Bitcoin on the Ballot

Swan Private Insight — Issue 37, July 2024

Welcome to the July, 2024 Issue of Swan Private Insight

Inside this issue you’ll find:

• Bitcoin on the Ballot by Jason Bassett
• If They Can Print Money, Why Do We Pay Taxes? by Stephan Livera
• From Fiat Family Home to Bitcoin Mining Trailer: Off-Grid Steve by Joe Nakamoto
• Digital Assets, AI, and Energy Prices by Lyn Alden
• Beauty Will Save the World by Aleks Svetski
• Bitcoin News Roundup by Drew Mealey

… and more!

Bitcoin’s long-anticipated foothold in American politics has arrived… Does it really matter?

The words of Donald Trump, the 45th and potential 47th president of the United States, echoed for weeks throughout the Bitcoin community, wherein many had been calling for Bitcoin’s rise to the mainstream political stage in recent years.

Trump, aiming to juxtapose his stance on the matter with that of his Democratic rival Joe Biden and other prominent anti-crypto Democrats such as Senator Elizabeth Warren, offered voters a direct message: A vote for Trump is a vote for Bitcoin/crypto.

Although Independent presidential candidate Robert F. Kennedy Jr. has similarly embraced Bitcoin and self-custody in public view, Trump’s proclamation marked a notable shift in the mainstream political arena, as his reach and voter base is indisputably much larger.

Within days, the SEC approved eight spot Ethereum ETFs—a move that surprised many in the space. The level of discourse between the agency and the ETF issuers was notably less than that which took place in the weeks leading up to the spot Bitcoin ETF approvals. The decision looked downright rushed.

A couple of weeks later, reports that the Biden campaign would begin accepting cryptocurrency donations began to surface — a move that appeared to be a knee-jerk reaction to the popularity of Trump’s pro-crypto stance.

Trump, a previous critic and skeptic of Bitcoin, suddenly embraced digital assets and self-custodial rights, which gave many in the Bitcoin community a potent dopamine hit. Biden’s response, appearing somewhat begrudging, received mixed reactions of excitement and skepticism. For a voter base of roughly 50 million Americans, this is an important issue — for some, the only issue.

Between 2024 kicking off with spot Bitcoin ETF approvals and the more recent events in the political arena, euphoria is high. It feels like even those in the highest positions of power are finally coming to terms with the notion that Bitcoin is here to stay. It feels like the train is going full steam ahead — it’s either get aboard or get left behind. It feels like winning.

While these are indeed exciting times for Bitcoin, perhaps even historical turning points in its adoption, it’s imperative for Bitcoiners to take it all in stride and keep the big picture in view.

In this writing, I blend self-reflection on my political views with general observations of American politics to argue that Bitcoin is not only apolitical but is, in fact, antithetical to the political system we know and recognize today.

Bitcoin’s Basic Principles

Let’s first take a quick step back and review a few of Bitcoin’s key characteristics:

• % Bitcoin operates on a completely decentralized, distributed global network of computers (nodes) — there’s zero top-down leadership. It is equally accurate to say that nobody is in charge of Bitcoin, and everybody is in charge of Bitcoin.

• The Bitcoin network is entirely permissionless — anyone can come and go as they please, and there is no trusted intermediary monitoring/approving Bitcoin transactions or network entrants).

• Bitcoin’s monetary policy is immutable. It has a fixed total supply (21 million coins) and a predictable issuance schedule (a predetermined inflation rate that diminishes exponentially over time).

There’s a lot more to it than that, which is beyond the scope of this writing, but needless to say, these core elements alone are highly disruptive to the monetary policy enforced by central banks — and that’s the point.

Downstream of centrally planned monetary policy, obviously, comes an economy affected by it, which is sold to Americans as “free market capitalism.” This couldn’t be further from the truth — in a free market, fractional reserve banks that make risky bets would be allowed to fail, the stock market would cease to be propped up by trillions of dollars of liquidity injections during moments of crises (see: 2020), and interest rates would be a natural response to consumer saving, spending, and borrowing trends — not a tool (unsuccessfully) used to fight runaway inflation.

We don’t really have a free market. We have a shitshow. It’s no coincidence that Bitcoin was born in the wake of the Great Financial Crisis. Underpinning Bitcoin’s decentralized and immutable monetary policy is the ideology that money doesn’t need to — and shouldn’t — be controlled via top-down leadership.

