I’ve been mostly quiet since Russia invaded Ukraine on February 24, but very busy attempting to parse out the investment implications and rebalance my portfolio accordingly. While I do think some of what has transpired has been profound (in particular the weaponization of the US dollar based financial system), I also think that the primary long-term macro investment theses of mine have been reinforced rather than materially altered (bitcoin). Others were perhaps ever-present and have merely had the light shown on them to me by recent events (carbon credits). And still others have, in my opinion, a materially changed outlook (gold, defense companies).

While we now look back on COVID as a catalyst that accelerated adoption and pulled forward returns in sectors such as e-commerce and food delivery, I think we will also look back on Russia’s invasion of Ukraine as a catalyst that accelerated adoption of certain technologies and pulled forward returns for certain asset classes.

So without further adieu, let’s dive into why.

On a long enough time scale, perhaps not much has changed with respect to the investment case for bitcoin, but I think several events that have played out over the past few weeks have both sharpened the bull thesis and blunted the bear thesis.

• The sanctity of property rights, rule of law and due process has been obliterated by Western governments.

• The utility of crypto as a global, permissionless, peer-to-peer medium of exchange has been on full display.

• President Biden’s Executive Order was not as bad as feared, and was even met with applause by many in the crypto-community.

Let’s take each of these in turn.

The U.S. and its allies applied the meaning of the phrase beyond the world of crypto when they moved to freeze Russian central bank foreign reserves. This move wasn’t entirely unprecedented as the U.S. has previously frozen the central bank assets of Iran and Venezuela, and most recently seized the central bank assets of Afghanistan. Nonetheless, the West weaponizing the financial system against a foreign power and trade partner the size and scope of Russia certainly feels like upping the ante.

Now, if you’re, say, China (or any other sovereign), you know that your U.S. dollar reserve assets are not really yours, and they can and will be rug-pulled at the moment you most need them. What do you do?

On the margin, I think you try to wean yourself off U.S. treasuries and buy gold and the currencies of your allies/other trading partners, to the extent possible.

And soon enough, if not already, buy bitcoin.

I say to the extent possible because I don’t believe it’s possible nor preferred for global central banks, including China, to outright divest USD reserves for alternatives en masse. There is simply no good alternative - no other capital markets are deep and liquid enough, and no other currency is used enough globally. There are good reasons the USD has become the global reserve currency and that’s not going to change overnight.

But given the relative lack of size of, say, the bitcoin market, and even the gold market, a shift in where the incremental central bank dollar goes can have an outsize effect on prices. Remember, it is solely the marginal buyer and seller that determine asset prices.

Right now the bitcoin market isn’t large enough for most central banks to amass a meaningful position. But I don’t think that means they will simply neglect it.

Indeed, if you go back and connect the dots of Russia’s stance toward bitcoin in the weeks leading up to their invasion of Ukraine, they very well may have already bought some in anticipation of sanctions. I actually believe it would have been foolish not to. What is there to lose?

Russia did a complete about-face on bitcoin in less than a month. On January 20, its central bank proposed an outright ban on the use and mining of cryptocurrencies. By February 9, Russia had not only walked that proposal back but in it’s place embraced the industry, encouraged miners and moved to recognize crypto as a form of currency. Now they’re granting domestic banks licenses to run cryptocurrency exchanges and even launch their own tokens.

Cryptocurrency is clearly top of mind in Russia and policy is moving fast, despite having other things to worry about.

Meanwhile, at the sub-nation-state level, the West has also sanctioned Russian Oligarchs, including seizing their foreign assets. In some cases it is not clear to me they have committed any crime other than holding a Russian passport, and being rich (which we know is a crime in the West).

Would we want U.S. business leader’s assets seized without any form of due process due to the actions of the U.S. Government? If you’re Jamie Dimon, would you want to be held accountable for the actions of Donald Trump?

Surely, we can at least agree Russian nationals living abroad did nothing to warrant the freezing of their credit cards, nor did foreigners living inside Russia’s borders.

But, alas, whether these sanctions are just or unjust, moral or immoral, is largely irrelevant to the investment case for bitcoin. The rubicon has been crossed. If you’re a high net-worth individual, you now know beyond a shadow of a doubt you can and will be held liable by foreign governments for the actions of your government and your foreign assets are subject to confiscation without committing any crimes.

Anthony Pompliano said sanctions are just another word for censorship. There will be a heightened sense of urgency among the wealthy to accumulate the censorship-resistant asset.

And lest we think that these are merely extraordinary measures taken against extraordinary individuals (Russian Oligarchs) under extraordinary circumstances (war) and nothing like this could ever happen to “me,” look no further than Canada freezing the bank accounts and canceling the credit cards of Canadian citizens who donated to the trucker protests through popular crowdfunding platforms such as GoFundMe.

