Geopolitics, Oil & Bitcoin
I've recently read an excellent piece on current geopolitics, energy and Bitcoin that I wanted to share my thoughts on.
The piece linked below, written by Arthur Hayes, is a prescient analysis of what effect the ongoing World War III could mean to supply and demand of oil and the price of Bitcoin. Since my essay in August 2022, I also believe we have entered WWIII in all but name.
You can find the piece here:
Curve Ball by Arthur Hayes
In the essay, Hayes describes the reality a new world war brings to the energy security of the United States, the EU, Japan and China. Suffice it to say it is not a pretty picture for the EU, Japan and China.
My Take
I find the piece thought-provoking, though as an avid disciple of geopolitics, I will nitpick and believe he’s missed a subtle but growing reproachment between Saudi Arabia and Iran. That said, I don’t discount the insanity of Israel striking Iran regardless.
I’ll also point out that the US cannot deliver a knock-out blow to Iran. That was proven in January 2020 when the US didn't retaliate against Iran's strikes on US forces in Iraq after the assassination of Solomeni. At best, the US can start yet another conflict, but it will be a protracted affair they will eventually lose like all the rest.
Undoubtedly China will find itself short of oil should sea lanes be closed off by a belligerent US Navy, but I do believe Russia will provide vastly more energy to China than he may see. There is already talk of multiple additional pipelines to China and increased use of the Northern Sea Route, which despite bluster to the contrary, cannot be policed by the US Navy/Coast Guard and its two icebreaker ships. But again, these pipeline projects take time.
Hayes is also correct in his analysis that overall changes to global energy dynamics will not adversely affect Bitcoin in the long term (short-term price volatility aside, as with every other asset should the current pseudo-hidden WWIII go official). The Bitcoin mining industry will adapt as needed, moving to different energy sources (60% renewable and growing), and the difficulty adjustment ensures the network’s security should the hash rate drop.
Final Thoughts
Overall I'm not yet convinced the US will provoke an all-out war with China, despite all indications to the contrary and the continual stoking of tensions. Balloons anyone?
With China so integrated into the US supply chain in virtually every industry, provoking China into an open battle would be like cutting off your nose to spite your face. Perhaps the US officials have been hanging around with their Polish counterparts too long?
Long term, you can make adjustments and create alternatives, including onshoring manufacturing. But that takes a lot longer than a year or two, and it also doesn’t account for critical elements (rare earths etc.) that are predominantly sourced from China regardless of who uses them to manufacture. But again, that is long-term and, considering the current US administration’s rush to escalate everything, everywhere to distract its populace from empire collapse - very concerning.
The timing of Hayes’ piece is somewhat ironic as it aligns with my portfolio allocation in recent months. I have been drawing down 'liquid Bitcoin' (as opposed to my cold storage, which is never touched) that I view as cash and increasing my allocation to ridiculously cheap oil plays. I’ll write a separate piece on these in the future.
Over the short term, the next 6-12 months or so - I believe certain undervalued oil stocks have more upside than Bitcoin, and I am allocating accordingly.
With many oil experts, such as Alhajji above, predicting a rise in oil prices in the second half of 2023, I intend to take advantage of the relative investment malice caused by eco-confused asset managers, ignorant policymakers, and the resultant absurdities in valuations. Should it still concern some, I also have no ill-conceived notions that China’s lockdowns will return. Demand is roaring back.
Oil will rise on increased geopolitical tensions. Bitcoin, like any other risk asset, will drop temporarily. But unlike other over-inflated assets used as a store of value like New York property, Bitcoin’s scarcity and monetary properties ensure it will also come roaring back.
As events unfold, it will be time to assess the lay of the land and the resultant portfolio moves to make in that new geopolitical reality.