My Journey Down the Bitcoin Rabbit Hole (Part 1 of 3)
How Bitcoin is a hedge against the worst inflation in 40 years
In my first Substack newsletter, I mentioned that I planned to write about Bitcoin and cryptocurrencies, chronicling my learning and discovery. But, honestly, as much as I have been doing a deep dive into all things Bitcoin and crypto over the past few months, I haven't felt confident to write about it. Once I started down the rabbit hole, I realized my learning curve was much bigger than anticipated, requiring loads more time to understand what I was reading and how to explain it. As I discovered rather quickly, to comprehend Bitcoin, one must range across multiple disciplines like economics, history, politics, and cryptology. In some ways, understanding Bitcoin is like understanding a new comprehensive worldview. As I read, one topic led to the next, taking me deeper down the rabbit hole, exposing how much I still didn’t know. But I have kept at it. Every few days, I listen to something on the history of money or economic theory or watch YouTube videos trying to understand this new wild west. While I am no expert and I am not giving any financial advice (this is for informational purposes only), I want to share what I have been learning, mostly focuing on Bitcoin. Overall, my study has been eye-opening.
And for those who have been following me on Substack, I don’t think you will be surprised to learn that what interests me the most about Bitcoin are the ways it overlaps with other areas of my research and writing— the themes in my forthcoming book Cold Civil War, my interest in George Orwell’s political philosophy, and the rise of the censorship culture. So, as I share my journey down the Bitcoin rabbit hole, I hope you find it interesting. But once again, I am not giving any investment advice only sharing what I am learning.
How I started down the rabbit hole
Last spring, I started looking at my retirement account (minuscule growth over the past ten years despite a historic bull market) and wanted to find a better place to grow my money. After all the promises from money managers about doubling my money every seven years had proven false, I decided I needed to find a better way. I thought Bitcoin might be an improvement. Is it risky? Sure. But those who invested in Amazon, Apple, or Tesla in the early days, all risky investments, have made millions. Maybe the same is true with Bitcoin, I thought.
Just as I was looking into Bitcoin as a place to invest my money, another factor quickly preoccupied my thinking: historic levels of inflation. As a kid in the mid-70s, I vividly recall waiting in long gas lines with my dad. Could this hyperinflation happen again? And what was causing it? And how could something like Bitcoin provide a hedge against it?
By the spring of 2021, it was pretty evident that the printing of trillions of dollars for Covid relief to stimulate the economy was causing inflation -- too many dollars in circulation, thus devaluing its purchasing power and pushing up prices. At first, the Biden administration claimed inflation was only temporary. But that wasn't true, and they knew it. Now, a year later, they are no longer saying it is temporary—instead, they tell us to learn to live with it or make sacrifices for the greater good. Or the newest excuse, it's Putin's fault. But since inflation reached a forty-year high even before Putin invaded Ukraine, this is laughable scapegoating. No, inflation is not Putin's fault. It is the fault of the uniparty in Washington that continues to print money with no concern for the consequences. Over 40% of the money in circulation has been printed in the last two years.
So by the spring of 2021, I had added to my interest in Bitcoin that it might be a better hedge against inflation. But, of course, the more I researched the contention that Bitcoin is a hedge against inflation, the more I ran into arguments made by Austrian Economists, a school of thought centered around Ludwig von Mises and F.A Hayek. From these economists, I learned about the history of money, the consequences of abandoning the gold standard, and how unsound money (fiat currency no longer backed by gold) has led to many dire consequences for the economy, culture, and politics. That is when I discovered Saifedean Ammous, an Austrian Economist.
In his bestseller, The Bitcoin Standard, one of the best books to understand the problem of our monetary system and how Bitcoin could be the solution, Ammous spends several chapters tracing the history of money. After sketching this history, he then focuses on the battle between the Austrian School of Economics and the Keynesian School, showing how in the 20th Century, the United States, following the thinking of Keynes and ignoring the warnings of the Austrian School, decoupled the dollar from the gold standard, allowing the Federal Reserve to print money at will. But, as Ammous points out, the problem with this decoupling and rampant money printing is that inflation always kicks in, cash gets devalued (its purchasing power plummets), and the average person can no longer afford the necessities of life. To respond to this self-inflicted inflation, the government tries to fix the problem by printing more money. But this forces prices to rise even more, creating a vicious cycle. Not good.
