Brett Holmes
Sovereign X


Key Points

  • The world is in a transition to automation, assisted by the developing wave of AI, crypto, and Big Data. mean for crypto markets, AI, and Big Data.
  • 25 to 50 percent of jobs in the U.S. could be automated or at high risk of automation by the early 2030s, according to the likes of Oxford, PwC, and Bain.
  • Sovereign X agrees with Facebook co-founder Chris Hughes, an early proponent of Universal Basic Income (UBI). UBI is not only eventual but necessary.

Brett Holmes, writing from San Miguel de Allende

Editor’s Note: As an update to a post from our 2019 archives, it remains to be seen what the financial shocks of a post-COVID-19 world will mean for cryptocurrency markets, AI, and big data. One thing, however, is clear: we’re in a transition to automation, assisted by the developing wave of AI and crypto, which many influencers, including OpenAI CEO Sam Altman, believe will remove the kind of antiquated systems that promoted low-cost (industrial age) human labor, as well as legacy government initiatives that are extractive, such as taxation. Automation, if deployed well, promises a magnitude of socioeconomic change. And it’s coming sooner than most people believe.

Imagine a world where there was a need to protect your long-term economic viability. You would need to protect your job, your house, and even your ability to make a living. The big question is why would you need to? The answer to that is simple: the inevitable mass adoption of artificial intelligence (AI).

AI will no doubt create a global economic disruption that will impact everyone. All socioeconomic groups. All markets. All peoples. Everyone.

The good news is that you will get the bad news about this disruption early. The even better news is that you can follow a simple action plan to protect yourself and possibly make a lot of money between now and the time Skynet comes online.

The AI Shockwave

In technical circles, AI is called deep learning.  Deep learning’s big technical break arrived in the mid-2000s when leading researcher Geoffrey Hinton discovered a new way to efficiently train computer networks to think better. The big pivot came in 2012 when a neural network built by Hinton’s team demolished the competition in an international computer vision/reading contest. 

Deep learning is what’s known as “narrow AI.” It is computer intelligence from one specific domain that is then applied to generate a very specific outcome. The “specific outcome” aspect of AI allows major corporations and sovereign governments to create capabilities that allow for the replacement of millions of jobs over the next 10 years.   

Academia and big consulting firms are already doing estimates of the job losses that come from the mass adoption of AI. Within 15 years, artificial intelligence may technically be able to replace around 30 to 50 percent of U.S. jobs.

A pair of researchers at Oxford University kicked things off in a 2013 white paper, making a dire prediction: 47% of U.S. jobs could be automated within the next decade or two. In early 2017, researchers at PwC came up with a finding—38% of jobs in the United States were at high risk of automation by the early 2030s.

Few, if any, experts predicted that deep learning was going to get this good, this fast. Those unexpected improvements are expanding the realm of the possible when it comes to real-world uses and thus job disruptions.

Within ten to twenty years, 40%-50% percent of jobs in the United States can be automated. For employees who are not outright replaced, increasing automation of their workload will continue to cut into their value-add for the company, reducing their bargaining power on wages and potentially leading to layoffs in the long term.

These estimates are in line with those from the most recent research that attempted to put a number on actual job losses. A February 2018 study by the consulting firm Bain and Company took a macro-level approach, seeking to understand the interplay of three major forces acting on the global economy: demographics, automation, and inequality.

Bain’s analysis produced a startling bottom-line conclusion: by 2030, employers will need 20 to 25 percent fewer employees, a percentage that would equal 30 to 40 million displaced workers in the United States. The study calculated that if we include both displacement and wage suppression, a full 80 percent of all workers will be affected.

UBI and the Digital Dollar

Global technology giants are more than aware of the disruptions AI will bring.

In March of 2018, Facebook co-founder Chris Hughes became one of the first in Silicon Valley to discuss Universal Basic Income (UBI). His proposal was to tax anyone making over $250,000 and raise over $3 Trillion over a 10-year period. That $3 trillion would then be distributed by giving $500 per month to every American making under $50,000 US. Assistance would also be provided to anyone taking care of children or the elderly.

Hughes doesn’t mention the inevitable surge in AI as the reason to have a UBI program in place. In the event of social unrest from a societal economic shock, ire, and even violence will likely be directed at Silicon Valley. Better for Silicon Valley to volunteer to have itself taxed than face eight years of being taxed by soon-to-be U.S. President Alexandria Ocasio-Cortez.

At Sovereign X, we believe that UBI is an interesting yet unproven option. Current attempts to stimulate economic growth simply are not working. Central bank stimulus is backfiring. Instead of driving demand for goods or raising wages, liquidity injections are being used in government bonds. This demand for bonds has driven rates to extreme levels.

As of the writing of this report, Bloomberg reports that $17 Trillion dollars of all bonds worldwide trade with a negative interest rate. To put that in perspective, a negative interest rate means that you pay somebody to borrow money from you.  It’s effectively like paying a fee for storage. Except it’s not for storage of junk from your first apartment—it’s your money.

With the pervasive nature of negative rates, the next round of monetary and fiscal stimulus will be vastly different than what we have seen over the last 10 years. The next round may see the government “printing money” and giving it directly to people. At SX we call this, the “digital Dollar.”

These digital dollars will be delivered to a cryptocurrency wallet residing on a phone or computer. The beauty of the digital dollar is that it can be earmarked to buy a wide range of products. This way the digital dollar doesn’t get used for buying stocks and real estate. It goes to help people survive.

While the digital dollar and UBI will ensure people’s survival, we do see a huge unintended consequence.

As more and more digital dollars are created, the image of the Dollar itself may change. People who are not receiving UBI may seek to hold cryptocurrencies that are not and cannot be printed and doled out by governments worldwide. We also think cryptocurrencies will benefit from the inevitable capital flight that occurs when federal and state governments levy taxes on wealth itself. If a government is going to take 10% of your bank account, there could be stunning demand for fast-moving mechanisms to move and store money outside the traditional banking system.

We also see a scenario where people receiving UBI use the digital Dollar to purchase necessities. They then take fiat wages from any job they have and use it to purchase a cryptocurrency.  By putting what they earn into a cryptocurrency, low-income earners will be able to stretch their wages further.

We think those cryptocurrencies that stand to benefit the most will be Bitcoin (and, possibly, Ethereum) and a cryptocurrency yet to be created. Most likely the second cryptocurrency will be created by a group of governments that make up the G7. This instrument will likely mirror what Facebook is trying to do with Libra. Like Libra, the sovereign cryptocurrency will likely follow a basket of currencies. Bitcoin and the new major cryptos will be included in the basket this “sovereign libra” will follow. So, the sovereign crypto will create even more demand for Bitcoin (and Ethereum).

In any scenario, Bitcoin and cryptocurrencies stand to appreciate substantially over the next 10-years. UBI will go from being an intellectual curiosity to something required to usher humanity through the emergence of AI. The destruction in the purchasing power of fiat money that comes as a result of UBI (and associated tax policies) will fuel the demand for cryptocurrencies.

Bitcoin price appreciation could be so dramatic, that we see sovereign governments getting into the crypto game. Countries will race each other to associate their fiat currency with traditional crypto, bitcoin in particular.

There’s good reason to believe that an investment in crypto today will protect your wealth from the coming shock from the adoption of A.I. and government responses to that shock. The cryptocurrency investment adoption process is still in the second inning of a possible extra-innings game.

Brett Holmes is co-founder and a partner of Sovereign X and resides in San Miguel de Allende.

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