Weekly Digest: Panama Plans to Make Bitcoin Legal Tender
Welcome to your Sunday digest…my breakdown of the things we’re thinking about and talking about in the Global Intelligence world.
The digest returns this week after a brief hiatus. When I was traveling in Mexico’s Riviera Maya, I wanted to bring you as much on-the-ground coverage as possible, while the information was still fresh in my mind.
But today we return to our regularly scheduled programming and my hot takes on some of the most important (and underreported) news stories from the past week or so.
Before we dive into the stories, I wanted to share a few thoughts on the status of the crypto and stock markets writ large.
The markets are freaked out right now because the Federal Reserve has proven once again that it has its finger on the pulse of nothing. A year ago, inflation was “transitory,” Fed heads insisted—nothing for anyone to worry about.
Today, as I predicted back then, inflation is very real. And the Fed is very far behind in trying to get a handle on it.
But here’s what’s going to happen: The Fed will raise rates again, and probably again after that. So we will get to north of 1% on the Fed Funds rate (the primary interest rate that defines pretty much everything in the U.S. economy).
Then the economy will sputter into a recession by the fall, and the Fed will be back to cutting rates.
In effect, we are turning Japanese, to steal a 1980s song title from The Vapors. (I’ll write more about that trend toward the Japanification of the U.S. economy in an upcoming Field Notes column).
The point I simply want to make here is that we have a few more months of volatility in stocks and crypto, and then we’re going to see a rebound the minute the Fed announces a rate cut is necessary to stave off a recession that it’s already behind in chasing.
So, what I am saying it this: Patience is a virtue.
Now, on to this week’s stories, and we’re starting with a big one: Panama plans to follow El Salvador in adopting bitcoin.
Last year, the small Central American nation of El Salvador embraced bitcoin as legal tender.
This move sparked an outcry from the traditional finance world, with the World Bank and the International Monetary Fund, in particular, deriding it as risky and foolhardy monetary policy.
Regular readers will know that I have a different opinion.
El Salvador adopted bitcoin as legal tender just as we were entering a high inflationary environment.
That will prove a savvy move.
Bitcoin has certainly been volatile since the start of this year. But long-term, I’m betting it pushes toward six and even seven-figure valuations as it emerges as a wealth-protection asset alongside gold.
That means El Salvadorans who own bitcoin will come out way ahead.
Now, so too will the residents of Panama.
According to a report this week, bitcoin and other cryptocurrencies will soon be accepted in Panama after the National Assembly passed the initial framework for use of crypto payment mechanisms.
The Panama plan does not make the acceptance of crypto mandatory, as it is in El Salvador.
Still, the fact that Panama is taking this step is highly significant, for two reasons:
First, Panama is home to the most highly developed financial industry in the region. When El Salvador adopted bitcoin, it was easy for world bodies like the IMF to write it off as the act of a rogue government.
Panama—well, that’s much harder to dismiss.
Second, what links Panama and El Salvador…they both use the U.S. dollar as their official currency. (The dollar and bitcoin are co-equal currencies in El Salvador.)
Maybe that’s coincidence, but I think not.
The fact is, the U.S. dollar is not what it once was…
Over the past 20 years, U.S. national debt has soared to unprecedented levels. In 2001, it was about $5 trillion. Today, $30 trillion.
With this kind of debt load, the U.S. dollar doesn’t offer the stability it once did.
All across the global economy, small signs are emerging that the U.S. dollar is losing its primacy as the world’s most important currency.
Panama and El Salvador are two very loud canaries in that particular coalmine.
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Next up (and on a related topic), let me pose a question: How do you imagine famed fashion brand Louis Vuitton celebrated its 200th anniversary last year?
The answer: By launching an online, crypto-based video game.
Called Louis: The Game, the game uses non-fungible tokens, or NFTs—one-off, one-of-a-kind crypto assets that can be used to represent ownership of digital assets.
It works as an experiential digital game, in which players start at the Louis Vuitton family home in Asnieres, France, before moving on to Paris, Los Angeles, and other similarly glamorous locations. Along the way, players get the chance to collect NFT postcards.
Though launched last year, the game was in the news this week because it has topped 2 million downloads…a very impressive number.
This, to me, is yet another example of how crypto and NFTs are integrating into society.
Mainstream media outlets like to dismiss crypto and NFTs as a fad…but the world’s leading brands have a very different viewpoint.
They see the potential in this technology and are using it to attract and engage millions of new followers.
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We end this week with a story about the future of the internet…
In a recent interview, former Google CEO Eric Schmidt made a very interesting comment, noting that if he had to begin his career as a software developer today, his focus would be on Web 3.0.
Web 3.0 refers to the next iteration of the internet. Web 1.0 was the first version of the internet…the internet of dial-up modems, AOL Online, and Ask Jeeves.
We’re currently in the final stages of Web 2.0…the age of big, centralized web giants like Google, Facebook, Twitter, and Amazon.
The next phase is Web 3.0. This era will see the emergence of decentralized organizations.
Like bitcoin, these groupings will be global, unhackable networks, with no centralized leadership or infrastructure, in which every single participant has power and responsibility.
In this decentralized future, Google and Facebook won’t harvest your data and sell it to the highest bidder…instead, you will have control over your own data and get paid for it (if you choose to share it).
This future can be hard to envision, but it is coming…sooner that most of us imagine. Schmidt said as much. In his interview with CNBC, he noted:
“A new internet model in which you, as an individual, own your identity and do not have a centralized management is extremely powerful. It’s really enticing and decentralized. I recall having the notion at the age of 25 that decentralization would be everything.”
When you view all the stories in this week’s digest as a whole, the message is clear. Schmidt, Louis Vuitton, and Panama are telling us the same thing: Crypto and its underlying technology are the future of the internet, money, and our economy.
The sooner we listen…the greater our profits as this future emerges.
That brings us to the end of this week’s digest. Many thanks for being a subscriber. And if you have any feedback or questions, reach out through the contact form on the Global Intelligence website.
Enjoy the rest of your Sunday.
