I knew Bitcoin was important, but I was never a supporter. A recent interview on Invest Answers radically changed my point of view.
Bottom Line Up Front (aka TL;DR)
1. The general reference for Bitcoin (BTC) has always been monetary
2. Bitcoin viewed as a strategic asset is a paradigm shift
3. Mass adoption is coming
4. Call me a born-again Bitcoin evangelist
Bitcoin as Money
As I have argued in this article and this article I think Bitcoin has some flaws as money. I continue to believe price manipulation by Tether and Bitfinex was a primary driver of Bitcoin’s 2021 highs. I now realise those highs and more were coming one way or another.
Nevertheless, when high-profile guests on CryptoBanter touted the “Bitcoin is perfect money” narrative, I disagreed. My arguments ran in four parts, namely that Bitcoin (as money) has the following risks:
1. Infrastructure vulnerability
2. Sovereign capture
3. Significant wallet concentration
4. Difficulty in determining a “fair” value
And if one approaches Bitcoin as a pure monetary asset, these risks remain significant. 35% of the Bitcoin hashrate is in the United States. If regulators in the US want to stop that from happening, they very much could. Doing so is not politically feasible currently, but that doesn’t mean it will always be that way.
Likewise, for a sovereign (a government) to seize Bitcoin is a trivial matter. It happens all the time. Furthermore, “whales” control significant amounts of Bitcoin and those concentrations are only going to increase with time. Lastly, Bitcoin lacks an “intrinsic” value. The basic argument being, “how much is solving a math problem worth?”
My answer was “zero”. In isolation, and as a purely monetary instrument, I didn’t think Bitcoin could supplant the US dollar. The dollar has too much momentum. However, Bitcoin viewed through a strategic lens changes things.
A lot.
Zero Trust, Egalitarian Access
At it’s core, Bitcoin is a transaction ledger. It is an immutable record of all transactions in Bitcoin going all the way back to the world’s most expensive pizza. Bitcoin is also scarce.
There can only ever be 21 Million BTC. Moreover, a substantial sum of BTC are lost, or irrecoverable. Much of what’s left is concentrated in the hands of a few. In other words, a supply crunch is looming.
Why is this important?
Bitcoin is a zero-trust network. As a user, so long as I have my private key in my sole possession, my Bitcoin is my Bitcoin. I don’t have to trust a neighbour, or a bank, or even the government to gain access to my Bitcoin.
As an individual, I could be potentially be forced to give up my Bitcoin. That little problem falls under the “sovereign capture” risk I mentioned earlier. But for a country, this is a different matter.
Jason P. Lowery
Jason P. Lowery is the US National Defence Fellow at the Massachusetts Institute of Technology (MIT). He argues (and I agree) that at the sovereign level, the immutable, secure, and zero-trust nature of the Bitcoin network makes it indispensable tech.
The United States military guarantees zero-trust egalitarian access to the land, air, sea, and space by using kinetic force against mass. The Bitcoin network is (largely) immune to this kind of force. Electricity and hash-rate have no mass.
Any nation-state with electricity and hash-rate can maintain zero-trust access to the Bitcoin network. This is a big deal because, as things stand now, most nations in the world have to trust the United States to access the global monetary system.
The United States routinely revokes access to the US dollar network. They just did it to the Russians. And the Iranians. The US dollar also happens to be inflating its value away to the tune of 10–15% a year, depending on how you measure it.
Mass Bitcoin Adoption
The monetary argument for mass adoption of Bitcoin says, why would an exporting country trade their valuable goods for dollars that decline in value when they could stock Bitcoin instead? The military argument says, ultimately, they will have no choice.
Moreover, from a zero-trust, egalitarian access point of view, having electricity and hash-rate puts those countries on an even footing with any nation, including the United States. There’s a reason North Korea worked so hard to secure nuclear weapons. Those nukes guaranteed they would always have zero-trust, egalitarian access to their homeland, even against the United States.
Electricity and hash-rate will guarantee any nation can ensure they have zero-trust, egalitarian access to a decentralised, secure, and global economic transaction ledger. In other words, they can’t be cut off by the International Monetary Fund, or through a SWIFT ban, or any other legacy financial system.
A country adopting Bitcoin is the sovereign financial equivalent of building their own nukes. In that sense, Bitcoin may be the most powerful “weapon” ever invented. And just like nukes, once one country has them, sooner or later, everyone will want in.
Unlike nukes, Bitcoin doesn’t require exotic materials, or specialised processes. It just requires electricity and hash-rate. If you’re Bolivia, or Zimbabwe, or Uzbekistan, or indeed, Russia, why wouldn’t you ensure you had access to that financial network?
Your country could never be cut off from money again. El Salvador figured this out. With US inflation running completely out of control, others are going to figure it out too. I would wager the next big (and likely inevitable) financial crash will probably drive the point home.
There’s not a lot of BTC, but there’s a LOT of $$
Just about every country on the planet holds US dollar reserves. When the dollar tanks (or continues tanking), where do you think those dollars are going? In years past, they’d probably flow to gold. But gold is hard to move, hard to store, and hard to trade.
Bitcoin isn’t.
If the current monetary system can hang around on life support for a few more years, it might stabilise. Trouble is, the whole world is grossly over-levered (in debt). The US dollar is basically a massive, global Tomb fork. It’s only a matter of time before that “peg” collapses.
The world economy is so fragile right now, a butterfly fart could wreck the whole works. And if that butterfly farts, the bulk of financial activity might just transition to Bitcoin en masse. I’m pretty sure that will be “bullish” for BTC.
If you’re a country sitting on a mass of dollar reserves that are in free fall, would you sit back and watch it all go up in smoke? Or, would you join El Salvador on the zero-trust global payment system that you can hop on with those same US dollars that are collapsing in value?
I’m betting the latter. Fidelity Digital Assets seems to agree (even without the collapse of the dollar). All I can say is, I know where my dollars are going from now on.
My apologies…
To any Bitcoin “maxi” I ever doubted or pooped on. I was wrong. It took an MIT grad student to show me the way. I’m on the right path now though. If you’re a regular reader, I’ve got a great quote from Michael Saylor that sums this whole article…
Buy Bitcoin
Of course, these are just my opinions. I’m not a financial advisor, this isn’t financial advice, and always DYOR. Following any of these ideas might cause you to lose all of your money. I am 100% serious about that. I like tinkering with this stuff, but I’m on record acting like a total baboon. Invest accordingly.
Until next time, be safe, be smart and be sure to tie the camel.
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