Imagine it is one year ago. Things are getting a bit geopolitically fraught, and there is nothing but more turbulence on the horizon. You've got some liquid assets you'd like to secure. For some reason you ignore all the really smart options – investment-grade whiskey, designer handbags, rare Lego sets – and end up choosing between Bitcoin and the South African rand.
Which way do you go?
In euro terms (because the dollar has its own craziness going on), choosing rands would have left you with almost exactly the same purchasing power. Had you chosen Bitcoin, you'd have lost 35% of the starting value over the past year.
Some South Africans did choose Bitcoin, the poor fools. As an economy, though, South Africa's exposure to Bitcoin and its current troubles is surprisingly limited.
Never since Bitcoin has been a thing has SA suffered from cheap and abundant energy.
If Bitcoin drops to zero there will be no discernible change in government assets or bank risk in South Africa. There will be no big corporate failures or excess electricity without a home, no weird shocks in the mid-size data centre market, no plunge in everyday transactions or in capital formation.
South Africa just takes that for granted, but it wasn't a given. Just look at what is happening elsewhere.
The company once known as MicroStrategy, and once a genuine data analytics outfit, is basically a box containing a lot of Bitcoin and the debt used to buy it. Not quite enough debt to spark a global financial crisis if it gets wiped out, but enough to spook US markets about household banking names ultimately on the hook.
Bhutan went crazy with Bitcoin mining, choosing to apply its hydropower to create a sovereign crypto-currency stash rather than selling that power to India. Zero out Bitcoin and Bhutan will stay standing, but it will suffer.
In between those headline examples you have any number of companies and countries that have what are in retrospect stupid levels of exposure to the roughly trillion-dollar, definitely-not-a-Ponzi-scheme enterprise that is Bitcoin.
El Salvador went big on Bitcoin as a matter of policy. Nigeria and Ethiopia fell into Bitcoin through market factors. The USA and Britain have large hoards of Bitcoin because they just have large hoards of everything.
Then there is South Africa, which is sheltered in part through luck – but not entirely.
Never since Bitcoin has been a thing has SA suffered from cheap and abundant energy. That is pure coincidence. On the other hand, South Africa has never suffered from stranded power, electricity restricted to source or some island network, and that is down to a good and consistent policy of grid management.
South Africans never adopted Bitcoin as a means to launder money or dodge tax. In part that is due to the sophistication of criminal syndicates that have well-established means of moving cash around without using a public ledger. But it is also because the SA Revenue Service is not easily fooled, having long been well-managed and resourced.
As always when things go really wrong – COVID-19, the 2008 global financial crisis – the standout example is financial regulation.
The fintech wizards incessantly whine about how restrictive SA financial regulation is, and how leapfrogging opportunities are passing SA by. Yet a country with a (regionally, relatively) high level of capital formation and (globally, absolutely) high transaction costs is treating the tumbling Bitcoin as a spectator sport rather than as an affected party.
For South Africa, Bitcoin isn't in the plumbing and it isn't in the storage pools, and that's down to philosophy that has long remained unwavering and that has borne clear, tight regulation.
With AI disruption picking up speed, that is worth remembering. When Bitcoin is high and AI is a productivity multiplier, loose policy is lovely. When Bitcoin falls and AI distorts markets, it is catastrophic.
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