Macro Minute: From Eurodollar to Bitcoin - A New Parallel Path

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The recent surge in gold prices has less to do with inflation and more to do with broader economic uncertainty and structural shifts in the global monetary system, exactly like bitcoin. Many investors assume gold and bitcoin rise with inflation, they can, but this assumption overlooks their role as a hedge during transitions in monetary order. This shift is evident today, where we are witnessing growing instability in the credit-based system and a potential for monetary evolution.

Readers might know that Jeff Snider’s analysis of the eurodollar system has heavily influenced my own thinking. While I agree with much of his framework, I incorporate additional factors like geopolitics, demographics, and of course, bitcoin. Today, I’ll break down a tweet from Jeff that outlines his interpretation of gold’s recent rise and expand on how bitcoin fits into this evolving monetary narrative.

Snider Reaches Many Similar Conclusions

Jeff's tweet:

In his tweet, Jeff explains gold's rise as a reaction to monetary paradigm shifts. He sees gold as a hedge against the potential chaos of a drawn-out transition from the eurodollar system, where no obvious successor—whether BRICS or otherwise—seems prepared to take the lead.

I'll summarize his five key points here:

• Gold’s value surges during economic transitions, serving as a hedge against uncertainty in monetary systems.
• In the eurodollar era, gold reflects shifts in the global monetary order, with BRICS unable to lead this transition effectively.
• Past gold rises, such as in the 1970s, signal major monetary changes, often beginning well before inflationary periods.
• Gold’s current climb suggests ongoing uncertainty and a prolonged shift away from the eurodollar system.
• Falling interest rates enhance gold’s appeal by reducing its opportunity cost and reflecting broader economic instability.

Adding Bitcoin To The Mix

Jeff Snider isn’t outright anti-bitcoin, but he views it as a speculative bubble rather than a solution to today’s monetary problems. He’s advised on blockchain projects and favors stablecoins over bitcoin. However, it’s remarkable that while Snider acknowledges gold’s role as a hedge during economic transitions, he refuses to apply the same logic to bitcoin.

I argue that bitcoin plays an even more significant role in today’s environment for two reasons. First, bitcoin offers far greater upside potential than gold, making it more attractive for a majority of firms. Second, bitcoin possesses superior monetary characteristics—its fixed supply, portability, and divisibility without requiring a trusted third party give it a clear advantage over gold as a form of money.

Snider’s framework rests on the idea that the evolution of money is in service to modern banking. Money should adapt to meet the needs of modern banking systems, and since bitcoin has characteristics that are counter to what would serve the credit-based banking system very well, it can be disregarded.

In my view, this is putting the cart before the horse. Modern banking evolved in response to specific environmental conditions, not because it is inherently superior. Money and banking evolved in parallel, but if you had to put one as the primary factor, it would have to be money which absorbs the primary evolutionary forces and banking follows. In any case, broader forces like technology, commerce, and geopolitics acted on money and banking simultaneously.

There is also a contradiction in Snider’s view. On the one hand, he argues that the banking system has dictated the evolution of money. Yet, on the other hand, he suggests that credit-based money is ill-suited to support modern banking and must adapt. Which is it? If banking directed the evolution of money resulting in the current form of the Eurodollar, what else is needed to act on it to make it adapt? Might I suggest the broader economic environment.

Bitcoin offers yet another parallel approach, starting from a blank slate. It doesn’t evolve to serve the traditional banking system; instead, the banking system can adapt to it, ridding the Eurodollar system of the problems of debt oversaturation, stagnation and malinvestment. Bitcoin provides a model to return to neutral money.

Hope this helps someone.

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Ansel

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