Red Team vs. Blue Team

I grew up in a Democratic household with two born-and-raised New Yorker parents. As is hardly rare for children, I adopted their ideologies over time and voted blue during election cycles. To be honest, I had little interest in politics until things became very theatrical in 2016. Ironically, it was the first presidential election I opted out of.

At the time, I was in a relationship with a conservative woman whose parents were staunch supporters of Donald Trump. Between gatherings with her family and time spent with my own, there was no shortage of extreme opinions being thrown around on various voter issues.

It was during this time, I first became intensely fascinated with the psychology involved in two-party politics and their voter bases, particularly the underlying tribalism.

Here I was, regularly exposed to these two highly contrasting groups, reconciling their views with my own belief system and thinking to myself, 'How can each of these people be so deeply convinced that their answer is right? '

And that, in itself, is an entire thought exercise deserving of its own writing. The vast majority of the time, an individual’s guiding principles and systems of beliefs are genuinely well-intentioned. Of course, there are edge cases where certain groups act in malice, but this is more rare. Even actions that seem so obviously morally or ethically wrong to those on one end of the spectrum are driven by beliefs of fighting for what’s right and just by those on the other end.

The dilemma of the human condition is that we’re often unable to access the empathy to see this, instead adopting the idea that those opposing us are ill-intentioned.

Here’s the thing—that’s a feature of the two-party political system. It’s by design. Our leaders actively guide us toward an “us versus them” culture, and we revel in it. We take pride in our “team”—our tribe. Right or left. Red or blue. Both sides are equally guilty of this, and the trench deepens with each election cycle.

Today, it almost feels like the endgame is no longer about making genuine progress as a nation but rather about halting the progress of the opposing party, which has become conflated with progress. For voters, it gets harder and harder to see the difference.

For an easy example of this, let’s expand a bit on Trump’s quote, which I opened this writing with:

Could Trump have displayed the same level of support for Bitcoin and self-custody without framing it as a fight against the opposing party? Is it possible that the open support of Bitcoin itself would be implicit enough for listeners to understand which side of the fight he was on?

One may wonder if Trump is genuinely in support of Bitcoin or if he is simply mastering the age-old political art of creating a dichotomy on an issue that affects 50 million Americans. Is it about real progress forward or unraveling the opposing agenda?

The two aren’t mutually exclusive — a pro-Bitcoin agenda would bring progress for Bitcoin while wounding the anti-Bitcoin agenda. Still, it’s important to note the divisive nature in which ideas of “progress” are presented to us.

This isn’t a dig at Trump, who’s hardly the only one guilty of presenting ideas in a divisive manner. It’s fair to say that a significant—possibly the most potent—portion of the left’s rhetoric can be paraphrased as “We’re here to stop Donald Trump.” Again, the focus is on halting the opposition rather than moving the nation forward. I’m optimistic, but this kind of thing is sad to see.

The Illusion of Choice

I used to dismiss folks who said, “It doesn’t matter who gets elected—they’re just puppets of the system.” The notion that high-profile political decisions are predetermined by the state, central banks, special interest groups, lobbyists, and corporations looked like a lazy excuse to avoid voting.

However, the more I delved into the Bitcoin “rabbit hole,” the more I found that there was some truth to it. Of course, the president affects policy in many ways, but ultimately, politics always comes down to games of money and power.

The worse the money, the dirtier the games.

Powerful special interest groups throw brain-scrambling amounts of money at candidates to get their agendas over the line. The candidates, in turn, help push a policy that aligns with such agendas. This happens with Republicans and Democrats alike; the onlyvariances are the agendas.

While campaigning, politicians spin agendas to appeal to the population. Everything is made out to be for the greater good.

Let’s take a surface-level look at some familiar leftist rhetoric, for example: “Billionaires are bad, power-hungry people who are worsening the national debt by not paying enough taxes.” For years, I was fully bought into this. Like many other millennial blue voters, I came to resent the wealthy simply for being wealthy, as if opposing them meant taking some kind of moral high ground.

In studying Bitcoin and becoming increasingly familiar with Austrian economics, which promotes sound money, I began to see how deeply flawed this idea was.

Wealth accumulation should be a measure of economic output — the value a person creates within society through expending time and labor. If an individual becomes wealthy in a free market, that should signal to others that they did a great deal of important work by providing goods and services. Through this lens, it makes sense that those who introduce revolutionary technologies or products that reshape society for the better deserve a high degree of wealth.

