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The Fed’s Silent Admission: Gold is Dethroning the Dollar

EDITOR'S NOTES

In a subdued yet significant development, the Federal Reserve has quietly conceded that gold is starting to supplant the dollar, sparking concerns over a potential financial collapse. Bitcoin has soared to its previous peak of $70,000, spurred by the introduction of spot bitcoin ETFs on Wall Street. Meanwhile, U.S. debt has swelled to $34 trillion, and Treasury Secretary Janet Yellen’s warnings highlight the fragility of the economy. Former billionaire Chamath Palihapitiya forecasts that Bitcoin could soon match gold’s $15.7 trillion market cap, possibly surpassing it as more countries turn to digital currencies. The evolving financial landscape, marked by the Fed’s tacit acknowledgment, hints at turbulent times ahead.

BitcoinBitcoin +0.4% has exploded into 2024, powered by the arrival of a fleet of spot bitcoin exchange-traded funds (ETFs) on Wall Street (with a top BlackRock executive recently revealing what’s next).

The bitcoin price has soared back to its all-time high of around $70,000 per bitcoin, recovering from a 2022 crash that Goldman Sachs’ crypto lead thinks could signal a bitcoin price “turning point.”

Now, after U.S. Treasury secretary Janet Yellen issued a serious warning over the swelling $34 trillion U.S. debt pile, former billionaire and All In podcast “bestie” Chamath Palihapitiya has predicted bitcoin could “completely replace gold” as countries adopt it—potentially pushing it’s market capitalization toward gold’s $15.7 trillion.

“There’s an increasing body of countries that will become dual-currency,” Palihapitiya, who claimed to have bought $1 million worth of bitcoin when it was trading at around $80, said on the podcast he hosts along with fellow investors David Friedburg, Jason Calacanis and David Sacks.

“They will look at their local currency and they will look at bitcoin. And they will say both of these two things are needed. The first for when they’re transacting on a daily basis for goods and services and the second when you need to buy a permanent asset that needs to have residual value, they’ll buy bitcoin.”

El Salvador made history when it adopted bitcoin as its official currency alongside the U.S. dollar in 2021 with mixed success, sparking debate whether other countries would follow suit though no major countries have yet.

However, Palihapitiya added he thinks that “there are a lot of countries that will never look at bitcoin credibly even if they support it,” with the U.S. perhaps “one of those.”

Palihapitiya pointed to the historical bitcoin price charts that show huge increases in the bitcoin price following so-called bitcoin halvings that reduce the supply of new bitcoin issued to miners that maintain the network. The latest bitcoin halving, its fourth which cut the daily supply of new bitcoin from around 900 to 450, happened in April.

If the bitcoin price repeats its past performance after this halving, it could soar to almost $500,000 by October 2025.

“If you apply these averages, they’re by no means [bitcoin price] predictions, they’re just guesses, you start to see what could happen if you take the average of the last few cycles,” Palihapitiya said. “The average of cycle two and three is some really meaningful appreciation.”

Historical bitcoin price data shows that after previous bitcoin halvings, the bitcoin price peaked around 18 months after the supply cut.

“If this thing gets to these levels of appreciation, it’s going to completely replace gold and become something that has transactional utility for hard assets,” Palihapitiya said. “If you marry that with this fear that some folks have about dollar debasement, you start to see some interesting opportunities.”

06/03 update: The Federal Reserve Bank of New York has written a report outlining the narratives around “declining dollar shares in official reserves, and increasing roles for gold holdings by central banks,” which it says has been “inappropriately” generalized beyond “the actions of a small group of countries.”

The report authors found global central banks and finance ministries held nearly $12 trillion of foreign exchange reserves as of the end of 2023, with nearly $7 trillion composed of U.S. dollar assets. World Gold Council data shows “global central banks purchased over 1,100 tons of gold in 2022—more than double the purchase amounts of the previous year—and maintained a similar purchase level in 2023,” according to the report.

“The Fed now admits some countries are moving to gold,” tech investor and former Coinbase chief technology officer Balaji Srinivasan posted to X, pointing to what the Fed says is a “small group” that “represents 3 billion people. So 37.5% of the world is moving away from dollars towards gold.”

Earlier this year, Bank of America analysts warned the U.S. debt load is about to ramp up to add $1 trillion every 100 days—fueling a bitcoin price surge.

“The U.S. national debt is rising by $1 trillion every 100 days,” Michael Hartnett, chief strategist of Bank of America, wrote in a note to clients seen by CNBC, adding it’s “little wonder ‘debt debasement’ trades closing in on all-time highs, i.e. gold [at] $2077/oz [and] bitcoin [at] $67,734.”

Hartnett predicted the newly created spot bitcoin ETFs that have taken Wall Street by storm over the last month are on course for a “blowout year,” in part because of the collapse of the U.S. dollar.

The latest halving came hot on the heels of the landmark approval by the U.S. Securities and Exchange Commission (SEC), led by chair Gary Gensler, of a fleet of spot bitcoin ETFs following a long legal campaign by crypto asset manager Grayscale.

“We’ve commercialized bitcoin,” Palihapitiya said. “My big prediction for 2024 is that these ETFs will allow bitcoin to cross the chasm and have its central, key moment.”

Meanwhile, bitcoin and crypto companies have emerged as a powerful lobby group in this year’s U.S. election, spending huge amounts on pro-crypto candidates and winning around both former president Donald Trump, the Republican front runner, and president Joe Biden, whose reelection campaign has reportedly begun reaching out to crypto executives.

“I think it’s really interesting how the crypto community is getting organized into a lobby to advocate for its interests,” Palihapitiya’s cohost David Sacks said, adding Gensler and influential Democratic senator Elizabeth Warren have been on “a crusade” against crypto to “make it illegal or drive it offshore.”

“Crypto people have had a political awakening and realized they have to get involved in the political system as a matter of self defense,” Sacks said.

“The reason [young people] are attracted to crypto is that it isn’t controlled by the government,” added Calacanis, predicting crypto voters could move the needle on election night by up to five basis points.

This article originally appeared on Forbes

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