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Play Stupid Games, Win Stupid Prizes

Launching a hybrid war against Russia over who controls the Donbas was stupid, and a consequence of that has been the diminishment of America's status as world's sole superpower. We still are that, and the dollar is still the world's reserve currency, but you can already feel the ground starting to shift. China is now brokering peace deals in the Mideast, and winning commitments to use its yuan as the currency for settling more foreign trade.

As a polemicist, Tucker Carlson overstates the case slightly in the clip in the tweet below, but he's right about the direction in which this is heading: the eventual end of dollar supremacy and of U.S. hegemony. 

'Holy Smokes': China Strikes Major Partnership With Russia — But Nobody Seems to Care@TuckerCarlson: "Going forward, Russia will supply much of China's oil and natural gas. Vladimir Putin also agreed to use Chinese currency in trade with Asia, Africa, and Latin America. Once… pic.twitter.com/no2mnpmKax

— The Vigilant Fox 🦊 (@VigilantFox) March 23, 2023

The good news is that multipolarity could benefit the U.S., if we accepted its inevitability, and planned accordingly. 

Neither Putin nor Xi have the aspirations or ability to pursue world domination. Eastern Ukraine is historically and strategically important to Russia, as is Taiwan to China, but beyond that, both countries seem happy to engage in mutually profitable trade, with each other and the rest of the world. Neither is trying to impose an economic system or specific form of government globally, as the Soviet Union was during the Cold War. Capitalism won, including in China (despite its ruling party still calling itself communist). 

We could agree that their borders are their business, negotiate arms control deals with each other, and focus our energies on improving our own country instead of fomenting conflicts elsewhere. 

But I think we’d be better off planning for it and adjusting to it on our terms. Throwing the kitchen sink at Russia is basically a big bet on maintaining the status quo.

— David Pinsen (@dpinsen) January 22, 2023

The bad news is U.S. hawks insist on provoking Russia and China in their respective front yards, in ways we'd never tolerate them doing in North America. 

The United States would be better off acknowledging that Russia and China have legitimate spheres of influence in their front yards than hanging on to our unipolar moment by our fingernails.

— David Pinsen (@dpinsen) March 13, 2023

Why This Could Be Bad For Crypto

Think of things from the perspective of the U.S. government, and the Federal Reserve. After levying nuclear-level sanctions on Russia a year ago, we've just had three significant bank failures, while CEO of Russia's largest bank just recommended paying out a record dividend to his shareholders (full disclosure: I am one of them, although my shares are frozen to to U.S. and Russian sanctions): 

"I note that over the last five months, Sberbank's shares have gained over 70%," [CEO German] Gref said. "Those investors who believed in us in the most difficult period, from spring to autumn 2022, will receive the highest possible return on their investments."

At the same time, the settlement of international trade between Russia, China, and their trading partners is starting to shift toward the yuan, and U.S. inflation still isn't under control. 

And on top of all that, crypto bros, led by Balaji Srinivasan, are sowing panic over America's banking crisis,

With @balajis retweeting these sorts of takes, I'm reminded of @OJRenick's comment a while back (IIRC) that if the Fed were serious about reining in inflation, it would raise rates until bitcoin cratered. https://t.co/u5qX98ZYUw

— David Pinsen (@dpinsen) March 22, 2023

And publicly betting on hyperinflation. 

I will take that bet.
You buy 1 BTC.
I will send $1M USD.
This is ~40:1 odds as 1 BTC is worth ~$26k.
The term is 90 days.
All we need is a mutually agreed custodian who will still be there to settle this in the event of digital dollar devaluation.
If someone knows how to do this… https://t.co/hhPr522PQu pic.twitter.com/6Aav9KeJpe

— Balaji (@balajis) March 17, 2023

In light of all that, I think the bitcoin bros may be tempting fate by spreading FUD about the dollar. The U.S. may not be able to bully Russia or China, but its regulators and the Fed can still take some air out of crypto. 

With that in mind, one of our next short ideas on the Portfolio Armor Substack will likely be in the crypto sector. If you'd like a heads up when we post it, feel free to sign up for our Substack/occasional email list below.