The idea here is simple — the only way to accumulate wealth is to add economic value. In a monetary system based on sound money this idea of wealth accumulation totally makes sense.

This, however, is not the monetary system we have today. America’s dollar system is unsound, centralized, and inflationary. This allows top-down leadership, economic planners, and the ultra-wealthy to become exponentially wealthier without adding societal or monetary value.

The monetary system itself, not any particular players, is the problem. Regardless of who we put into the Oval Office, this problem remains.

Fractured Fractional Reserve Banking

It wasn’t until learning Bitcoin that I inadvertently began to learn about the fractional reserve banking system, which is genuinely terrible.

Let’s revisit the billionaires we love to hate. As I mentioned earlier, these folks have often (though not always) legitimately earned their wealth by creating life-altering products or services. Let’s now go a layer deeper and examine what a billionaire might do with their wealth.

As established earlier, the dollar loses purchasing power over time due to inflation. Cash is a melting ice cube, so billionaires will not simply let their dollars sit in a checking account or massive home safe. Instead, they turn to ways to make their billions even more billions—and the banking system is happy to help them do that.

Let’s say, for example, one of these ultra-high-net-worth individuals deposits $1 billion into a high-yield savings account, which is privately offered to this specific type of client. Average folks cannot access these accounts, which pay higher interest rates than your typical high-yield savings account. If this account were to pay out 5% APY, our billionaire friend would net an additional $50 million over the year.

'So what, Jason? People get interested in savings all the time.' Yep. Let’s keep digging — where exactly does the interest come from? '

Banks operate on a fractional reserve system, meaning they do not actually need to keep all of their depositors' money on hand. Historically, the Federal Reserve required a 10% reserve ratio, meaning the bank only needed to hold 10% of the funds deposited and could lend out the rest. That means, of the $1 billion deposited in the above example, the bank would only retain $100 million in reserves and lend out the remaining $900 million. They could lend this money to another bank, making even higher interest payments to the first bank.

Bank 2 would follow suit, keeping only the required $90 million (10% of the deposit) on hand and lending the remaining $810 million to another bank or corporation, also earning interest. Banks will also invest their depositors' funds in securities and bonds, inflating the asset prices and netting more profit. And that, folks, is where the interest comes from.

At every level in the above example, the interest payments expand the money supply — millions, billions, and trillions at a time. Oh, and each layer of lending counts towards America’s measure of GDP — a metric heavily scrutinized and discussed during election cycles.

Even worse, as of 2020, the 10% required reserve ratio was scrapped entirely and lowered to 0%. Banks quite literally do not need to keep any of their depositors' money on hand. None. They’re able to lend freely and continue the money supply expansion, profiting heavily throughout the process without creating any economic value whatsoever.

Should a bank run occur, with too many depositors seeking to withdraw their money at once, a bank failure becomes a real threat. Not to worry, though. The Federal Reserve will usually step in and “provide liquidity” (create and transfer money) to the troubled bank, and all is well.

This comes at your expense.

Downstream of monetary expansion comes rising prices, which we recognize as inflation. The problem is that while prices rise in tandem with the money supply, your bank account and salary don’t.

You now own an even tinier and less significant fraction of the total dollars in circulation — your savings have been diluted and devalued. Inflation is referred to as a “hidden tax” — its insidious nature allows time to pass before the pain is felt.

Wealth is transferred away from you when the central banking system expands the money supply. Inflation is theft, full stop.

As for the billionaire who made their $1 billion deposit?

Well, they did what any reasonable person would do to avoid devaluing their stash. Hate the game, not the player.

The Business of War

War is a highly complex topic that can quickly go beyond the scope of this writing, but I’ll make a few simple points here.

Under a gold (sound money) standard centuries ago, when civilizations went to war, they had to fund it by taxing their citizens. This meant rallying the society behind the cause and selling everyone on the idea that this cause was so prudent it was worth everyone sacrificing their wealth (and lives) for.

War came at a high cost—not only monetary but also social. Raising taxes is incredibly unpopular, so leaders avoided doing it whenever possible. The natural incentive was to avoid going to war, especially on the offensive—it’s a lot easier to sell the idea of national defense than foreign invasion when citizens have to foot the bill.

Over time, rulers realized they could debase their gold coins through melting them down and reissuing new coins in higher quantities with less purity. They’d use the newly debased currency to fund wars and spend into the economy, which got them around needing to tax their citizens directly. The delayed effects of the currency debasement (inflation) wouldn’t be realized until later.

