Think Bitcoin™ Issue #36
Happy 4th; Bitcoin, millennials, and the American Dream
Hey friends, welcome back to Think Bitcoin™ for issue #36, and happy July 4th weekend. So as not to take too much of your time away from barbecuing and family, I’m going to be comparatively brief in this issue. As always, if you have any questions or comments, feel free to reach out. You can also find me on Twitter (@TheWhyOfFI).
In this issue:
Long Reads: Bitcoin, Millennials, and the American Dream
Content Round-Up: 1 video, 2 articles
As always, if you find this newsletter interesting or useful, please share it with others who might find it interesting or useful, too!
Long Reads
Bitcoin, Millennials, and the American Dream
Happy July 4th weekend, friends. Since this is the time when we celebrate America and what America can/should mean, I want to spend some time talking about the mythical, ever-receding idea of the American Dream, its feasibility (or lack thereof) for millennials (and subsequent generations), and how it might be reclaimed through Bitcoin.
I’m going to argue that the investing behavior of millennials has, unbeknownst to most of us, been almost entirely conditioned by monetary policy, which has created an illusory sense of safety and an illusory sense of opportunity with respect to markets. A major part of the American Dream (at least in my opinion) is the ability to accumulate and pass down generational wealth (or at least the seeds of generational wealth). The monetary policy of the last quarter century has made this dream exceedingly difficult to achieve in real terms, though it has simultaneously made it appear easier than ever.
I was in college when the Great Financial Crisis of 2007-2009 happened. I remember returning to campus my sophomore year to find several classmates conspicuously absent. Due to the financial hardship wrought upon their families by the crisis, they could no longer afford to be enrolled.
At that time I was privileged enough to not be totally aware of the scope and extent of the economic devastation all around me. It was not until much later that my parents recounted to me what it felt like to watch accounts get shellacked. And, believe me, I am acutely aware of how lucky and, yes, privileged I was to not directly, intimately feel the grave effects of all this in real time, as so many in my generational cohort did. But one way or another all of us millennials have been affected by the Great Financial Crisis.
Many of us graduated from college or graduate school during or soon after the GFC and embarked upon our professional lives in a particularly fraught labor market.
Those of us who were already investing at that time saw our portfolios crater. Those of us who purchased houses shortly before the crash saw the value of those houses plummet.
But the Fed stepped in and embarked on a historic course of quantitative easing which, eventually, led to a recovery. It wasn’t a 15-year recovery, there were no “lost” decades, and a world war was not required to pull us out of the rut.
Out of this recovery emerged the modern personal finance movement, including the FI/RE movement. J.L. Collins’ Simple Path to Wealth, an almost biblical text in the FI/RE community, was published in 2016. Countless imitators published knock-offs. A deluge of personal finance podcasts came online. And the underlying premise of all this content was the idea that the stock market always “recovers.”
The same movement was supercharged after March of 2020 when everyone was stuck in their homes watching the stock market magically return to pre-March levels by mid-August, after which it accelerated to the upside throughout 2021. The lesson here seemed clear: the stock market always recovers. And many of the folks who were cooped up inside due to COVID restrictions took to social media to share this lesson with others, sell ebooks, and offer 1-on-1 coaching.
I’ve always found the idea that the stock market “recovered” after 2008 and, especially after March of 2020, to be an abuse of the word “recover.” An injured athlete recovers from a knee injury when the knee is no longer symptomatic; not when it’s injected with cortisone to mask said symptoms. Between 1913 and 2008, the Fed increased the money supply gradually from $5 billion to $847 billion. These were comparatively steady, incremental increases. Between 2008 and 2010, the Fed printed $1.2 trillion, doubling the monetary base and doing a century’s worth of money-printing in two years’ time.1 This is how the market “recovered.” The money-printing after March of 2020 made the 2008-2010 infusions look paltry and slow by comparison.
Much too often this monetary policy background gets obfuscated in the millennial discourse about resilient stock market action, inevitable recoveries, and the unstoppable success of American corporations. If you’re unaware of this background, then the logical and rational conclusion is that one should buy any and all dips because every single dip is and ever shall be brief and temporary.
