Crypto's Role in a Deglobal World | Technical Outlook
It's a Zero Sum Game. So what does a deglobalized world mean for cryptocurrency? Read on to see why PoS marks the birth of an Ethereum Standard and its role in building a sustainable Web3.0 future 👇
Thanks for reading Qluster Research! Subscribe for free to receive new posts and support our work 🤗
Fall of Globalization: The Birth of the Ethereum Standard
Globalization: The International Monetary Fund (IMF) identifies the four aspects of globalization in economics:
Trade and transactions
Capital and investment movements
Migration and movement of people
Dissemination of knowledge.
Since economists first coined the term “globalization”, the long-term trend of international trade opening up between countries seemed to herald a golden era of common prosperity and shared development.
The globalization experiment first began around the early 1980’s. Then, with bipartisan support, the movement gained traction in political and academic circles under the Reagan administration. Still, it was the period after the Fall of the Berlin Wall in 1989 when we really saw the idea of globalization become entrenched in the minds of economic planners.
Undoubtedly, globalization has created more opportunities for multinational corporations to capitalize on and expand their profits in new foreign markets. And, of course, the growing interdependency of the world economy has delivered tremendous wealth to some pockets.
However, for most people in the world, a global economy meant cheaper consumption, higher living standards and improved prospects for economic growth. These individuals might also have presumed a globalized world economy would deliver the sustained growth they needed to secure a comfortable retirement. So, how well has globalization served the common folk?
Take a glance at today’s landscape.
Conflict rages on in Ukraine. Russian forces occupy an estimated 20% of the country, which includes at least US$12.4 trillion in energy deposits, metals and minerals.
Record levels of consumer price inflation rampage across major world economies. US CPI figures continue to return above forecast despite central banks pushing through unprecedented hikes on interest rates and winding down bond-buying programs over the past year.
The outlook on global economic growth remains bleak as central banks move ahead with tightening monetary policy. In addition, the US is tipped for a recession in 2023.
Restoring normal global trade relationships remains an increasingly difficult challenge as countries impose new economic and financial sanctions.
Will “Friendshoring” give rise to a deglobalized world?
Friendshoring: The pandemic was enlightening for governments around the world. A surge in demand for public health services quickly exposed chronic deficiencies in the system. However, the brutal realization of just how fragile the world’s supply chains really are has spurned US policymakers to put forward the idea of “friendshoring”.
In this case, the seemingly overnight collapse of global logistics could be partly attributed to disruptions resulting from emergency COVID-19 measures deployed by governments.
The concept of friendshoring or allyshoring refers to companies relocating their business operations to “friendly” countries with “shared values and strategic interests”. While the precise definitions appear vague, one might assume this naturally excludes countries that are unfriendly to US foreign policy.
As Bloomberg writer Peter Coy pens in his article:
“First there was ‘offshoring’—transferring production abroad to save money. Then there was ‘onshoring’ or ‘reshoring’—bringing production back home to reduce the potential for disruption of supply chains. The latest lingo is ‘friend-shoring’ or ‘ally-shoring,’ which is similar to reshoring except that it’s not restricted to domestic production. Reliable friends and allies are also deemed OK as sources.”
A closer look at official recommendations put forward by the US Department of Commerce in the friendshoring whitepaper reveals a starkly protectionist undertone.
Here is an excerpt of the seven recommendations put forward in the White House submission:
Promote investment, transparency and collaboration in partnership with industry to address the current shortage.
Fully fund the CHIPS for America provisions to promote long-term US leadership.
Strengthen the domestic semiconductor manufacturing ecosystem.
Support SMEs and disadvantaged firms along the supply chain to enhance innovation.
Build a talent pipeline.
Work with allies and partners to build resilience.
Protect the US technological advantage.
This package of US government-funded subsidies targets domestic microchip and semiconductor industries, the critical future technologies expected to power a smarter and more interconnected digital world.
However, the question of whether the United States is able to reassert dominance over the world’s advanced microchip and semiconductor supply chains will likely be answered in the coming decade.
The US defends its perceived boundaries of national security with offers of financial incentives, hoping to attract key resources and capabilities from the global supply chain. But, it will be tough to convince some overseas companies about the long-term benefits of relocating highly specialized and prized national capabilities to US soil—and note, firmly within reach of US legal jurisdiction.
Of course, this economic protectionism will block certain geopolitical rivals in the East from accessing a crucial supply of key production inputs. These actions will undoubtedly impede China’s staggering innovation rate and high-tech manufacturing ambitions in the short term.
Thus, for suppliers and vendors, a polarization of world trade in the realm of future technologies has begun. It’s time to decide…
Don’t underestimate the significance of a globalized economy.
MaxAlpha: Globalization is a very important consideration. And sometimes, it’s taken for granted.
That is, until such a time when social unrest brings about a regime change. Needless to say, this change is a choice supported by politics and economics.
