sport football: The Trade War Winner No One is Talking About

The Trade War Winner No One is Talking About

The U.S. dollar is dying, and gold is flying. Take a look at the chart below. It should keep U.S. investors up at night.

The chart shows China's gold buying since 2022. That year is significant.

It's when the U.S. and its allies froze about $600 billion worth of Russian foreign currency reserves after the country invaded Ukraine.

That $600 billion isn't just a pile of cash sitting in some Moscow vault. It's mostly electronic balances in commercial and central bank accounts in the U.S. and other Western nations.

As of right now, the U.S. dollar is the world's reserve currency. And Washington controls the dollar-based financial system.

If you want to use that system, you have to play by Washington's rules.

That got China thinking, "If the U.S. could freeze Russian assets – and Russia is a key exporter of natural resources and nuclear power – what could it do to us?"

That's why China started stockpiling gold in 2022. It wanted to prepare for a day when it, too, could face U.S. sanctions.

That day came on April 2, when President Trump imposed a new global tariff regime. And his main target was Beijing.

Washington has imposed up to 245% tariffs on most Chinese imports. And Beijing has retaliated with tariffs on U.S. goods of up to 125%.

Since then, we've seen pandemic-type levels of volatility in the markets. And nations race to reposition themselves to succeed in the new global trading order.

The Trump administration says it's in talks with more than 75 countries on new trade deals. Meanwhile, China has launched a charm offensive with its trading partners.

Last week, Chinese President Xi Jinping embarked on a diplomatic tour of Southeast Asia, visiting Malaysia, Cambodia, and Vietnam.

It was the first time Xi had visited Malaysia in 12 years and Cambodia in nine years. His goal is to show the world China is a more reliable trading partner than the United States.

It'll be an uphill battle.

While we've seen an erosion of trust in the U.S. dollar since the outbreak of the trade war… The markets haven't necessarily embraced the yuan, either.

I'm sure Malaysia, Cambodia, and Vietnam would accept gold to settle trades with China. But they're unlikely to accept billions of dollars' worth of yuan.

That puts China in a dilemma.

It has stockpiled plenty of gold. But as we've shown you over the past few weeks, gold has serious limitations as a settlement asset in modern-day global trade.

Now, the People's Bank of China could print plenty of its currency to settle trades. But outside of China, who wants piles of yuan sitting in their bank accounts?

China needs an alternate trade settlement asset that is both liquid and trusted. Apart from gold and the dollar, there's only one other solution…

Turning Away from the U.S. Dollar

Since 2022, China has been the world's biggest buyer of gold.

It has increased its holdings by 17%, adding over 10.6 million ounces to its vaults. That's equal to $35 billion based on current gold prices.

Meanwhile, China has slashed its U.S. Treasury holdings (dollars) in half – from $1.3 trillion in 2014 to just $784 billion today.

And it's not just China selling U.S. dollars for gold.

This next chart breaks down the share of international reserve assets held by every major country. Gold is represented by the tan bars and dollars by the red bars.

Over the past decade, countries' share of gold has more than doubled, from 10% to 21%. Meanwhile, their share of U.S. dollars has declined from roughly 56% to 46%.

While the share of dollars held in reserve has declined… The greenback is still the dominant settlement asset in global trade.

You see, gold has always been a great store of value. But it's impractical as a trade settlement asset in the modern world. As I wrote last week…

It isn't easy to move gold. $1 million in gold bars would weigh about 31 pounds. That makes it difficult to transport.

Now, imagine trying to transport hundreds of billions of dollars' worth of gold. $100 billion worth of gold would weigh over 900 metric tons. That's over two million pounds. It would take a caravan of military vehicles to move that much weight… weeks to arrange… and tens of millions of dollars in shipping and security costs.

Gold's impracticality for modern global trade is why the international community settled on the U.S. dollar in the first place.

The United States emerged from the post-war Bretton Woods Agreement as the most powerful and trusted nation on the planet. And the U.S. dollar is highly liquid.

There really was no other alternative after World War II. However, that's changing.

Under its new tariff regime, the Trump administration wants to reset the global trade order.

The uncertainty of this reset has eroded trust in the U.S. dollar, which is why the dollar has dropped as much as 5% since April 2 (Liberation Day) and has been down as much as 10% for the year.

This brings us back to China's dilemma.

Even if Beijing inks new deals with its trading partners, there's still one major problem: Most major trade deals between countries are settled in U.S. dollars.

Now, just think about this from China's perspective….

By transacting in dollars, you're supporting your biggest adversary. But nobody wants Chinese Yuan. They will take your gold, but gold is too clumsy for modern-day trade.

