WEEKLY, August 12, 2023

Hello everyone! You’re reading the free weekly Crypto is Macro Now email, where I look at the intersection between the crypto and macro landscapes, pick at established narratives and share listening recommendations. Nothing I say is investment advice!

The Saturday edition is usually a general overview of markets and crypto ecosystem developments that impact macro field. For premium subscribers, Monday-Friday I dive into narratives, developments and theses that sketch out how the two worlds are dancing around and working with each other. If you’re not a subscriber, I do hope you’ll consider becoming one to support my work – it’s only $8/month for now, with a free trial! 😊

These are just some of the topics discussed this week:

• Paypal issues a stablecoin

• Worldcoin’s woes intensify

• Internet access as a tool of control

• Institutional crypto in Turkey

• Inflation is not beat yet

• Don’t count on China’s recovery

• Why Russia’s CBDC trial is different

• Energy demand heading up

• The expansion of Asian blockchain networks

And there were plenty more! Do please consider subscribing!

Programming note: This is the last weekly Crypto is Macro Now until September – I’ll be taking a brief holiday from the 19th to the 26th of August. By September, the crypto markets should have re-energized, right? Right?

Why the coup in Niger matters for crypto, by way of a mission statement

Today’s newsletter is a departure from the usual content and format – rather than give you an update on what happened in crypto markets during the week (not much) or dive into the growing geopolitical role of cryptocurrencies (I wrote quite a bit about this yesterday), I talk about Niger.

You may wonder what a land-locked nation in Africa has to do with crypto, and directly, it doesn’t much. But it is an alarming example of the deepening polarization in the developing world, and an important piece in the complex puzzle of the superpower’s battle for control of commodity supply chains. That is relevant for the economic shifts we will see play out across the geopolitical stage over the next few years, shifts that will see more people disenfranchised, more resources weaponized and more economic subjugation that turns alternative rails into tools for survival.

I’m not going to claim that bitcoin or stablecoins will save citizens of Niger from repression or poverty. It’s too soon, access is still too limited and the concept is not yet relevant enough for a population that is angry, hungry or both. I do believe, however, that the global economy is fragmenting, polarizing societies in countries across the development spectrum and breaking traditional geopolitical alliances. This will trigger a scramble for new internal and external networks, while those in authority intensify their attempts to use technology to control flows and opinions.

The more I look at what is happening politically, economically and technologically around the globe, the more convinced I am that the world is entering “reset” mode, a process that will play out over the next few decades. And I do believe that cryptocurrencies and blockchain applications have a role to play in that reset.

Why the crypto industry matters for geopolitics

Students of history will know that this kind of shift has happened before. They will also know that each shift has been influenced by the technologies available at the time. Here’s where it gets particularly interesting: for the first time in our history, there is a new tool in the box that is more powerful in the hands of the individual than it is in the hands of the authorities.

I believe that this is more significant than most realize. Over the past few years, it has been astonishing to see how crypto has delved into arcane corners of sophisticated markets while climbing the regulatory ranks and seeping into legacy finance boardrooms. It has been encouraging to see startups attempt to apply blockchain technology to community issues and to route around access barriers – unfortunately, many have failed, but that has not stopped others from tweaking and trying again. That is how innovation progresses.

Meanwhile, the headlines that most people see are about fraud and froth. This is more than “giving readers what they want”, however clickable those stories are. It is an often unconscious (although sometimes deliberate) attempt on the part of the “establishment” to diminish the significance of an emerging financial system that threatens traditional sources of funds. This type of coverage matters less than you’d think. Those that need crypto rails to preserve savings and transact anonymously will learn what they need to learn. Those aware of the spiral of monetary manipulation will find their way to bitcoin. Those investigating how blockchains can change markets now have enough institutional buy-in to continue to stretch formats and strengthen numbers. Those for whom it would only be a speculative asset anyway are free to ignore it if they wish.

The coming dislocations from unsustainable sovereign debt, waves of currency devaluations and payment rail disruptions will inevitably focus more attention on alternatives. The resulting global breakdown of trust in economic orthodoxy and financial authority opens the door to new types of networks and new types of demands. These networks now exist and are rapidly evolving. And the demands will be coming from all parts of the economic spectrum.

All this is one of the themes of a bigger project I’m working on, true to the title of this newsletter – I’ll be sharing more over coming months.

Now, back to the events unfolding in Africa and why they matter for the crypto-macro overlap.

Niger – some background

On July 26, army vehicles blocked off the presidential palace in Niger’s capital Niamey, and detained President Bazoum. A few hours later, an army colonel read a statement on national TV, saying that defence and security forces had taken over. The colonel also declared that the constitution had been suspended, the border closed and all public institutions dissolved. On Friday, state television declared that General Abdourahamane “Omar” Tiani (also spelt Tchiani) was the new head of state.

