Daily Balajisms – Allocation and location
Technical defense is buying bitcoin. Social defense is moving to a crypto-friendly jurisdiction.
The US is facing a fiat crisis, thinks Balaji Srinivasan. The First Republic bank was acquired by JPMorgan Chase on 1 May 2023. It’s the second largest bank failure in the US history. This year we saw a digital death of Silicon Valley Bank and Credit Suisse.
Legacy institutions with a long history went down within days. Two other tech-forward and crypto-friendly banks, Silvergate and Signature, were decapitated by US regulators in the fog of war – with some people calling it the Operation Choke Point 2.0.
There are many parallels with GFC of 2008, so regular people start to pattern-match our times to the beginning of a slow moving global financial crisis 2.0. But Balaji was quite radical in his predictions since early March 2023 – we are in the central banking crisis that might turn out to be a fiat crisis.
The US banks binged on bonds during 2021, when there was plenty of liquidity after Covid stimulus checks, and less loans were originated. But after US elections Fed has raised rates rapidly and this has devalued bond portfolios across US banks and made many of them technically insolvent – hence the TradFi Winter.
It’s like if Apple sold loads of iPhones to every electronic store, and launched unexpectedly a new model right after – making the old model less appealing and creating losses at those stores.
According to researchers at NYU, in December 2022, the total unrealized losses from the interest rate increase are comparable to the total equity in the entire banking system. When Balaji said “money is gone” and summarized the whole central banking crisis as “Uncle Sam Bankman Fried” he wasn’t that far off.
Balaji suggests “be as far from the US establishment as you can in terms of allocation and location”. As a technical defense, buy bitcoin and get it off exchanges. As a social defense, move to a crypt-friendly jurisdiction like Dubai, El Salvador, Miami or Palau. Balaji has a concept of technical truths vs social truths, and their spectrum.
Blue America is facing the ABC – AI, bitcoin and China. NPCs will be disrupted by the ultimate NPC, the AI. Therefore blue checks are the new blue collars. Bitcoin will become the new store of value, the digital gold, and many red and purple states will signal bitcoin maximalism. Chinese digital yuan will compete as a medium of exchange. In other words, the US dollar, as a technology stack, will get unbundled.
Balaji thinks we will have four groups in this new environment of the emerging fiat crisis – dollar nationalists (parts of the establishment Left and Right in the West), bitcoin maximalists, tech internationalists and foreign nationalists.
US dollar as a reserve currency played at least four functions – store of value, medium of exchange, unit of account, system of control – and all these will be unbundled. Yuan and rupee will take some share as medium of exchange. Bitcoin will play a role as a store of value, etc.
The 2010s turned all of politics into social media. And the 2020s will turn all of politics into crypto tribalism, thinks Balaji. As a web3 founder, it’s important to have a moral stack in terms of moral justification and moral innovation and a global stack of crypto-friendly jurisdictions.
Chose your allocation and location well and be as far as possible from Blue America in the network sense, suggests Balaji. The orange coin is the new blue jeans – a symbol of freedom and prosperity.