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De-Dollarize Yourself!

De-Dollarize Yourself!

Chris Campbell

Posted May 30, 2024

Chris Campbell

Good news for Americans who hate good news:

This week, the New York Fed finally admitted what we all already know: de-dollarization is happening.

And faster than most people think.

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Of course, they did it in the most Fed way possible…

Here’s what they said (emphasis mine):

“The decline in the dollar preferences of a small group of countries (notably China, India, Russia, and Turkey) and the large increase in the quantity of reserves held by Switzerland explain most of the decline in the aggregate dollar share of reserves.”

As Balaji Srinivasan has pointed out, this “small group” represents 3 billion people.

“So,” he wrote, “37.5% of the world is moving away from dollars toward gold.”

China and India are two of the world's fastest-growing major economies, with China being the second-largest economy globally.

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Now, there’s no reason to rush out and panic.

The shift in reserve preferences by these countries won’t immediately undermine the dollar's global dominance. But it is a trend that will have long-term implications for the international monetary system…

And the relative strength of the U.S. dollar.

Given that, let’s look at three scenarios and see how crypto can cover all your bases. (And then we ask: But could silver be a better short-term bet?)

The Big Three

Here are the major scenarios that are possible for the dollar in the coming years:

Scenario 1: Gradual erosion and de-dollarization

Scenario 2: Sudden loss of confidence and dollar crisis

Scenario 3: Dollar resilience and stabilization

Of course, depending on which scenario you think is most likely, you'll want to adjust your investment strategy accordingly.

For example:

If Scenario 1 seems most probable, the average investor will likely gradually increase gold exposure, and invest in emerging markets and companies benefiting from a shift away from the dollar. They would also consider real assets like real estate or commodities.

For Scenario 2, the average investor will increase allocation to gold and other assets that perform well when the dollar is weak. They would also consider shorting Treasuries or the dollar.

And Scenario 3? The average investor would seek a diversified U.S. portfolio focused on stocks with strong fundamentals, Treasury securities, and sectors like consumer staples, healthcare, and financial services.

Those are the traditional routes.

But what does crypto look like in these scenarios?

Thing is, crypto can weather any scenario:

During a gradual erosion and de-dollarization, cryptocurrencies would gain prominence as a hedge against the erosion of the U.S. dollar's value.

In Scenario 2, cryptocurrencies might even serve as an escape hatch, as we saw in Venezuela during their currency crises.

In Scenario 3? The macro catalysts may be limited if the U.S. dollar remains stable, but growing integration with traditional finance would still lead to further adoption.

Tokenization, after all, is still a major point of interest for big banks.

My point?

Regardless of the scenario, crypto has a path to victory -- and remains one of the largest asymmetric bets.

BUT, here’s a potential plot twist based on recent research.

Is Silver a Better Bet?

Our interest has recently turned to another contrarian bet that could benefit from all three scenarios.

Silver.

We’ll make the case tomorrow.

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