Moreover, with lots more money in circulation, the money people have saved in the bank becomes devalued, wiping out years of hard work. According to Austrian economists like Ammous, inflation becomes a hidden tax, allowing the government to steal from its people. And inflation also discourages saving for the long term, making it much more intelligent to spend the money immediately before it gets further devalued.
While inflation hits the working and middle classes the most, it is a boon for the wealthy and ruling elites, who get access to all this new money first—through grants or low-interest loans — and can invest it in real estate and stocks. Inflation pushes up the value of these assets and wipes out the debt faster because it is paid back with inflated money. So it works great for them, just not everyone else. The wealthy get free or low-interest money, investing it in real estate or other hard assets, knowing that inflation increases the value of their assets and helps them pay off their debts faster. Have you ever wondered how the billionaires have doubled and tripled their net worth over the past two years of the pandemic lockdowns? And at the same time, everyone else has gotten poorer, as thousands of small businesses have been shuttered, savings accounts devalued, and monthly earnings attenuated. The ruling class rigs the system to their benefit. Because the working and middle classes don't have access to all the new money printed and don't have much real estate or stocks, they don't get the benefits of inflation, and thus, they fall behind. It becomes one colossal wealth transfer scheme, a reverse Robin Hood. The rich get rich, and the poor get poorer.
But this is not all. As Ammous explains, the bipartisan rulings elites also use the monetary system to increase their economic and political power. They do this in several ways. First, they funnel newly created money to political allies in the welfare state, thus expanding the size of the administrative state and creating more dependency among the population. While I make a similar point about the growth of the administrative state in my Cold Civil War, I didn't mention the role played by unsound money, which creates a never-ending stream of new funding, growing the size of government unchecked by Congress or the limitations of a budget.
Second, the ruling elites increase their power by swelling the size of the military-industrial complex, allowing our politicians and generals to pursue “forever wars" because the money never runs out. They keep printing money, never constrained by limited monetary reserves or the unpopularity of raising taxes to fund their battles. Just as I was writing this paragraph, President Biden signed a $1.5 trillion spending bill with $13.6 billion for the war in Ukraine, where half the money is not covered by tax revenue. And to coverup this ongoing corruption, the uniparty spends billions on the national security state, which utilizes its surveillance powers and the censorship powers of Big Tech to financially punish dissidents, thus silencing any objections to thier schemes.
Finally, the ruling elites increase their power by funding the mainstream media, the university system, and the pharmaceutical industry, making all three the official propaganda arm of the ruling elites. As a result, Big Brother is no longer just the state as Orwell vividly portrayed in 1984; Big Brother is now the ruling elite in politics, economics, and culture, funded with an unending supply of unsound money. And if you attempt to speak out against this new oligarchy, they will de-platform you, cutting your economic legs off. Orwell's Big Brother could only wish for this kind of unrestrained power and unlimited money.
I realize that this is not a pretty picture. But the more I understood the history of money, the more I understood how the ruling elites have been rigging the system for decades. Moreover, I have begun to think that Bitcoin might be an effective tool to rein in the ruling elites, fix the problems that our fiat dollar has unleashed on our society, and return us to sound money. And it is precisely that case that Saifedean Ammous makes in the second half of his The Bitcoin Standard and Vijay Boyapati makes in his The Bullish Case for Bitcoin, both of which I commend to you.
In Part II, I will take up the censorship-resistant qualities of Bitcoin and how it can protect economic, political, and religious rights and, in the process, curtail the unchecked power of the bipartisan ruling elites.
And please don’t forget my book Cold Civil War debuts on March 22. You can order it here.
Very interesting! More unsettling! Thank you (I think) . Looking forward to the next installment.
Thanks for taking the time to understand this interesting monetary possibility Jim and especially for the critical and concise conclusions to what the "uniparty" system is doing by continually spending more and more fiat money in this country.