From Dollar Milkshake to…
In that issue we explained why The Dollar Milkshake Thesis is responsible for all of the carnage we’re seeing in the financial markets today. From crashing real estate and stock markets, to central banks going bankrupt and being forced to pivot; the global dollar short squeeze can all be traced back to the Dollar Milkshake theory.
In that piece, I also made the provocative case for why I believe that the over 180 different currencies all around the world are on the precipice of hyperinflation in the near future. In this article, we’ll explore where Bitcoin fits into this global sovereign debt crisis, and how I believe we will end the decade with 2 currencies left standing. A dynamic duo if you will.
This is how the Dollar Milkshake Theory will naturally progress into the “Bitcoin Milkshake Theory;” the delicious macroeconomic dessert you haven’t heard of yet.
Where to from here?
If we move forward on the assumption that the dollar milkshake thesis continues to decimate weaker currencies around the world, these countries will have a decision to make when their local currency hyperinflates. Some of these countries will be forced to adopt the USD and dollarize, like the more than 65 countries that are either dollarized or have their local currency pegged to the U.S. dollar.
Some may choose to adopt a quasi-gold standard like Russia recently has.
Some may even choose to adopt the Chinese Yuan or Euro.
You could even see some regions copy what the shadow government of Myanmar have recently done, and adopt the Tether stable coin as legal tender.
But most importantly, some of these countries will adopt Bitcoin.
This is the interesting part.
For the countries who adopt Bitcoin, it will still be too volatile to make economic calculations and use as UOA when it’s still so early in its adoption curve.
A balancing act but for how long?
For this reason, I believe the countries who will adopt Bitcoin, WILL ALSO be forced to adopt the US Dollar to use as a more stable UOA. Countries adopting a Bitcoin standard will therefore be a trojan horse for continued US Dollar global dominance.
Now, we’ve already seen a microcosm of the Bitcoin Milkshake Theory play out over the past 24 months. As Bitcoin adoption has proliferated the globe, when we zoom out, we can see that since March 2020 the stable coin supply has grown from under $5 Billion, to over $150 Billion.
Argentina serves as an example of how I believe this Bitcoin Milkshake dynamic will unfold. As the Argentinian Peso continues to hyperinflate, with inflation now over 80% and projected to hit 100% by year’s end, Argentines are desperately fleeing into Bitcoin.
Bitcoin adoption in the country has increased by over 235% this year and is estimated to be somewhere around 18%.
However, this doesn’t tell the whole story of The Bitcoin Milkshake.
As Bitcoin adoption has grown in the country so has the demand for US Dollars! The black market for US Dollars is going parabolic in the Latin American country, as locals are willing to pay 200% premium over the official rate for US Dollars in the black market.
Only recently, stable coin volume has tripled in Argentina as the locals are finding value in using a 24/7 US Dollar equivalent.
Are stable coins really that stable?
Now zooming out more broadly, what I find most interesting about the growth of stable coins is not necessarily the rate of growth, but WHICH stable coins are growing the fastest. After the recent Luna UST debacle, capital fled from what’s perceived to be more ‘’risky’’ stable coins like tether, to more ‘’safe’’ ones like USDC.
This is because USDC is 100% backed by US treasury debt…..
The aforementioned Tether appears to be following in the footsteps of USDC. Tether has long been criticised for its opaqueness and the fact it’s backed by risky commercial paper. However, this seems to be changing, as 47% of Tether’s reserves are now held in US treasury debt, as they pledge to continue selling their riskier commercial paper, in preference for more pristine US government debt in the future.
They also recently agreed to undergo a full audit, in addition to their monthly attestations, to further improve transparency.
‘’IF’’ Tether is true to their word, and continue to back USDT by US debt, we could see a scenario in the near future where over 80% of the total stable coin market is backed by US government debt.
Another stable coin issuer, MakerDao, have also capitulated this week, joining the trend of other stable coin issuers and buying $500 million of US government bonds for its treasury.
But who really wins?
Most people believe the monetisation of Bitcoin will hurt the US the most, as they currently hold the global reserve currency. I disagree.
The US Dollar stands to benefit most from the monetization of Bitcoin, and subsequent proliferation of the stable coin market. What if a proliferating stable coin market, backed by US debt, can help soak up that lost demand for US treasuries? Is this how the US finds a solution to the unwinding of the Petrodollar system?
Is the US beginning to realize this……?
The Federal Reserve of Cleveland seems to be paying close attention to these lightning network developments, as they recently published a paper titled,
‘’The Lightning Network: Turning Bitcoin Into Money.’’
Put aside your opinions on whether stable coins are a shitcoin or not for just a second. With recent announcements like ‘’Taro,’’ that can bring stable coins to the Bitcoin lightning network, imagine the possibility of moving stable coins around the world, instantly for nearly 0 fees, 24/7.
If these stable coins are surfing the waves on top of the Bitcoin lightning network, backed by US government debt, the monetization of Bitcoin is clearly beneficial for the US.
- A strong dollar will lead to Hyperdollarization.
- A consequence of Hyperdollarization is increased Bitcoin adoption.
- A consequence of increased Bitcoin adoption is increased stable coin adoption.
- A consequence of increased stable coin adoption,(if backed by US debt) is INCREASED US Dollar adoption!
This dynamic feedback loop will ultimately become an all-consuming fiat currency blackhole.
The monetisation of Bitcoin benefits one nation disproportionally more than any other country. Whether they like it, welcome it or ban it; the UNITED STATES is the country that benefits most from the monetisation of Bitcoin.
Welcome to the Bitcoin Milkshake Thesis, the delicious macroeconomic dessert you haven’t heard about yet.