Taiwan Matters

Happy 2024, everyone!

This is how I felt over Christmas and New Year's Eve.

Hope you had more fun. 😉 

By the way, 3 January was the 15th anniversary of the mining of the first block on the Bitcoin blockchain, also known as the Genesis Block™️. Happy birthday, Bitcoin!

We're getting closer to what observers believe to be the critical date for the approval of a spot Bitcoin ETF on 10 January. Bitcoin has reacted strongly to all sorts of rumors this week, rallying and then retreating. I'm still very optimistic that the approval will be announced next week.

But while we will probably be popping champagne bottles by the end of next week, "The Most Dangerous Place on Earth" will be holding elections that could have an impact on Bitcoin and the global economy for years to come.

I'm talking about Taiwan, which The Economist magazine named "The Most Dangerous Place on Earth" in 2021. 🏆️ 

I first moved to Taiwan 20 years ago and spent about six years on the island between 2004 and 2012. So today I want to take a look at one of the world's most dangerous looming geopolitical conflicts and its potential impact on Bitcoin and the world economy. 🇹🇼:🇨🇳 

To make a long story short, Taiwan is de facto an independent country. It has its military, issues its currency, and its people have their passports.

But China claims that Taiwan is part of its territory, and in 2005 passed a law suggesting that it could use force to achieve what it calls "unification".

The US is Taiwan's most important ally, and in the 1970s passed a law stating that "any effort to determine the future of Taiwan by other than peaceful means" is of grave concern to the US. Believe it or not, this lukewarm formulation has served as Taiwan's security guarantee for nearly half a century. 🤷‍♂️ 

In Taiwan's political landscape, roughly speaking, there are two political camps. There is the so-called pan-blue camp, whose parties advocate closer ties with China, with some of the more radical voices arguing for "unification".

And then there is the so-called pan-green camp, whose parties advocate caution in Taiwan's relations with China, with some of the more radical voices arguing for a formal declaration of independence in the form of renaming the country, redesigning its symbols, and so on.

On 13 January, the people of Taiwan will vote for a new president. According to the polls, the pan-green camp Democratic Progressive Party (DPP) is on track to win a third term in power. If the DPP candidate, Lai Ching-te, were to win the election, it would be a setback for China's "unification" efforts. It would probably lead China to act against Taiwan in one way or another. This, in turn, would lead to a deterioration of the already very strained US-China relationship.

Blackrock, the world’s largest asset manager, lists tensions between the US and China among the top 10 geopolitical risks. It is one of the 6 risks that has a high likelihood. According to Blackrock’s analysts, tensions could escalate over Taiwan or the South China Sea.

Escalating tensions between the US and China over Taiwan would be a worst-case scenario for Bitcoin, because:

• Currently, China has a manufacturing monopoly on the ASIC miners used in Bitcoin mining. Looking at the chart below, it's obvious that the US will not embrace Bitcoin politically and strategically as long as China has a stronghold on the manufacturing front of Bitcoin miners. In the event of escalating tensions, Beijing could easily weaponize this monopoly. The Biden-Harris administration has responded by launching efforts to bring manufacturing back home through the CHIPS and Science Act. But these efforts will take time to bear fruit.

Escalating tensions between the US and China over Taiwan would also be a worst-case scenario for the global economy as a whole, because:

• Nearly every electronic product we buy - from refrigerators and microwaves to computers and smartphones - runs on semiconductors. Taiwan Semiconductor Manufacturing Company (TSMC) has become the leading contract manufacturer of semiconductors, producing more than 90 percent of the world's most advanced semiconductors. Against this backdrop, it’s clear that if Taiwan were to become involved in a conflict or war, it would be disastrous for the global economy.

In other words, the world economy depends on peace in Taiwan, a country whose north-south extent is just a little longer than the distance between Canberra and Newcastle. 🔍️ 

So one thing is for sure, after celebrating the Bitcoin ETF approval next week, I’ll be watching the outcome of Taiwan’s presidential election.

Talk to you guys next Friday!

Before you go, please help me get better! 🙏 

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Thank you! 🤜 🤛