Some background on Niger: it is one of the poorest countries in the world, with an economy based largely on low-tech agriculture. It also has the highest birth rate, with almost seven children per adult woman. It’s the largest landlocked country in Africa, predominantly Muslim, and on a personal note, has gorgeous music.

Until the coup, it was one of the last democratic nations in the Sahel, the arid belt just below the Sahara and above central Africa, stretching from Mauritania and northern Senegal on the west coast to Sudan and Eritrea in the east.

(map via the New York Times)

Niger is also one of the world’s largest uranium producers, accounting for around 4% of global production. 24% of EU uranium imports and 20% of France’s uranium imports come from Niger. Its largest mines are all majority owned and operated by France’s state-owned Orano.

State interests

You can see why France would be worried. Immediately after the coup, French president Macron said that any attack on French interests would provoke a “strong immediate reaction”. It’s not just the uranium mines he’s worried about – since the junta took over, the capital has seen many pro-coup demonstrations burning the French flag and throwing stones at the French embassy in Niger’s capital.

The US is also worried, and Secretary of State Blinken’s initial statement promised “unwavering support” for the democratically elected and now-deposed president Bazoum. What will that support look like? How far is the US willing to go?

While there is no evidence that Russia was involved in the coup, the presence of Russian flags in the demonstrating crowds has not been lost on observers. What’s more, Wagner Group leader Prigozhin has reportedly praised the coup and offered assistance. The message attributed to the mercenary army leader on a Telegram channel spoke of “the struggle of the people of Niger with their colonisers” and echoed Putin’s “determination to counter neo-colonialism” reiterated at the Russia-Africa summit taking place in St. Petersburg just as the coup was unfolding.

So, again, what would US “unwavering support” look like? Would it go as far as military intervention? General Tiani has warned that foreign military intervention would result in "the massacre of the Niger population and chaos".

But the US needs Niger. It has been a key partner in the west’s fight against the building Islamist insurgency in the region, and hosts two of the Pentagon’s 15 “enduring” (= permanent) bases on the continent. The Sahel is now the global centre of jihadist violence, according to the Global Terrorism Index, as ISIS and affiliates have moved south from Syria. The region accounted for 43% of all deaths from terrorism in 2022, up from 1% in 2007.

The security question

The excuse given for July’s military intervention was the decay of “security”, similar to the reasons given for the recent Mali and Burkina Faso coups. However, data from the Armed Conflict Location & Event Data Project (ACLED) shows that in the first six months of 2023, violent incidents in Niger decreased by nearly 40% compared to the previous six months. In Mali, on the other hand, deaths in violent incidents more than doubled last year as French troops left and the Wagner Group moved in.

One reason for the surge in unrest in the Sahel is the combination of poverty and a rapidly growing young population. This is now likely to get worse in Niger. Sanctions from neighbouring states and the EU are under way, and aid has been suspended from the US, Canada, France, the Netherlands and the World Bank. Food prices are soaring, power supplies are being cut, and yet demonstrations in support of the coup and against France continue. Russian flag sightings are frequent, and one observer saw a demonstrator bearing a placard that said: "Long live Niger, Russia, Mali and Burkina. Down with France, ECOWAS, EU."

Meanwhile, the supply of arms to an angry population is likely to come from neighbouring Mali, to which there has been a steady flow of weapons from Russia.

Things could get hairy. ECOWAS, a bloc of 15 West African states currently chaired by Nigeria’s president, has threatened military action if President Bazoum is not reinstated. This is not without teeth – the group has intervened before. On Thursday, it ordered the activation of a standby force, and has received encouragement from France (it is not yet clear whether that includes the offer of military support). Russia, on the other hand, yesterday warned against the use of force. China, so far, is largely staying quiet on the issue, but did suspend work on a hydroelectric dam project in the region.

Meanwhile, the US has said that it will hold the junta “accountable” should anything happen to Bazoum, who is being held with his wife and son with no electricity and limited food and water.

The bigger picture

It’s not hard to see how this could turn Niger into a tinder box just as Sudan, at the other end of the Sahel, continues to be consumed by a bloody civil war. Further destabilization in the band that separates North and Central Africa would send ripples throughout the continent.

We are also witnessing the escalating stakes in play as regimes with very different political systems, economic strengths and military priorities realize that the old world order no longer holds. For now, this looks like the US and Russia facing off with ECOWAS in the middle. The US has much to lose here, Russia much to gain. France also has much to lose – the influence of former colonial powers in Africa is waning fast, leaving room for new influence to step in. The ideal would be for developing nations to have enough independence to be able to forge their own economic and political path – but incentives are not yet aligned for the necessary rewiring of currency and trade relationships, leaving many with nothing but bad options.