How to Invest in a Multipolar World: Understanding Geopolitics, Technology, and Bitcoin
Economic growth depends on two fundamental forces: geopolitics and technology. These forces work together like the electric field and the magnetic field in physics—one cannot exist without the other.
Economic growth depends on two fundamental forces: geopolitics and technology. These forces work together like the electric field and the magnetic field in physics—one cannot exist without the other. Geopolitics organizes, sets the rules, and creates the institutional mindset, acting as a form of social technology that enables progress. Technology, on the other hand, is the engine that drives productivity and ultimately determines which nation will dominate in the long term.
By understanding this interaction, we can identify the two major dynamics that shape economic growth: technological diffusion and technological convergence. With this understanding, we can build a portfolio aligned with the forces transforming the world.
1. Diffusion: Specialization and Globalization
In a world of diffusion, a hegemonic power organizes global trade, ensures stability, and reduces transaction costs. This happened under the British Empire in the 19th century and during the Pax Americana after the fall of the Soviet Union. During these periods:
Global Diffusion of Technologies and Institutions: Dominant technologies (e.g., the internet) and hegemonic institutions (e.g., democracy) spread globally.
Opportunities in Emerging Markets: The most attractive investments were in markets where technological innovation had not yet fully arrived.
The Eurodollar System as a Financial Pillar: This system enabled credit creation in US dollars outside the Federal Reserve’s jurisdiction, acting as the engine of globalization.
The eurodollar system also facilitated the carry trade, a strategy where investors borrowed in low-interest currencies—such as offshore dollars or Japanese yen—to invest in higher-yielding assets in emerging markets. This practice:
Generated massive capital flows into developing economies with significantly higher returns.
Allowed offshore banks to expand global credit outside central bank regulations.
While the eurodollar system was highly profitable for decades, today it shows structural cracks that challenge its viability.
2. The End of the Eurodollar (Offshore Dollar): A New Era of Scarcity
The eurodollar system, which once managed over $23 trillion in circulation, is now facing structural challenges:
Rising Interest Rates: The Federal Reserve and the Bank of Japan have increased interest rates, making dollar borrowing more expensive and rendering the carry trade unsustainable in many emerging markets.
Offshore Dollar Shortages: A contraction of liquidity in the eurodollar system has reduced capital flows to emerging markets, weakening their currencies and financial assets.
Increasing Volatility: Dependence on the carry trade makes many emerging economies vulnerable to sudden shifts in interest rates and credit availability, leading to large currency depreciations and a stronger US dollar.
Bitcoin and Web 3.0: Decentralized technologies are emerging as alternatives to the traditional financial system, challenging the dollarized credit monopoly.
The end of the carry trade as we know it is more than a market adjustment—it marks the beginning of a new era where profitability is driven not by predictable interest rate differentials but by innovation and technological convergence.
3. Convergence: A New Paradigm
Unlike diffusion, technological convergence occurs when multiple megatrends compete to become the next dominant design: artificial intelligence, electric vehicles, solar energy, nuclear fusion, Web 3.0, and biotechnology. This is a chaotic period where:
No Clear Hegemonic Power: The absence of clear leadership creates geopolitical tension and uncertainty.
Reconfiguration of Value Chains: Economies are moving toward local models, seeking to reduce dependence on globalized structures.
Strategic Selection Over Diversification: Betting on all megatrends can be a mistake. The key is flexibility and the ability to identify convergence before others do.
Just as the convergence of the chemical, electric, and oil industries in the early 20th century created the internal combustion engine, we now stand on the brink of a new technological convergence that will transform the global economy. However, the dominant design remains uncertain:
Will Bitcoin become the monetary layer of the internet?
Will artificial intelligence power a new production system?
4. Bitcoin: The Alternative to the Offshore System
Bitcoin emerged in 2008 as a direct response to the financial collapse caused by offshore banks and excessive leverage. Its potential lies in eliminating the privilege of these banks to create dollar credit. Instead of relying on an oligopolistic system, Bitcoin offers:
Independence from Banks: A global network that does not answer to any central authority or oligopoly and where money cannot be printed.
Resilience: A robust system immune to trust issues and excessive leverage.
The Internet as the New Monetary Infrastructure: Bitcoin could serve as the monetary layer of Web 3.0, replacing the eurodollar system in a multipolar world.
Bitcoin not only challenges the financial system but also offers a new framework for how emerging economies can attract capital in a world where the carry trade is no longer a solution.
5. How to Invest in a Multipolar World
We are living through a transition from globalization to localism, and from technological diffusion to convergence. This new paradigm requires a change in investment strategy:
Flexibility First: In a period of convergence, where multiple technologies compete, maintaining liquidity is essential to quickly adapt to the next dominant design.
Strategic Selection Over Diversification: Not all megatrends will survive. The key is to identify those that will converge to form the next economic engine.
Bitcoin as a Hedge: In a world of uncertainty, Bitcoin offers a resilient alternative to the traditional financial system.
Conclusion
The system that defined the past decades—globalization, the eurodollar, and diversification—is being replaced by a new model based on localism, convergence, and decentralized technologies.
The carry trade, which was a pillar of profitability for decades, is giving way to strategies that prioritize flexibility and innovation.
The challenge is not merely to understand these changes but to act before they become obvious to everyone. In a world where the rules of the game are changing, the true advantage lies in seeing the inevitable before it happens.
Are you ready to invest in a multipolar world?
Thanks for reading,
Guillermo Valencia A
Cofounder of Macrowise
December 15th, 2024