Couple this with an acute awareness of the dollar’s ever-diminishing purchasing power and you have the ostensibly pretty bulletproof pillars upon which much of modern personal finance has been built. The dollar loses value and the stock market, even through calamities like the Great Financial Crisis and the COVID crash, always recovers and always creates predictable, reliable wealth. Therefore, one ought to keep as little cash as practicable and invest the rest in the markets.
But this sense of security and opportunity is far from safe or guaranteed, nor is it without negative downstream effects. As former Kansas City Fed President Thomas Hoenig has said, the effects of aggressively accommodative monetary policy materialize with “long and variable lags.”2
And that’s what’s currently happening. As Preston Pysh has said, when the money isn’t scarce, the things that people actually value and use to store value become scarce and more expensive.
When interest rates are kept too low for too long and quantitative easing is pumping historic amounts of new dollars into the system, those dollars have to go somewhere. They flow into assets and drive asset inflation.
We get the now quite familiar and increasingly truncated boom/bust cycle, with each boom requiring more assistance from the Fed, which devalues the dollar more every time, and makes actually scarce things more expensive.
Millennials are trying to win a game that is inherently rigged against them. College is not getting any cheaper. Monetary policy is making houses and the stock market exorbitantly expensive. And wages simply cannot and will not keep up with the loss of purchasing power of the dollar.
Many millennials are turning to index funds, blind to the devaluation of the dollar required to drive stock market prices ever higher.
These folks actually have a lot in common with Bitcoiners in terms of perspective and strategy, and I think it’s worth continually reaching out to this cohort to cultivate a dialogue about Bitcoin. Both index fund enthusiasts and Bitcoiners are long-term investors. The former believe, long-term, that the stock market will always go up at 7-10% a year, which inherently includes the belief that the Fed will continue to run monetary policy in a way that ensures this long-term outcome. The latter believe that if the Fed does, in fact, do this it’ll eventually cause a crisis it cannot fix.
Bitcoin is a life raft out of a failing system. It is also a path to wealth in the new system that will emerge out of the breakdown of the current one. Millennials have the misfortune of being the probably the penultimate generation of our current post-1971 monetary order. But they also have what no generation before them has had: the opportunity to opt out of it and into a new, emergent order, one in which the moribund American Dream may live again.
Content Round-Up
“The Lightning Network Explained in 10 Minutes,” a video by Nik Bhatia (author of the excellent book, Layered Money) on his Bitcoin Layer YouTube channel. Have you heard the common criticism that Bitcoin can’t scale? That it can only perform a small amount of transactions at a time? That it could never approach the throughput of a payment processor like, say, Visa?
The answer to these criticisms is the Lightning Network.
Bhatia explains why comparing Bitcoin to Visa is not an apples-to-apples comparison, since Visa is not its own currency. Using his layered money framework, Bhatia points out that Visa is a “second layer” of the dollar. Unlike Visa, Bitcoin is itself a currency. And it’s important that Bitcoin stay slow and comparatively limited in throughput at its base layer, because this allows it to remain decentralized.
The Lightning Network is a “second layer” payment protocol built on top of Bitcoin.
“Bitcoin Mining Can Prevent Climate Change,” an article by Daniel Batten about how Bitcoin mining “could plausibly help us eliminate 0.15 °C of climate change by 2045,” making it “the only technology currently able to reduce methane emissions to the levels needed to avoid a 1.5°C global temperature rise.” Batten explains how methane is the worst greenhouse gas and how reducing its emission is the most impactful action we can take in the fight against climate change. Bitcoin mining is unlike any other available solution in the sense that is uniquely equipped to tackle the problem of methane in a way that can actually be profitable, as opposed to significantly cost-intensive.
“A Most Peaceful Revolution,” an article by Nic Carter. Given that this is July 4th weekend, a time when we celebrate revolutions and rebellion against tyrannical overlords, I think it’s worth revisiting this old, classic piece from Carter about the type of revolution Bitcoin represents and advances, simply by virtue of its existence and its growth.
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 in two weeks,
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.
© Copyright Logan Bolinger, Think Bitcoin LLC
Source: Lords of Easy Money, by Christopher Leonard.
Source: Id.
Found you through Pomp. Today’s piece on millennials was so well written!!