Think Bitcoin™ Issue #15
Comparing Bitcoin with other cryptos; progress in Congress; bringing bitcoin mining to underserved communities; Keynesian vs. Austrian economics
Hey friends, welcome back to Think Bitcoin™. As always, if you have any questions or comments, feel free to reach out!
In this issue:
Headlines/Insights: Distinguishing between Bitcoin and “crypto,” some positive regulatory news in Congress, Hillary Clinton sees cryptocurrencies as a threat
Content Round-Up: 3 videos, 2 podcasts
As always, if you find this newsletter interesting or useful, please share it with others who might find it interesting or useful, too!
Headlines and Insights
This week is kind of a grab-bag. I want to touch on some promising developments regarding Bitcoin and crypto in Congress. I also want to address Hillary Clinton’s recent comments. But first I want to talk about something that I see more and more frequently and that I find increasingly irksome, which is the monolithic treatment of “crypto” as an asset class.
Distinguishing between Bitcoin and “crypto”
“Crypto” is not a monolith. It is commonly referred to and discussed as such, but it is exceedingly important to make nuanced distinctions, especially for the benefit of folks who are newer to the space. Crypto, as an asset class, is comprised of myriad, wildly varied projects (14,542 of them, per CoinMarketCap at time of writing) with profoundly different origins, use cases, degrees of decentralization, and risk profiles. The category is as broad as, say, “equities.” Comparing Bitcoin to 99% of these projects is like comparing Apple to penny stocks. Bitcoin is established, secure, and of singularly decentralized origin, with robust network effects and a credible, coherent use case as sound money. The rest are doing vastly different things, and the overwhelming majority of these other tokens are useless.
The top 3 trending “cryptos” on CoinMarketCap, as I write, are:
Similarly, Apple is one of the most successful companies of all time and provides an immense amount of value to its customers, while penny stocks are essentially lottery tickets. Sure, both Apple and penny stocks are equities, but that’s where the similarities stop. Treating Apple as if it had the same risk profile as a tiny, illiquid penny stock would be absurd.
Yet, this is how many approach Bitcoin and crypto. When politicians, or the media, or various thought leaders and influencers in the finance space bemoan the ills of “crypto,” they are monolithically lumping Bitcoin and MicroPets into the same category, implying they share many of the same characteristics, are similarly risky, not meaningfully distinguishable, etc. This is, and has been, to the detriment of Bitcoin.
When the Squid Game coin parabolically rose and then just as precipitously fell to zero, politicians, pundits, and influencers practically tripped over themselves to remind you that crypto is risky and rife with fraud and scams. Only invest money you are okay with losing entirely, they say! As if every crypto is a lottery ticket or a prayer. And, more importantly, as if the dollar itself doesn’t lose a significant amount of its purchasing power over time.
Meanwhile Bitcoin is the best investment of the last decade. It’s held by pension funds, financial institutions, insurance companies and public companies. Some of the most successful and respected investors of all time, folks like Stanley Druckenmiller, Paul Tudor Jones, Bill Miller, and George Soros, hold bitcoin in their portfolios. El Salvador has made bitcoin legal tender. Other countries are mining bitcoin.
Do you think pension funds would hold something they expect or reasonably think could go to zero? Notice that none of the aforementioned parties are holding MicroPets or Shiba Inu or the Squid Game coin. They don’t even hold the other large, “blue chip” projects like Ethereum, Solana, Avalanche, or Cardano.
To be fair, there are lots of scams in the broader crypto space, and most projects are wildly risky as investments. And Bitcoin itself is not without risk. But monolithically grouping Bitcoin with these scam projects under the catchall “crypto” heading meritlessly besmirches Bitcoin by association, as this catchall, intentionally or unintentionally, often implies that all projects have similar origins, contribute to society in roughly the same way, and possess roughly equivalent risk profiles. And this is simply not true.
Only Bitcoin was decentralized from its origin. There were no pre-sales in Bitcoin. No venture capital firms received coins in exchange for investment. Bitcoin had and has no team or governing foundation that retained or retains coins. Every bitcoin in existence has been mined. This doesn’t merely make Bitcoin the most decentralized cryptocurrency. It also makes Bitcoin not a security, from a legal perspective, which, say what we want about securities laws (and I, for one, think they are ill-equipped to appropriately address crypto projects), is important with respect to risk profile.
I’m not here to deride or disparage every other project in the crypto space. But I am vigorously advocating for some more nuance when we discuss them and compare them to Bitcoin.
