Global Capital Market Turmoil and Evolution of the New International Monetary System

Recently, the global Capital Market has experienced severe fluctuations, with the appreciation of the yen triggering a shift in carry trade, the VIX index soaring, and even gold undergoing slight adjustments due to liquidity shocks. Bitcoin has seen a significant decline along with risk assets, seemingly contradicting its "twin" property. However, we still believe that with the accelerated evolution of the new International Monetary System, the twin relationship between Bitcoin and gold will become even closer.

Looking back at the history of gold prices, there have been three major upward cycles since 1970. The 1970s was a glorious period for gold, with the maximum price increase exceeding 17 times. During this period, the Bretton Woods system collapsed, the dollar decoupled from gold, and along with the oil crisis and geopolitical tensions, the value preservation and safe-haven attributes of gold were fully reflected. After the 1980s, gold prices entered a phase of consolidation and weakened in the 1990s, which was related to the control of global inflation and the recovery of economic growth.

The first decade of the 21st century was the second round of the upward cycle, with gold prices rising more than five times. During this period, the internet bubble burst, China's accession to the WTO triggered inflation expectations, and the outbreak of the subprime mortgage crisis and the European debt crisis prompted central banks in developed countries to initiate unlimited quantitative easing policies, leading to a continuous decline in real interest rates, which enhanced the attractiveness of gold.

We are currently in the third round of a rising cycle, which began in 2019, and the price of gold has nearly doubled since then. This round of increase can be divided into two phases: from the end of 2018 to the beginning of 2022, affected by the China-US trade friction and the pandemic, various countries adopted loose monetary policies, leading to a rapid decline in real interest rates; from 2022 to the present, despite the US rapidly raising interest rates to combat high inflation, the price of gold has still increased by over 30%.

Traditional economics posits that gold prices have a significant negative correlation with real interest rates, but this framework is no longer applicable in the post-pandemic era. Gold prices have decoupled from real interest rate pricing, reflecting feedback on the transition period of the new International Monetary System, and essentially strengthening the "consensus" of gold's monetary attributes. Central banks and the private sector globally are increasing their gold reserves to diversify away from dollar risk.

Bitcoin has many similarities with gold, such as scarcity, decentralization, being non-fungible, divisibility, and convenience. With the SEC approving the first Bitcoin ETFs to be listed in the United States, Bitcoin is further moving towards the mainstream. In recent years, the positive correlation between the prices of Bitcoin and gold has significantly increased, which may indicate that Bitcoin is transitioning towards a "commodity currency".

Looking ahead, the International Monetary System will enter a new phase. Before the establishment of the new system, the trend of diversification of reserve currencies is evident. The upward shift of the global inflation center and increased geopolitical uncertainty have kept gold in an upward cycle. It is noteworthy that the diversification of reserve currencies is not only occurring at the national level, but the private sector is also actively participating. With the acceleration of Bitcoin's mainstream adoption, its value as a reserve currency is likely to rival that of gold, playing an important role together in the new International Monetary System.