News Stories

Bitcoin could shift balance of power in Greece

Bitcoins
As Greecestumbles toward capital controls, bitcoinis once again proving its disruptive power within the global financial system.

Over the past week, both the price and volume of bitcoin has been increasing (it’s up 11 percent so far in June) – this is similar to the activity that occurred when Cyprusintroduced capital controls in 2013. During the Cyprus crisis, citizens were not only locked out of their bank accounts but many found that some of their money was confiscated when the banks re-opened. This confiscation went by the “friendly” moniker “bail-in.” In the Cyprus bail-in, any deposit above 100,000 euros were converted into Bank of Cyprus shares. Given this precedent, it is no surprise that Greeks are seeking a safe haven for their savings.

If Greece does choose to leave the euro zone, it is unclear what currency the government will choose — it could choose a new drachma or it could choose an existing currency like the Russian ruble. Regardless of the fiat currency the Greek government chooses, the likelihood that Greek citizens holding paper currency will lose money in a Grexit is very high. Its only natural for citizens to seek an easy and secure alternative.

Since 2013, the bitcoin ecosystem has matured and it is now easier than ever to purchase and securely store bitcoins. This makes bitcoin the ideal instrument for Greeks to use as a store of value.

What is most striking about the use of bitcoin as a safe-haven asset is that doing so completely disrupts the balance of power between the government, the financial system and its citizens. Part of the European negotiating strategy with Greece has been to make conditions so bad for ordinary citizens that they force politicians to concede to onerous adjustments. So far, this tactic has failed to force Greece into a deal. I am skeptical of this tactic because Greek politicians have little to gain by accepting a deal with the European Union. Since the new government was voted in with the mandate to end austerity, it would be political suicide for them to accept a deal that continued down this path. It would also be economic suicide as further austerity measures will likely push Greece further into depression and result in an even higher debt-to-GDP ratio.

But there is also another reason this tactic may not work — it’s called competition. The disruptive power of bitcoin has, for the first time in modern history, divorced the currency from the state. This disruption should not be dismissed — ordinary Greek citizens no longer have to wait and see what currency the government (either Greek or EU) will allow them to use — they are free to choose bitcoin or any other digital currency in existence. This competition among currencies is the beating heart of both capitalism and democracy and this competition removes a piece of the euro-zone leverage.

Recently there has been a marked increase in volume across multiple exchanges. If this is Greek citizens converting savings into bitcoin, it could mean citizens will become indifferent to political demands. Moreover, since bitcoin can be used to purchase goods and services at over 100,000 merchants, it’s unclear whether citizens will ever choose to return to a government-backed fiat currency. The implications of this reality should not be underestimated. Competition among currencies is a new phenomenon ushered in by bitcoin and the blockchain. The ultimate result of competition is to erode the power of the dominant players. This is not to say that Greece will devolve into a lawless society; on the contrary, compassion among currencies places the power back into the hands of the citizens and this is the essence of democracy. It is not lost on me that the birthplace of democracy could also be the cradle of a new balance of power.

Brian Kelly is founder and managing member of Brian Kelly Capital LLC, a global macro investment firm catering to high net worth individuals, family offices and institutions. He is also the creator of the BKCM Indexes, benchmarks for multi-asset money managers. He’s also the author of the upcoming book, “The Bitcoin Big Bang: How Alternative Currencies Are About to Change the World.” Kelly, a CNBC contributor, often appears on “Fast Money.” Follow him on Twitter @BKBrianKelly.

Leave a Reply