Of course, this always ended in disaster, as the debased currencies continued devaluing and eventually collapsed.

Today, our government spends trillions of dollars financing wars and providing foreign aid to other countries involved in complex conflicts, which the media sensationalizes to give us a sense of purpose. We now have a national debt of $34 trillion, a truly mind-numbing number.

Since the dollar is no longer anchored to anything bound by natural scarcity following its decoupling from gold in 1971, this can, does, and will go on endlessly — until it collapses. Our politicians barely tout ideas to reduce the debt.

Simply raising taxes won’t bridge the gap and again poses a severe popularity problem during election cycles. So, instead, the U.S. Treasury opts to monetize the debt, selling it to investors in the form of bonds, which they’ll, of course, need to pay investors interest on.

'But Jason, if we’re already trillions in debt, where is the money to pay interest on the trillions coming from? ' Exactly. More money supply expansion.

Investors aren’t stupid, though, and are growing increasingly wary of the debt problem. The popularity of bonds has started to tank, even in today’s high interest-rate environment.

No problem! The U.S. Treasury just announced its “buyback program,” an initiative allowing them to simply buy back their bonds and pay themselves the interest. And when the interest payments on the old debt become due, they’ll issue more bonds to cover the new debt.

Getting a headache yet? Me too.

America Needs Bitcoin

At a basic level, we’ve now exemplified the dysfunction of our current monetary system. We’ve established that the system itself is the cancer, not any particular players within it. We can extend this logic to politicians.

Whether we get a Trump presidency or a Biden presidency, either of those men will simply be participants within a monetary system that is careening downhill and that governs our entire political landscape. I don’t know about you, but I don’t hear any talks about abolishing fractional reserve banking (which should be renamed “reserve-free banking” under the updated 0% reserve ratio requirement).

Trillions of dollars have been added to the national debt under both Trump and Biden’s administrations and those before them. Both men have overseen rampant inflation. Neither will fix these things throughout 4 years — they simply can’t.

The problem cannot be contained without a complete systemic overhaul.

Here’s the thing—as doom-and-gloom as some of this may sound, I’m incredibly optimistic about America’s future. Should Bitcoin succeed and America adopt a Bitcoin standard, predatory banking practices, which siphon wealth away from the majority and transfer it to the few, would cease to exist.

Bitcoin’s supply cannot simply be expanded due to its hard supply cap and fixed issuance schedule. There’s no reality where fractional reserve banking works under a Bitcoin standard. Banks attempting this would inevitably fail, and there’d be no means to reinject them with liquidity as the Federal Reserve does today. Honest, full reserve banking would be the only system that could flourish in this reality.

Under a Bitcoin standard, war would become unaffordable, as there would be no money printer to create trillions of new currency units to finance conflicts. The only way to afford war would be to tax citizens directly, which would kill the incentive to engage in disputes that weren’t absolutely necessary.

Under a Bitcoin standard, an individual or corporation could only accumulate wealth by producing genuine economic value through tangible goods and services. Anyone holding large amounts of Bitcoin would have attained it by expending time, resources, energy, and labor.

Under a Bitcoin standard, money would not lose value over time but would increase purchasing power, incentivizing long-term savings. As technology enables more efficient and cost-effective means of production, goods and services will become cheaper, not more expensive, in Bitcoin terms. People will no longer need to become investment experts just to prevent their savings from deteriorating.

Under a Bitcoin standard, the political landscape will no longer be a battle of who can best manage the economy or leverage government spending to suit their party’s agenda. The economy will self-regulate as a genuinely free market, and our elected officials will have no choice but to actually serve the public they promise to represent.

Under a Bitcoin standard, we transform our divided nation into one of actual progress, innovation, and prosperity.

This is in no way me saying, “None of it matters; don’t bother to vote.”

Absolutely vote for the candidate you feel best represents your values and beliefs. I also acknowledge that near-term decisions on Bitcoin/cryptocurrency regulation are not without significance. A Bitcoin standard in America won’t happen overnight—we’ve got to start somewhere. So yes, politicians discussing Bitcoin does signify something.

Many of the most potent daily issues will be resolved under a Bitcoin standard, not due to presidential action. Politics will be reshaped profoundly. I urge anyone reading this to look at things from a 10,000-foot view — you’re bound to recognize that no president or political party is here to save Bitcoin. Rather, Bitcoin is here to save our political system.

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