According to the United Nations Conference on Trade and Development (UNCTAD), global trade hit a record $33 trillion in 2024. There's just no practical way you could settle that much trade in gold, especially when most of these transactions are digital.

We need an alternative…

Bitcoin's Time to Shine

Earlier this month, Russia's $192 billion oil industry executed a transaction with China and India. How did Moscow skirt Western sanctions to make such a major deal?

According to sources, crypto.

Reports say Russian oil companies have used Tether (USDT), bitcoin (BTC), and Ethereum (ETH) to settle these trades.

When you think about it, it's a no-brainer Russia would turn to crypto. Imagine trying to settle a $1 billion oil transaction in gold. You'd need a caravan of military vehicles, soldiers, and maybe even fighter jets to escort it all.

Like gold, bitcoin is finite, nobody else's liability and can be held without the need of a trusted third party like a bank or the SWIFT system.

That makes it virtually impossible to inflate or confiscate. But unlike gold, you don't need vaults to store your bitcoin. You can store billions of dollars in crypto wealth on a thumb drive.

Like the dollar, bitcoin is liquid. You can trade it online 24/7 without lugging around heavy bars.

But unlike the U.S. dollar, bitcoin is designed to operate without the need of a central, trusted third party like a government or central bank. That feature, along with the tamperproof nature of the blockchain, makes it revolutionary for global trade.

In the months ahead, for the first time we believe we'll see the narrative behind bitcoin move from a store-of-value asset to a trade-settlement asset.

And the market is starting to wake up to this reality: Bitcoin can be both a store of value and a medium of trade settlement.

Over the past few weeks, nearly every corner of the market has taken a beating from the trade war. But not gold. It's been the best-performing asset, up 6% since April 2.

Bitcoin has shown great resilience, too. It's up 3% over the same time period.

Meanwhile, the S&P 500 is down 8% and bonds (another historically "safe haven" asset) are down 5%, respectively. And, of course, the U.S. dollar has been down as much as 5%.

As the global trade order realigns, countries will need an alternate currency to the U.S. dollar to settle trades. In our digital age, analogues like gold just won't cut it anymore.

Countries will begin to realize that if they really want to steer away from the dollar, gold won't do it. They will need to adopt bitcoin as the medium they use between their respective trading partners to settle their trades.

The beauty of settling in bitcoin versus dollars is that bitcoin does not give any individual trading partner a currency edge.

Of course, this transition will not happen overnight. Just like bitcoin first started as a technology used by the fringes of society… So it is being used by countries looking to skirt sanctions.

It would be a mistake to reject bitcoin as a legitimate trade settlement currency just because it is being used in this way. Many technologies that went on to receive widespread adoption were first used by nefarious actors. That includes the internet, pagers, cell phones and VCR.

Bitcoin's first real use case was to buy illegal drugs on the online "dark market" Silk Road. Since then, we've seen criminal activity on the bitcoin network decline dramatically.

Back in 2013, it's estimated that 70% of bitcoin use could be traced to the drug trade and money laundering. Today, according to Chainalysis illegal activity accounts for just 0.2% of bitcoin's usage.

To put that in perspective, Nasdaq's Global Financial Crime Report estimates $3.1 trillion worth of illicit funds flowed through the global financial system.

That means the traditional financial system is responsible for processing nearly 99% of today's illicit activities. Bitcoin processes just 1%.

In the same way bitcoin shed its earlier shady use cases and became a $1 trillion institutional asset… So too will it shed its sanction dodging mantle and develop into a globally used trade settlement currency.

Our core belief at Tiwari Research Group is that countries will wake up to the fact that they're stockpiling a 19th Century solution (gold) for a 21st Century problem (settling trade transactions).

Moving forward, we believe this is the single most bullish case for bitcoin adoption… Yet, no one is talking about it.

As Daily editor Teeka Tiwari wrote on Friday,

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I believe we are moving into a world where countries will settle their transactions in bitcoin, then convert the bitcoin into their local currencies. This is the future of global trade."

The trade war might come to an end tomorrow… But trust in the U.S. dollar has eroded significantly. And it will take time to build back.

Again, I don't expect global trade to transition to the bitcoin network overnight. This trend will take years to develop.

But if it does happen – and our research suggests we're headed in that direction – you're looking at an incredible asymmetric investment opportunity in bitcoin. That means the downside risk is relatively small compared to the potential upside profits.

Bitcoin's market cap will have to increase to $20-plus trillion to be a fully functional global trade settlement vehicle. That suggests we will see bitcoin grow to about $1 million per bitcoin. That's nearly 12x higher than current prices.

Teeka believes we could hit that level by the end of the decade. If he's right, that's a compound annual growth rate of nearly 51%. Ask yourself, what other asset do you own that has that type of potential?

Keep stacking bitcoin!

Houston Molnar