Golden BRICS: The Bold Move That Could Dethrone the Dollar

1. Digital Asset Market: ConsenSys has launched its Ethereum layer-2 scaling network, Linea, which allows developers to build or migrate decentralized applications for Ethereum. Linea uses zero-knowledge proofs and is Ethereum Virtual Machine (EVM) equivalent, enabling its applications to interact seamlessly with the Ethereum blockchain. The network has undergone extensive testing, with over 5.5 million unique wallets conducting more than 46 million transactions. The alpha release of Linea began on July 11, with over 100 partners. It offers faster throughput and 15 times lower transaction fees than those on Ethereum’s mainnet. Linea also integrates with ConsenSys’ Ethereum browser wallet MetaMask, providing users with access to its token bridge, swap, and buy functionality. The launch of Linea is expected to significantly enhance the scalability and usability of Web3 applications.

2. Macro Economics: Central banks are at "the end of the beginning" in their battle against inflation, as several factors keep core prices persistently high, according to top Societe Generale economist Kokou Agbo-Bloua. Despite the headline figure gradually edging closer to the Federal Reserve’s 2% target, the core annual consumer price index (CPI) remains high. The market is pricing around a more-than 90% chance that the Fed will hike interest rates to a range of between 5.25% and 5.5% at its meeting later this month. Agbo-Bloua suggests that central banks need to trigger a recession to force unemployment to pick up and create enough demand destruction. He also highlighted that the excess savings built up during the pandemic created an additional buffer for consumers and households, while companies were able to repair balance sheets, which has helped to keep the labor market resilient.

3. Equities: Apple has launched an official online store on Tencent's WeChat messaging app in China, marking a significant expansion of its retail channels in a key market. WeChat, often referred to as a "super app," is China's largest messaging platform with over 1.2 billion users. It offers "Mini Programs," which are essentially apps within the WeChat ecosystem, allowing users to access a variety of services without needing to download multiple apps. Apple's WeChat store is in the form of such a Mini Program, through which users can purchase the full range of Apple products, including the latest iPhone 14 series. The store also offers free shipping and, for some users, the option for three-hour delivery. This move is part of Apple's strategy to increase its presence on China's major internet platforms, as it already has an official store on Alibaba's Tmall and is an official reseller on JD.com, China's second-largest online retailer.

4. Geopolitical: The BRICS nations are reportedly planning a gold-backed reserve currency that could challenge the US dollar's global dominance. This development is gaining traction, with over 41 countries potentially returning to a gold standard. The specifics of this gold-backed currency could be announced during the upcoming BRICS summit in South Africa. Thorsten Polleit, chief economist at Degussa, suggests that this new transaction unit could sharply devalue many fiat currencies against gold, significantly increasing goods prices. This development could potentially shock the global fiat money system. Despite US Treasury Secretary Janet Yellen's confidence in the dollar's dominant role, this move by the BRICS nations marks a significant challenge to the US dollar's status. The trend of de-dollarization is currently underway, with Federal Reserve notes as a proportion of foreign reserves steadily declining.

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Following BlackRock's ETF filing, we've noticed persistent buy-side demand for Bitcoin, indicating investors are becoming more confident in the path forward with Bitcoin and the SEC, even though the current batch of ETF applications are months way from a decision. This, coupled with the fact that a significant 70% of Bitcoin's total supply has remained stationary over the past year, sets a robust foundation as we approach the halving event in the next nine months. Despite a noticeable dip in trading volumes since the July 4th holiday, a common trend across all financial markets during the summer months, we anticipate a resurgence in trading activity as we transition towards September. This temporary lull doesn't detract from the strong underlying fundamentals of Bitcoin. The combination of sustained buying interest, a large portion of unmoved supply, and the upcoming halving event all point towards a promising outlook for Bitcoin as we move towards the year's end.

Central banks, with the Federal Reserve at the forefront, are persistently wrestling with the issue of inflation. Despite their outward display of confidence, we remain skeptical about their ability to "thread the needle" and achieve a soft landing. The market is currently factoring in a more than 90% probability of a rate hike at the Fed's next meeting. While we anticipate a 25 basis points hike, we question the appropriateness of this move. Regardless of the Federal funds rate, the Treasury is set to continue its rapid pace of debt issuance to sustain current Congressional spending habits, having already issued approximately $1 trillion since the end of May.

The potential creation of a gold-backed reserve currency by the BRICS nations could significantly disrupt the global financial system. This move could challenge the US dollar's dominance and accelerate the trend of de-dollarization due to the weaponization of the dollar through sanctions and restrictions. While US Treasury Secretary Janet Yellen remains confident in the dollar's role, we believe that the world is gradually moving towards a system that no one controls (eg Bitcoin). This shift could reduce the political risks associated with using currencies issued by potentially adversarial nations and promote a more decentralized and equitable global financial system. We do not expect these changes to occur overnight but do anticipate money eventually being disintermediated from the state.

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The 1Konto Team

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