Some uncharacteristically good news on legislation in Congress
Last week, President Biden signed a $1.75 trillion infrastructure bill into law. This bill features some provisions that, when implemented, could cause some significant problems for the crypto space, as a whole. First and foremost is the legislation’s expansion of the definition of “broker,” which, as written, can be read to capture lots of actors in the crypto ecosystem who do not perform broker-like functions (e.g. miners, validators, etc.). Parties deemed to be brokers are subject to tax reporting requirements on their “customers.” Obviously, many of the parties in the crypto ecosystem do not have “customers,” but, under the letter of the law, would nevertheless be subject to reporting requirements as if they did have customers. This is logistically impossible for many of the aforementioned parties.1
The crypto community united and lobbied Congress to change the problematic language when the bill was in the Senate. A bipartisan solution was offered but, due to some procedural complexities and a unanimous consent vote that was torpedoed for unrelated reasons, the solution was not adopted. The House, again due to procedural issues and increasing political pressure to pass the bill, also did not adopt the solution.
Last, week, however, Rep. Patrick McHenry, a Republican, and Rep. Tim Ryan, a Democrat, introduced a bill that would fix the unworkable “broker” definition and clean up some other harmful provisions, as well.
Jake Chervinsky, Head of Policy at the Blockchain Association, chronicled it all in a Twitter thread last Thursday:
The fact that this new bill in the House is bipartisan is heartening. As I’ve written before on numerous occasions, Bitcoin transcends our ossified, polarized two-party paradigm of politics in the U.S. and could offer a productive way forward if it can avoid being turned into a partisan issue. Bitcoin, by its very nature, advances ideas that appeal to both parties. Democrats and progressives should appreciate how it disempowers exploitative, rent-seeking financial intermediaries, banks the unbanked, grants equal access to all, undermines the forces that perpetuate the wealth gap, and renders discrimination of any kind impossible. Republicans should appreciate how it promotes smaller government, reduces the amount of power held by unelected government officials, opposes expanded government surveillance, and combats inflation. Thoughtfully and productively regulating the space offers both parties a win.
The fact that a bipartisan group of lawmakers has proposed this new bill should further, and more emphatically, put to bed the fear that the U.S. will ban Bitcoin. It’s also illustrative of the growing level of education and knowledge on the topic in Congress. This, I believe, will only increase. Sure, there are some staunch and obdurate opponents of Bitcoin and crypto in Congress, but a growing number are spending some time learning about the space and listening to constituents.
There is obviously still plenty of work to be done. This bill is not yet law, and perhaps it will never become law. But it does seem to be (and hopefully is) indicative of an evolving approach in Congress, one that’s moving away from reflexive, alarmist opposition and toward a more thoughtful balancing of effective regulation and preservation of innovation.
Hillary Clinton says Bitcoin and crypto may undermine the role of the dollar as the reserve currency
Last Friday, as part of a panel discussion at the Bloomberg New Economy Forum in Singapore, Hillary Clinton said that cryptocurrencies have the “potential for undermining currencies, for undermining the role of the dollar as the reserve currency, for destabilizing nations, perhaps starting with small ones but going much larger.”
With respect to Bitcoin, you are correct, Hillary. Undermining the role of the dollar as the reserve currency is part of Bitcoin’s value proposition. The efforts and actions required to maintain the dollar as the reserve currency of the world (the most obvious and deleterious action being the establishment of the petrodollar system), have wrought untold harm both in the U.S. and abroad. I wrote about this at length in Issue #13.
Alex Gladstein wrote about it extensively in his piece, “Uncovering the Hidden Costs of the Petrodollar.” The idea that the dollar’s status as the reserve currency, with all that its perpetuation requires, is a net positive for the world is certainly not a self-evidently true idea, as Clinton believes it is. The petrodollar system, which requires that most oil contracts get priced in dollars, results in a stronger dollar (countries need dollars to buy oil), which makes our exports uncompetitive, which has more or less destroyed our manufacturing industries and weakened the middle class, all while requiring costly military interventions to sustain. It has also led to the financialization of everything, which of course leads to more leverage in the system and, again, benefits a concentrated group of elites (defense contractors, financial institutions, etc.) at the expense of the many. It should also be obvious that a global monetary system that ultimately rests on oil and the military defense of oil, which itself requires signifiant usage of oil, is not optimal for the environment.
So yes, Hillary, undermining that system is precisely what Bitcoin sets out to do.
Moreover, accusing cryptocurrency of “destabilizing nations” while the major central banks of the world are debasing their respective currencies at unprecedented rates is a cold and brazen bit of gaslighting.
Content Round-Up
1. “The Fake Environmentalist Attack on Bitcoin,” a short, 6-minute video made by Reason Magazine and featuring Nic Carter and Alex Gladstein. I think anyone who has spent any meaningful amount of time learning about Bitcoin has encountered the unremitting criticism from mainstream financial media outlets and some (though certainly not all) politicians about Bitcoin’s energy usage. As I’ve noted on plenty of occasions, these criticisms are almost uniformly under-researched, misinformed, and generally illustrative of the reluctance to engage with the space in good faith.
