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Nation state adoption will drive Bitcoin's value higher. But if they use the money printer to do it, what do the second order effects look like?
Hi friends,
We hope you’re enjoying your weekend and managing to find some time to ‘touch grass’ despite the insane amount of media attention Bitcoin is getting this week.
The Bitcoin conference in Nashville has caught everybody’s attention. Presidential candidates are speaking at it, the mainstream media are covering it, and Bitcoin twitter is alive with speculation and excitement.
It's no surprise given that prominent speakers like Michael Saylor have made some extremely bullish comments about Bitcoin’s potential future value. In one ofthe slides from his talk he illustrated his thesis that the base case for Bitcoin’s value would be $13m by 2045.
That’s certainly a bold prediction. But after more than a decade of price predictions, we know by now that they are far easier to make than they are to get right.
We don’t engage in price predictions solely for the reason that not only does it require you to forecast what Bitcoin might be worth in the future, but if you’re measuring in dollars, you also need to forecast what a dollar will be worth over the same time frame.
Let’s use an extreme example to illustrate the point. A Bitcoin being worth $13m doesn’t sound so astonishing if a house costs $25m and a loaf of bread costs $5000. The point is, it’s all relative, and if you’re measuring value in a broken currency we would argue that it’s not necessarily that informative. The dollar is a terrible yardstick to measure value with.
We prefer to use Bitcoin as our measure of value. For us it’s enough to know that with Bitcoin we can protect our wealth, and that it will increase our purchasing power over time vs the goods and services we want to buy. Like everyone else, we think Bitcoin’s value will go up, we just aren’t particularly nterested in how much Government paper we might be able to buy with it. We aren’t in the market for that.
Saylor’s price prediction will be the slide from his talk that is most shared on Bitcoin Twitter this week. But we think that if you look beyond his price predictions there is much more value to be found in the advice he gives to nation states.
Take a look at this slide from his talk:
We agree with Saylor that adopting this stance is the most sensible course of action for a nation state that wants to come out on top. But perhaps the question we should be asking ourselves is that if nation states do adopt these strategies, then how might it impact everyday Bitcoiners like us?
Well, some of Saylor’s advice to nation states would definitely come as welcome news to any Bitcoin holder. He posits that a successful nation of the future should adopt policies that:
1) Encourage Bitcoin Ownership
2) Protect Bitcoin Self Custody
That would certainly be very good news for any Bitcoiner, and advising nation states not to introduce hostile policies toward Bitcoin is welcome as well.
But what about his other advice to nation states? Let’s take a look at some of his other suggestions in a little more detail:
- Reallocate Treasury from Gold Bonds to Bitcoin
- Issue Currency to buy Bitcoin
- Issue Sovereign Debt to buy Bitcoin
How might these suggestions impact the average Bitcoin hodler?
Well, the first piece of advice about dumping gold in favour of Bitcoin doesn’t particularly interest or concern us.
Gold is an inferior asset to Bitcoin. It offers similar properties in terms of salability over time, (it’s relatively finite so acts as a reasonable store of value). But it can’t compete with Bitcoin when it comes to salability over space because t’s heavy, cumbersome to move around and difficult to secure.
As a treasury asset, Gold simply doesn’t stack up against Bitcoin. But we aren’t particularly worried about nation states dumping it. All that is likely to mean is that you can perhaps get some beautiful gold jewellery at a reasonable price in the future.
Now let’s consider Saylor’s other advice that nation states should issue currency and debt to buy Bitcoin. At face value, a lot of Bitcoiners are going to be very excited about the prospect of Nation States printing money to accumulate Bitcoin.
Given Bitcoin’s scarcity, it could only result in tremendous upward pressure on the price. And this enormous buying pressure would come from new market participants with unlimited purchasing power due to their ability to issue an unlimited quantity of their own national currencies.
So great news, right? Number go up?
Well yes, if you’re holding Bitcoin, then with huge new demand in the market, your purchasing power will increase dramatically. However, we should be careful what we wish for. There will be second order effects that come with all that money printing.
Not if, but when nation states adopt this strategy, it will rapidly hasten the demise of fiat money, resulting in huge revaluations of all types of assets across the global economy. Countless bubbles, once supported by fiat debt, will burst. Bitcoin will act as the pin.
On a longer time horizon, eradicating this fiat malaise from the economy will be a good thing. But in the short term its likely to create significant turbulence across society.
If Governments all start competing to acquire Bitcoin by printing their fiat currencies into oblivion, then the transformation could be rapid. And the faster the transition is, the more difficult it will be for the global population and the economy to adapt to it.
A lot of people are going to be caught offside by this paradigm shift. And many people are going to see their wealth evaporate as the fiat tide goes out. Most people are going to struggle to make sense of what is happening around them. They are likely to be desperate, angry and confused. They might even point the finger at Bitcoiners. It’s hard to predict exactly how people will respond to the rules of the game suddenly changing beneath their feet, but we don’t expect it to be a totally harmonious transition.
If you already know us well, then you will have already heard our founder Tony’s story about what happened in Lebanon when people lost everything during the financial crisis. What it teaches us is that when large groups of people lose their livelihoods very quickly, it inevitably leads to chaos.
We aren’t disappointed at the fact that nation states are going to be drawn into adopting Bitcoin. In fact, we have always considered this to be an inevitability. What concerns us is the carnage that will follow should multiple nation states hasten the demise of fiat by printing it to buy Bitcoin.
We think it’s important to draw attention to what the second order effects of that might be so that you’re better prepared for a potentially turbulent future in the short term.