In this context, Janet Yellen’s speech to the Atlantic Council (April 2022) introduced us to the term “Friendshoring”.
This means—and you’ve seen this in action—that we have a group of countries that firmly adhere to a set of norms and values about how to operate in the global economy. These countries also share similar views on how to run the global economic system.
Thus, the thinking here is, “we need to deepen our ties with these partners and work together to make sure that we can supply our needs of critical materials.”
In a world where you are a "Friend” or “Not”, we will not have globalization to the extent we have understood in the last 40 years.
The problem for investors is not whether globalized is better than deglobalized. Instead, the real issue is understanding where we are in the process between the two, which in turn assists in identifying trends and watching for a likely winner and loser. By implication, these are:
The Ethereum Standard.
Crypto: It’s no secret that the global economy is quickly partitioning into a somewhat new archetype of East versus West.
On one side, the East is slowly reducing its dependence on the US Dollar in favour of an alternative system offered by the BRICS association of nations.
While on the other, the West appears hellbent on onshoring advanced chip manufacturing capabilities after decades of offshoring and ruthless pursuit of maximum economic efficiency.
The COVID pandemic has exposed what happens when supply chains break due to an unexpected catastrophe. Multinationals spread their roots across the globe, hoping to achieve the best mixture of price, quality, and speed. Cheap production inputs enabled producers to oversupply goods and services to markets, which allowed consumers to experience a myriad of quality goods at the lowest costs possible.
That chapter has ended… and winding down demand after years of excesses does not bode well for a fairy-tale ending ahead for market economies.
In the last two years alone:
Russia has been cut off from the SWIFT banking system.
Semiconductor sanctions on China were imposed.
Exclusive energy trade between the United States and Europe has emerged.
Reality has devolved into anything but a cyclical shift in the macro-economy. These changes are structural and will more than likely persist for many years—perhaps, even decades to come.
So, what would a global asset like cryptocurrency (i.e., Ethereum) stand to gain in this new chapter of deglobalization…?
Over the past 40 years, global supply chains have enjoyed tailwinds of sustained low-interest rates, stable price inflation, and competitive trade across international waters.
But today looks vastly different. The West scrambles with efforts to onshore business, while in the East, China continues selling its holdings of US treasuries. It’s clear that both sides prefer to consolidate from their respective corners.
The internet might be the last bastion that holds the dream of a global and interconnected world together. Dependency on the internet will only increase as eCommerce between international buyers and vendors grows.
If only there were an asset that allowed for transacting using a highly secure, superfast, and scalable system… Ethereum?
Ethereum: Eliminates the need for trust, allowing users to access a completely decentralized and open-source world of finance.
Layer 2 networks built on Ethereum allow users to complete lightning-fast transactions with finality whilst providing an extremely secure and robust network that leaves little to no carbon footprint.
As the financial system continues printing into oblivion just to service current debt requirements and avoid the collapse of an exponentially inflating bubble, Bitcoin and Ethereum need only wait.
A parallel exists—just one block away… 👇
Price Action Analysis
Bitcoin vs. US Dollar, $BTC - Weekly (W1)
Bitcoin appears clutching to the .786 Fibonacci retracement level support (US$ 18K).
Candle closes below on higher timeframes (1D, 1W, etc.) would be considered bearish action. Conversely, Bitcoin could have a shot at reclaiming levels around US$30K if market bulls can squeeze demand above US$22.5K.
Bitcoin vs. US Dollar, $BTC - Daily (D1)
A daily view of price action is telling:
RSI looks to be flat-lining.
Clear rejections near levels marked by EMA 20 and EMA 50.
Possible Head and Shoulders forming.
Bitcoin has undoubtedly suffered severely from the harsh treatment dished out by the force of an unrelenting US Dollar.
It is unlikely that any relief from a Federal Reserve pivot will be coming anytime soon. Technically speaking, charts don’t get any more bearish than the two above, cough* $ADA cough.
To surmise, markets are much more unpredictable. The expectation remains as such in the foreseeable near term.
Do not let the noise distract you from the primary cycle, which can be inferred as bearish—until proven otherwise.
See you again for the next update!
We’re on a mission to a Brand New World.
It’s a place where people come to share in the wonderful gifts of trading. Where individuals come to Qluster their knowledge, united by a shared love for learning.
This is Trading Made Social. Help us on our mission by sharing the gift of Trading Made Social to new explorers.
Join our Facebook group and connect with likeminded traders 🚀
Like and Follow our Facebook page for activity updates 📣
Connect with us on LinkedIn for future updates 🤝
The information on this website is for general information purposes only. It is not intended as legal, financial and/or investment advice and should not be construed and/or relied on as such. Before making any commitment of a legal and/or financial nature you should seek advice from a qualified and registered legal practitioner and/or financial and/or investment adviser. No material contained within this website should be construed or relied upon as providing recommendations in relation to any legal and/or financial product. Qluster does not recommend and/or endorse products and does not receive remuneration based upon investment and/or other decisions