Stable Anchors & Financial Dominance

“The less dominant the U.S. economy is, the less the dollar can function as a stable anchor for the global financial system. It was still intact in 2008-10, when a global financial crisis sent capital flooding to the safe haven of U.S. government bonds. But in recent years, people have begun to question whether Bretton Woods 2 is finally on the way out. The share of U.S. dollars in global reserves has been falling for years, and this fall has accelerated since the start of the pandemic.

-Noah Smith, “Crypto and the global financial system.” noahpinion.substack.com. December 14, 2021.

True of the U.S. dollar. True of Bitcoin itself. As the ecosystems of alt-chains are built out, the center of gravity is going to move from Bitcoin and be distributed across a few major blockchains, which will, in turn, be supported by niche chains. The same thing will play out with the U.S. and world economy. It might happen a bit slower if the U.S. government manages to create a digital dollar.

Related:

“The prevailing consensus view has been that bitcoin is a risk asset. It has an inverse relationship with interest rates. When central banks and politicians manipulate interest rates lower, and pump trillions of dollars into the market, bitcoin should go higher…

This inverse relationship is not what we are seeing between bitcoin and Treasury yields though. We are actually seeing the exact opposite. Bitcoin’s price appears to be moving in lockstep with Treasury yields.

So if this short-term trend continues to play out, what would that mean for bitcoin? Again, no one knows for sure. But it would be very interesting if the prevailing consensus view is misplaced and bitcoin would actually benefit from increasing interest rates. That would violate the framework that many people have been viewing the digital currency through…

So why could this idea of bitcoin and yields increasing together potentially be true? Well…one idea is that some people actually deem bitcoin to be their reserve currency. They view cheap capital via low rates as a path to borrowing money and making investments that could earn them more bitcoin. If rates were to rise, risk assets would sell off and these people would go back into their safe haven asset — bitcoin.

This may sound insane to the legacy Wall Street crowd, but there is an increasing number of young people who see the digital currency as that safe haven asset in their portfolio. The entire point of investing in anything outside of bitcoin is to outperform bitcoin and eventually convert back into bitcoin. Obviously, if you’re a good investor than you can pick up more bitcoin. If you’re a bad investor, you end up with less bitcoin. This is the new risk-reward that many young people are evaluating.”

Anthony Pompliano, “Bitcoin Is Moving In Lockstep With Treasury Yields?!” pomp.substack.com. December 20, 2021

We’re about to find out if cryptocurrencies with a max supply can be used as an inflation hedge. I bet they can.

A Crash Course on Crypto Economics in 1 Hour by Natasha Che

A newer one with a focus on stablecoins and fiat.

The whole series is worth a read if you have any interest in cryptocurrencies. Tascha also has a newsletter.

Is/Ought Fallacy: Exhibit A

“Crypto is gambling, and you should never gamble more than you can afford to lose, right? So the only people who held onto their bitcoin when it was worth $100,000 dollars were:

* People who could afford to lose $100,000

* People who couldn’t afford to lose it and were therefore making a very, very stupid gamble

And that’s the same at every dollar amount. Some people can’t afford to lose $1000, some people $100, but whatever level you’re at, you would have and should have sold when it hit that figure.

That means it’s literally not possible for a sensible person to make life-changing amounts of money from cryptocurrency, because the only way to do it is to bet more than you can afford to lose.”

McKinley Valentine, “No FOMO: If you’d bought bitcoin 10 years ago, you wouldn’t be rich today.” The Whippet. September 15, 2021.-

The way logic works is if you argue something is not possible, then pointing to one (or dozens of) counter-example(s) refutes your argument. You’ll notice the chart after the table of names that indicate that “investors” make up the majority of Bitcoin billionaires. So, it is literally possible. If you had limited resources, it could have been as simple as putting together a mining rig, well within the capabilities and budgets of most technical people back then.

If you want to feel good about not investing in Bitcoin back in its infancy, consider what sudden wealth tends to do to people talked about in this classic Reddit post on the lottery. It’s enough to make you never want to be rich, ever.