Bitcoin Island Retreat, Keynote addressed by Jack Lee
On March 27th, 2023, HCM Capital Managing Partner Jack Lee gave a keynote speech on how bitcoin empowers sovereign individual and why it matters at Bitcoin Island Retreat Conference in Boracay, Philippines. This blogpost features the slides and builds upon the ideas shared during the address.
2022 was a year of uncertainty, inflation and rate hikes. HCM Capital chose to focus on Bitcoin projects because after seeing recent years’ turbulent financial and political situation, when we look at bitcoin, we are not only looking at a merely financial alternative, but also a human rights’ protection platform. Bitcoin will be an exit for human beings, both financial and humanitarian.
As the war in Ukraine unfolded, the World Uncertainty Index surged to a historic high after the pandemic.
And with inflation at multi-decade highs in many countries, central banks pivoted toward higher interest rates.
In February 2022, a lot of Ukrainian people were forced to leave home as refugee and they flooded ATMs to withdraw cash as the war made Ukraine's currency plummet.
Then, the Ukraine central bank limited cash withdrawals to prevent a run on banks.
People were faced with the problem of how to make transactions freely and leave the country with their assets quickly.
After this “sudden” war, we were faced with the “gradual” inflation. Global inflation was exacerbated by the war and affected emerging markets. For example, in Nigeria, fuelled by the high cost of diesel and rising prices of food, Nigeria’s inflation rose to its highest level in over five years. The new rate is the highest the nation has recorded since January 2017. Also, the rise in the cost of gas and staple food items (such as bread, cereal, potatoes, yam, fish, and meat) contributed to the high inflation rate. The inflation continued in 2023 amid the cash crisis, and the local people’s livelihood was greatly influenced.
In order to curb rising inflation, the central banks of the United States and Europe have started the process of raising interest rates in 2022. In the previous Fed rate hike cycles, the tightening of international liquidity threatened the financial market stability of emerging economies, and the accelerated withdrawal of foreign capital affected economic growth. Emerging economies usually suffered from greater financial market volatility and downward economic pressure. For example, in December 2022, the Ghana government announced that in order to prevent further deterioration of its economic, financial and social conditions, the country would suspend the payment of euro bonds. Sri Lanka announced the suspension of payment of various bonds in 2022. In addition, Argentina which applied for IMF loan assistance, was also on the verge of bankruptcy.
On March 10, Silicon Valley Bank was announced to be closed by the California Department of Financial Protection and Innovation due to “insufficient liquidity and insolvency”.
Only two days later, on the 12th, US regulators announced the closure of Signature Bank in New York on the grounds of “systemic risk”.
The European financial institutions were also affected. On 19th March, Swiss government approved UBS purchase of Credit Suisse.
It’s like, if this is a survival game, we are put in ultra-hard mode.
Let’s take a look at the risks an individual should bear:
When war broke out, the freedom of making transactions or withdraw;
When inflation happens, the risk of losing money;
And even the traditional bank system cannot be trusted!
The reason why we need to bear this is that we used to give sovereignty away to a centralized institution.
According to Robert Breedlove, as expressed in the Miami Bitcoin Conference 2022, if you are operating within a group or country that is governed by a set of rules, and there is an individual or group that can make an exception that you cannot, that individual or group is sovereign over you. The sovereign individual or group has the power to bend the rules and take advantage of the unsovereign individual.
Here is the news. During the war, a Ukrainian young man took a USB stick with him across the border containing 40% of his life savings, or about $2,000 in bitcoin. That thumb drive, combined with a unique passcode, became the key to his financial survival.
The ability to transact and store our money without permission is the most obvious Bitcoin’s feature to create sovereign individuals. Any bitcoin owner can store his bitcoins anywhere for as long as he wants if he runs his own node and/or uses a non-custodial wallet to store his bitcoins. Whereas, central banks can make an exception by printing more money.
By acting as a store of value that governments cannot inflate away through central bank monetary expansion, Bitcoin grants people the right to own property.
Bitcoin’s supply is fixed, which is 21 million. So it’s deflationary by nature. To calculate the S2F ratio of any asset, we simply divide the total supply by the annual flow. This shows how many years, at the current production rate, are required to reach the asset’s current stock.
Gold is one of the few exceptions, which retains its value very well even after thousands of years of mining. While gold has some industrial and decorative uses, its historical mining difficulty means it is a relatively sound currency whose steady purchasing power makes it a very good store of value.
Bitcoin may eventually replace gold as the store of value of choice for long-term savings. It is decentralized, scarcer than gold, and easier to transport and store securely.
Centralized institutions never stop printing cash, inflating it and effectively stealing value from their citizens who hold savings.
In emerging markets, the unbanked population is high. It’s difficult for them to get traditional financial access. Authoritarian regimes can use a wide range of individual or societal characteristics to justify freezing your bank account or discriminating against you. Whereas, bitcoin offers even financial service access for everyone.
Bitcoin gives us an alternative to the current financial/political system. It took the sovereignty back from the government to the individuals, which is important in this rapidly changing era. Bitcoin is like a deterrent to the current economic system.
Robert Heinlein said:“ An armed society is a polite society.”
Michael Saylor said: “The power to do a thing is more important than the doing of the thing.”
The existence of Bitcoin will let the centralized institutions know that ordinary individuals already got another choice, they can leave if necessary. The centralized authority will be diluted. Therefore, they will respect the value of the individuals.
This is a fight between a top-down and a bottom-up economy.
The traditional economy is a top-down one. The authoritarian regime controls the banking system and surveillance technology such as big data. And in countries like the US, money and the government are not separate. For example, the monetary policy decisions are always timed-relative to midterms or elections.
Bitcoin, as a new type of technology, is a bottom-up decentralized network. It’s cryptographic, peer-to-peer money and it’s self-custodial. As a technology, it’s still too early to imagine the future in the long run. But we can see there is a transition into the new monetary system.