Bitcoin adoption is happening: Will Gulf residents be winners or losers?

Jibril Latif Browning - Assistant Professor of Mass Communications and History of the Middle East PhD Communications and Discourse at GUST.

The world is changing faster than any other time in history. The impetus is often attributed to the fourth industrial revolution. Amidst all this transience, the way money functions is also being disrupted, and the reactions of states and individuals will produce winners and losers.

The digitization of everything is happening. We know from anthropology that money is a social construct. Giving it communicates value. Accordingly, the way humans communicate and transact is mirroring the trend. This is major break away from existing U.S. Dollar hegemony. The Dollar has served as a de facto global monetary unit of international settlement since UN conferences held after World War II, known as the Bretton Woods agreement. However, no fiat currencies, not even those backed by mighty armies have ever survived long-term; in fact, historically, the vast majority have failed within six decades. One may be alarmed to discover that about 4 in 10 Dollars have been created since 2020. The joke on the street is that “money printers go BRRR”; and combined with the fact that the multi-decade global debt cycle is nearing its end, the Dollar’s survival is in perilous territory, as is every other central bank’s fiat currency.

This is scary stuff. Because societies have grown accustomed to living under the aegis of today’s contemporary fiat standard for the past many decades, most never stop to question it. But this financial arrangement is historically quite an outlier. One major reason why US Dollar hegemony has been able to endure this long is part of a narrative relevant to Gulf residents. The notorious Petro-Dollar arrangement struck in the 1970s necessitated that Arab petroleum producers denominate all oil sales in the Dollar in exchange for US military protection. This arrangement maintained artificial demand for the currency. To demonstrate, if Japanese want to purchase petroleum products from Arab states they first need to obtain Dollars, which in turn incentivizes their manufacturers to export products like Hondas or Toyotas in Dollars, and so on. While this allowed the US to wield unchecked power, it also incentivized the Federal Reserve to print and print without short term economic repercussions.

Of course, adversaries like the Chinese Communist Party and Russia have been working to bring an end to Dollar hegemony. However, there is little investor interest in replacing the current system, as flawed as it is, with another state-backed currency, especially one issued by a communist or authoritarian state, which is one of many reasons why cryptocurrencies are so compelling. They represent the decentralization of finance (“Defi”), and the decoupling of the issuance of money from the whims of politicians.

At the center of Defi is Bitcoin, invented in 2008 and released as an open-source software in 2009. The name of its enigmatic inventor – Satoshi Nakamoto – is often translated from Japanese to mean Clearly thinking inside the foundation. (Linguistically Satoshi corresponds to wise, naka (中)corresponds to middle, and moto (本)can mean base, root, origin, or even book). Since its inception, the price of Bitcoin has risen more than 100% on an annual basis, and around 1% every three days, outperforming every asset category on the planet. Another way to look at this price increase, however, is as the devaluation of fiat currencies. Admittedly, Bitcoin is very volatile, and has suffered corrections of up to 90%. Accordingly, Bitcoin has garnered plenty of critics, such as Bill Gates, who argue that it is a speculative bubble like the Dutch tulip mania of 1637. States like India and Nigeria have tried to ban it. But with each attempted ban residents just buy more of it at a premium on the black market because humans predictably seek better stores of value, and Bitcoin does that. Hence, people can take direction from Bill Gates about cryptocurrency or global health directives at their own peril.

To go macro, a theory about the diffusion of innovations proposed by Everett Rogers in the 1960s divides the adoption of technology into five stages. There are innovators, early adopters, an early majority, a late majority, and laggards. The early adopters of Bitcoin have already been proven prescient, and that phase is now over. When Bitcoin’s price surpassed its 2017 all-time high in 2021, institutional adoption comprised the early majority as CEOs like Microstrategy’s Michael Saylor and Tesla’s Elon Musk converted cash balances into Bitcoin.

So, to conclude, Bitcoin adoption is happening. The question is “who will be its winners?” While Qatar has recently sponsored religious edicts attempting to deem Bitcoin prohibited, Turkey is studying regulatory frameworks, whereas the UAE has established robust regulatory framework and coin exchanges. However, with enduring low oil prices and talks about appropriating sovereign wealth funds, it is time for action, but rather than waiting for the state to act, it would behoove residents to embrace change and beat the early majority.