Digital Assets in a “United States + English Language Domination” Paradigm
A recurring debate topic among economists is represented by the economic as well as geopolitical dominance status quo, with the United States and the English language in the spotlight. These debates tend to get quite heated and it’s understandable why in light of how high the stakes are. Needless to say, there are obvious implications as far as digital assets are concerned as well and it would therefore be wise to pay adequate attention to this dimension.
The Two Sides
The subtitle above over-simplified things quite a bit and in reality, there are multiple sites and nuances involved in the debate. But broadly speaking and in the spirit of trying not to be nitpickers, let us focus on the extremes, while understanding that we are dealing with a spectrum and that options are going to be situated somewhere between these two.
On the one hand, we have the permabulls who believe that there isn’t really a world outside the United States and the English language as far as the dimension of money is concerned. They firmly believe the status quo does not have a legitimate adversary at this point and discussions pertaining to emerging players such as China are nothing but noise.
On the other hand, we have the so-called permabears who believe that the days of the United States are numbered in terms of economic dominance and that it is only a matter of time until a paradigm shift occurs as far as the English language is concerned as well in light of the fact that competitors (primarily China) are lurking around the corner.
To gain some much-needed clarity on this topic, it makes sense to approach things from a chronological perspective with a bit of a crash course on economic history pertaining to the United States.
It is important to understand that the United States was remarkably well-positioned at the end of World War II, with the US holding roughly two-thirds of world’s gold reserves.
From a monetary standpoint, this meant that the Bretton Woods agreement was a natural consequence, with the United States dollar linked to gold and currencies linked to the dollar (or if you will, indirectly linked to gold). While Keynes himself would have wanted things to stand a bit differently, the position of the United States was simply too dominant.
From an economic perspective, the United States was at that point in time the world’s number one creditor. Countries that had been devastated by the war were essentially relying on the United States to provide both financing and geopolitical clarity. From a wide range of perspectives, the US was pretty much the only game in town on the leadership front.
When it comes to the present, however, things are a bit tricky because it all depends on the lends you choose to view the situation from. As ironic as it may seem, not only is the United States no longer the world’s number one creditor, it has actually become the number one debtor nation worldwide in nominal terms.
Does this mean it’s game over?
Definitely not, because we are not in Kansas or let’s say Bretton Woods anymore. In light of the fact that debt is money in our current system, being the world’s number one debtor nation isn’t the death sentence it may seem to be as long as you are also in charge of the reserve currency of the world…which the United States undoubtedly is.
To put it differently, there is such a worldwide thirst for dollars at this point that the United States can actually get away with a lot more than meets the eye in terms of debt. As Michael Saylor pointed out during his recent DomainSherpa interview with Andrew Rosener and as pretty much any sophisticated entrepreneur who conducts business internationally can confirm, English is most definitely still the language of money by an extremely wide margin.
While it is true that players such as the European Union and China exist, not even their combined volume is a match for the dollar at this point. There is a reason why for example programmers from China who speak English make two or three times more than those who do not or why the same principle is valid when it comes to let’s say a cab driver. Love it or hate it, English is the most definitely the language business is conducted in.
This part is obviously a lot more speculative in nature because there is no such thing as an economist who possesses a crystal ball, we have a bunch who claim they do but well… they are dead wrong. It does make sense to state that if we take multiple steps back and take a look at how things have unfolded over a timeframe that spans millennia, it becomes obvious that nothing is set in stone and it is therefore wise to assume that scenarios which revolve around the United States along with the English language remaining dominant forever are childish at best.
It is also more than true that the United States is dealing with a wide range of problems. From demographic issues such as the aging baby boomer generation that was promised financial stability and received the exact opposite in a world where it is impossible to live off today’s ultra-low interest rates from the money you have saved throughout your career to geopolitical issues involving the more than obvious ascent of China. It isn’t the least bit difficult to paint the picture of an environment where it becomes clear that the dominance of the United States and the English language will not last forever. At the same time, however, those who predict their immediate demise are most likely deluding themselves.
For example, while it is true that the economy of China has grown at an impressive pace over the past years which included double-digit yearly growth up until let’s say 2010, we need to understand that when it comes to metrics such as the Global Domestic Product per capita, China is light years away from developed nations at this point in time. We need only look at the vast amount of US dollar reserves held by China to understand that not even they are ultra-optimistic when it comes to the perspective of China replacing the US as the world’s let’s call it benevolent hegemon and Chinese replacing the English language anytime soon.
To put it differently, while it isn’t difficult to paint the picture of dominance as something temporary in the grand scheme of things, we also have to understand that paradigm shifts take a lot of time to develop and that the fall of empires is not exactly something that materializes overnight. As such, if you are keen on betting against the United States and the English language, you should at the very least make sure your bets are long-term ones.
The Implications for Digital Assets?
Time and time again, domain investors for example made mistake of believing that the English language landscape is just far too competitive and thought to themselves that it might be a good idea to invest in foreign language domains.
Unfortunately for them, this strategy has oftentimes proven to be severely sub-optimal for two main reasons. On the one hand because the investors in question overestimated the demand for foreign language domain in many instances. On the other hand because the same investors also overestimated their competence when it comes to choosing these domains. It’s one thing to invest in let’s say German domains if you have lived in Germany throughout your entire life and are accustomed to the German culture and it’s something completely different to assume you can achieve perfection after some superficial Google research. To give just one example, hyphens in domain names tend to be far better accepted in Germany than the United States… the list of differences could go on and on, so while it’s not impossible to do well by investing in Germain domain names if you do not live in Germany, it doesn’t exactly seem like the optimal approach in terms of the odds being in your favor.
The exact same principle is valid as far as other assets are concerned and while it is definitely not impossible to do very well by investing in assets that cater to the needs of markets outside the United States and which have absolutely nothing to do with the English language, the odds are stacked against you for the simple reason that you are betting against the trend in an environment where macroeconomic paradigm shifts oftentimes literally take generations to manifest themselves.
The Trend Is Your Friend
If there is one thing you can get pretty much all professional traders to agree on, it is that the trend is your friend. While there is money to be made as a contrarian trader as well, it’s usually going to be multiple orders of magnitude easier to carve out a business model for yourself which revolves around following the trend in one way or another.
The same holds true in the business world and as far as the investment landscape is concerned, digital assets do not represent an exception. There are so many opportunities associated with following the trend in terms of investments that are likely to do well in a paradigm where the United States remains dominant (and the same is true for the English language) that at this point in time, a contrarian approach makes little sense unless you truly have an edge that enables you to gain access to opportunities that are asymmetrical in your favor outside the US and outside the English language.