Let that sink in for a second.

This sort of flew under the radar with war dominating the headlines, but this is no less than the financial oppression and oppression of free speech by the Canadian government against their own citizens. Canada!

Imagine donating to, say, Black Lives Matter, and having your bank account and credit cards frozen because your government didn’t agree with the cause you were supporting financially.

Before, the idea of owning an asset that is no one else’s liability and is resistant to censorship may have made some good sense, in theory. Today, it makes sense in practice and is acting as a real lifeline for real people in the *real *world.

Two developments with respect to bitcoin born out of Russia’s invasion of Ukraine struck me as significant. 1) The Ukrainian government accepting donations in crypto and 2) accounts of regular citizens caught in a war zone using crypto to facilitate transactions.

These developments are reminiscent to me of the pizza moment. They prove the value proposition of bitcoin and other cryptocurrencies in the real world.

Ukraine accepting donations in crypto represents the second large-scale fundraising/coordination effort facilitated by crypto in the last four months (the first being ConstitutionDAO).

Technology is amoral. It will be used for good and evil and amplify all that we are. Thankfully we have this example to juxtapose against unfounded worries that cryptocurrencies will be used to evade sanctions to slow our surely well-meaning politicians down from couching increased financial surveillance of ordinary citizens into law that’s ostensibly about preventing evasion of sanctions.

Given the anti-crypto rhetoric from aforementioned well-meaning politicians and the Russia/sanctions evasion angle as a supportive talking point for their restrictive policies, there was fear in the crypto-community about what might be included in the President’s Executive Order on Digital Assets. But it was not as bad as feared, and has even inspired a little hope that the U.S. will capitalize on the opportunity in front of it, in contrast to other nations including some of our allies.

Among six key priorities, the EO includes the initiative to “promote U.S. leadership in technology and economic competitiveness.” This acknowledgement of the potential role of digital assets in securing our national interests is a welcome change in tone from Washington, and I think reduces the risk of intentionally crippling regulation in the short-to-medium term.

The day will come when the U.S. government fights their holy war against cryptocurrency, but it seems that day is still a ways off at the present.

I want to take a step back though and mention two things in closing on bitcoin.

First, in the last year we’ve thrown at bitcoin (h/t Raoul Paul):

• China banning and half the hash-rate going dark over night

• 8% inflation

• Expectations for quantitative tightening and 8 rate hikes in 2022

• A war

And yet, it still has not made new lows vs. the $28,800 level reached in June 2021.

Think about that.

Second, the long-term impact of all the government actions discussed above boil down to one thing: a reduction in trust. When trust goes away, things get more expensive. Globalization and hyper-efficient supply chains were allowed to thrive due to trust, enforced by mutually aligned economic incentives. Now that the dollar-dominated global financial system has been weaponized, that trust has been irreparably eroded and deglobalization and the building of redundant capacity will necessarily ensue. This will be a multi-decade megatrend.

In a world where everything gets more expensive to cover for a lack of trust (more intermediation), there is simultaneously an emerging technology whose value proposition is that it is distributed, trustless, permissionless, peer-to-peer and censorship-resistant.

Blockchain is the technology the world will inevitably turn to reduce costs, reduce friction, and overcome a global lack of trust between and among nation-states, institutions and individuals. The U.S. has resisted one large excuse (sanctions evasion) to stifle the industry and instead recognized the technology’s strategic and economic importance. Adoption continues unabated, and will perhaps accelerate in light of recent events.

The bull-case for crypto has never been stronger.

I’ll keep this brief as the bull case for gold largely overlaps with the bull case for bitcoin. If global central banks, in particular China, no longer trust the sanctity of their U.S. dollar reserve assets they must seek to diversify into other assets.

Top the list will be gold.

Again, bitcoin is too small for most central banks to invest a meaningful portion of their reserves. Gold is the next best reserve asset (in my opinion) for the new world order.

Problem is, the gold market isn’t large enough either ($). But with nowhere else to turn, I expect there to be an insatiable central bank bid for gold over the coming years.

Combine this with gold’s traditional role as an inflation hedge in a world that has gotten a whole lot more inflationary over the past month (trust down = prices up), and you have a recipe for an explosive move to the upside.

Gold is the low-risk, low-vol, lower-upside cousin to the bitcoin trade. I do not currently have a position (“don’t tell me what you think, tell me what’s in your portfolio, bro”) simply because I find bitcoin the higher upside trade on the same theme. But I do think the investment case for gold has materially improved due to the events of the last month, and will be evaluating an allocation on an ongoing basis.

Disclosure: I own bitcoin and other cryptocurrencies.

Disclaimer: nothing published in this newsletter is financial advice. The author may be long or short any of the securities or assets discussed at any time before or after publishing.