So, are politicians taking this kind of advice on board? Well politicians have been increasingly circling and talking about Bitcoin for the past couple of years. But with two presidential candidates having keynotes at the world’s largest Bitcoin conference, we can now confidently say that they have officially arrived.
So, let’s take a look at the keynotes from the two presidential candidates to see if we can learn anything from what they had to say:
First to take the stage was Robert F. Kennedy Jr.
What’s fascinating about RFK’s speech is just how openly, and accurately he described the decline of the dollar’s purchasing power since Nixon took the US off the gold standard in 1971. He eloquently explains how the Federal Reserve, through its money printing, steals the American people’s savings and earnings and robs them of the American Dream.
It’s clear from his talk that RFK Jr understands quite intimately the problems associated with the Federal Reserve and its ceaseless money printing.
So, what approach will he take toward the solution to this problem? How will he approach Bitcoin?
Well, he pledged to make 4 executive orders related to Bitcoin on day 1 of his presidency should he be elected:
1) “I will sign an executive order directing the US Treasury to purchase 550 Bitcoin daily until the US has built a reserve of 4 million Bitcoin.”
2) “I [will] sign an executive order (sic) directing the DOJ and the US Marshals to transfer the approximately 200,000 bitcoin held by the US government to the US Treasury, where it will be held as a strategic asset.”
3) “I will sign also an executive order directing the IRS to issue public guidelines that all transactions between Bitcoin and the US Dollar are unreportable transactions. And, by extension are non-taxable.”
4) “I will also sign an executive order directing the IRS to treat Bitcoin as an eligible asset for 1031 exchange into real property.”
These are fascinating statements for a few reasons.
Firstof all, the ambition to acquire 550 Bitcoin per day to achieve of stack of 4 million is a huge endorsement, but it is perhaps a little over ambitious. Let’s look at some numbers and do some rough maths…
It would be bold to call this strategy impossible, but if you run the numbers and understand that Bitcoin will get increasingly more difficult to acquire, it doesn’t sound entirely plausible that even the US Government would be able toa chieve this. Especially if they find themselves competing with other nation states.
Nevertheless, it demonstrates an incredibly positive stance toward Bitcoin as a solution to the problems created by the Federal Reserve. And to make Bitcoin transactions non-taxable and provide a legitimate route for them to be converted into physical property removes a lot of headaches for Bitcoiners and re-classifies Bitcoin as being recognised more like a currency than simply a Store of Value.
Mirroring Saylor’s advice, it appears that RFK Jr would protect your property rights and that he would use fiat debt to acquire Bitcoin for a US strategic reserve.
Donald Trump’s speech at the Bitcoin conference was a little more broad making it a little harder to summarise quickly. But below we have tried to capture some of the more pointed messages he delivered to the audience during his keynote:
That’s quite a lot to unpack and there is a lot we had to leave out, but what Trump’s speech did show is a very positive stance on Bitcoin from the man who is the current favourite to be the next president of the United States.
Notably, like RFK Jr, Trump also highlighted the source of the problem Bitcoin was created to solve; Taxation without representation via inflation and money printing. The fact that he drew on historical examples like Weimar Germany suggests he understands this problem more intimately than the general population and the threat it poses to the fabric of society.
Whilst Trump was certainly supportive of Bitcoin, it could be argued that his comments weren’t quite as bullish as RFK Jr. He did commit to never selling the US Government’s current Bitcoin stash and creating a strategic national stockpile. But he wasn’t as explicit about plans for the US Government to continue to accumulate more. (Perhaps this is simply because he realises it might not be smart to announce to the market that you intend to buy Bitcoin before you actually do it). Nevertheless, his commitment to supporting Bitcoin mining in the US does suggest plans for the US to acquire more Bitcoin by some means.
But beyond the expected plans for the US to create a strategic reserve, the most welcome news for Bitcoiners from Trump’s speech is unquestionably his commitment to defend the right to Bitcoin self-custody and oppose any form of dystopian Central Bank Digital Currency (CBDC). This shows a commitment to support your property rights and defend you from financial mass surveillance. Surely music to the ears of any serious Bitcoiner.
As we have been predicting for a while, Bitcoin 2024 demonstrates more than anything else that politicians are now acquiescing to the game theory of Bitcoin. It won’t be long before all politicians from both sides of the political spectrum jump on the band wagon and are forced to either adopt and support Bitcoin or be left behind by it.
The arrival and support of politicians does result in some positives for Bitcoin holders. It looks more and more likely that your property rights will be protected and that your rights to hold and own your own money will be secured.
However, it is our responsibility to encourage you to remain focussed on how YOU will navigate the coming changes in society. Having your property rights protected is great, but if nation states do start to compete over Bitcoin by using the money printer, it could cause some significant de-stabilisation in the near term as it accelerates the collapse of national currencies.
Your wealth will rise, but so will the need for you to take your Bitcoin and personal security much more seriously. The more attention and value Bitcoin accrues, the more attractive your stack will become to others who would seek to hold it themselves.
The only rational response to this is to stay hyper focussed on not the US’ strategic reserves, but on your own. How will you ensure that you retain full control of your Bitcoin stack? How will you maintain your privacy to keep your wealth hidden from prying eyes? And how will you hedge your bets by securing citizenships in Bitcoin friendly jurisdictions should the need arise for you to vote with your feet?
Support from politicians is certainly positive. But don’t get too distracted from your own mission. As Bitcoin adoption accelerates, so must your commitment to acquiring the skills needed to protect yourself and navigate this exciting new world.
If you need help securing your wealth, protecting your digital devices and acquiring ‘Plan B’ citizenships, then that’s exactly what we are here for. Book a call with us and make sure you’re ready for the biggest financial paradigm shift in history.
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