This short video explains the ways in which these polemics against Bitcoin’s energy usage tend to be based on fundamental misunderstandings of how Bitcoin actually works.
2. “Generating Mining Wealth for Universities and Low Income Communities,” an interview with Kim Booker, co-founder of BTC Impact, on the Nature of Sovereignty show with Ian Gaines. This was a really powerful interview. Booker co-founded a nonprofit called BTC Impact that works to educate underserved communities on Bitcoin and self-sovereignty.
She is also bringing bitcoin mining to universities. She started the first college-credit-granting bitcoin mining club at the University of Wyoming, where she and her co-founder teach students and faculty about mining bitcoin.
Booker is also working on one of the coolest Bitcoin projects I’ve ever encountered. The project is called S8S9. The idea is to run bitcoin mining equipment in Section 8 housing, splitting the proceeds between the relevant housing authorities and the tenants. The ultimate goal is to allow tenants to save for down payments on homes and, to that end, participation in a home owner’s program is required for sharing in the bitcoin mining proceeds. Like her work with BTC Impact, Booker’s goal with S8S9 is to change the trajectory of people’s lives and to give them a pathway to generational wealth.
I can’t say enough about this interview or about Booker. She’s easily one of the most inspiring people I’ve heard talk about Bitcoin. I certainly look forward to following and supporting her work in the future, and I encourage you to check out what she’s doing and lend any support you can, as well.
3. “Emancipation From Financial Patriarchy,” an episode of the What Bitcoin Did podcast featuring Anita Posch. Posch discusses the challenging and, in many cases, absolutely dire conditions facing women in various parts of the world and how Bitcoin can be a tool for emancipation. She explains how in many countries women are still not allowed to own property, can’t inherit, and/or are not allowed to open bank accounts. There are also many women who live in abusive relationships or households. Bitcoin opens up the possibility for women in such situations to have their own money, in a self-sovereign way, which can be a vital tool for liberation.
4. “What Happened to Capitalism?” This short video, by Natalie Brunell and Bitcoin Magazine, explores the economic underpinnings of our current fiat system and contrasts them with the economic underpinnings of Bitcoin. Most Bitcoiners subscribe to some version of Austrian economics, whether knowingly or unknowingly, which stands in stark opposition to the currently pervasive Keynesian economics. If you’re someone who doesn’t have an economic background and wants a quick, succinct, and effective introduction to the differences between Austrian and Keynesian economics, this video is perfect.
5. “Diversity,” an episode of the Bitcoin Fixes This podcast with Lamar Wilson, one of Bitcoin’s great educators. He talks with host, Jimmy Song, about diversity in the Bitcoin space, how he built Black Bitcoin Billionaires (the biggest Bitcoin group on Clubhouse), the importance of speaking to people about Bitcoin (as opposed to just typing to them), and the importance of having access to a savings technology that cannot be confiscated.
Bonus/Miscellaneous
In the last two issues I wrote about inflation and how debasement of the currency results in a monetization of other assets. In other words, when the currency itself is programmed to lose its value at an accelerating rate, people will look to other assets to perform the function of storing value. These assets take on a monetary premium, so to speak.
Economists use different metrics to measure the rate at which the dollar is losing its value and being debased. We’re most familiar with CPI, but we don’t often consider how assets like stocks and real estate get monetized in this process. CPI, which measures only a specific basket of goods, weighted a very specific way, does not tell the whole story with respect to what’s happening to the dollar. It does not, for example, measure how the expansion of the money supply creates a monetary premium on stocks and real estate, thereby inflating their nominal values. This drawing from Jason Lowery is a useful way to visualize dollar debasement and inflation.
He describes it in the following metaphor, as well:
As always, thanks for reading! If you enjoyed it or found it useful, share this newsletter widely and freely!
“Civilization is in a race between education and catastrophe. Let us learn the truth and spread it as far and wide as our circumstances allow. For the truth is the greatest weapon we have.” -H.G. Wells
See you next week,
Logan
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DISCLAIMER: I am not investment advisor and this is not investment advice. This is not, nor is it intended to be, a recommendation to buy or sell any security or digital asset. Nothing in this newsletter should be interpreted as a solicitation, a recommendation, or advice to buy or sell any security or digital asset. Nothing in this newsletter should be considered legal advice of any kind. This newsletter exists for educational and informational purposes only. Do your own research before making any investment decisions.
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If you’re interested in a deeper dive into the issues with the infrastructure bill I wrote about it extensively in Issues #1 and #2 of the newsletter.