Bitcoin Maximalism is Dead, Long Live Bitcoin

I am not a Bitcoin Maximalist. Never have been. I don’t think a world where bitcoin is the only currency is either desirable or achievable. Yet, I’m going to lay out an extremely bullish case for bitcoin, why it’s valuable, why it will be adopted, and how it will be used. But first, I’m going to have to do some intellectual violence to a lot of people’s theory of bitcoin’s future dominance.

Let’s be very clear: Bitcoin Maximalism is a moral and political position. It is not merely an inevitability foretold by Gresham’s Law. Because the definition of “good” money, as we are about to find as I take you through a crash course of moral epistemology, is what we call a normative argument.

Something that is normative in ethics is a statement about what we feel ought to be true in the world, based on human moral sentiments in the Humean conception (to which I’m partial), or in some appeal to natural law or some deontological one (which I am not) — but for the purposes of this argument today, I don’t think these distinctions will matter very much. What we will find, is no matter how hard we try, we are going to discover that “good” is always going to be subjective — or rather, normative.

It turns out this is my biggest objection to Austrian economics, too. When you peel back the layers of Austrian theory, you eventually find a moral epistemology lying at the bottom of it. Now, some of you are going to immediately protest about aspects of well-accepted concepts in mainstream economics like say, the subjective theory of value, which can be credited to thinkers who are associated with the Austrian School. But it would be, on its face, logically fallacious to argue that just because some Austrian economists got some things right, that everything associated with the school of thought is also right. Anybody who has even more than a slightly above average grasp of logical reasoning should detect the problem with this thinking right off the bat.

Moreover, I believe Austrian theory’s commitment to “sound” money represents an internal contradiction to Austrian thought, that kind of goes un-interrogated — and I’m going to mercilessly attack here.

Austrian’s generally define “sound” money to be something that has the quality of having fixed and/or predictable supply, and for this reason Austrians have long had a predilection towards commodity money, in particular, gold. It is not surprising that the emergence of bitcoin attracted the attention of Austrian thinkers, and it’s also not surprising that bitcoin has acted as a gateway for many into Austrian economics. The problem is, the whole theory is built on moral epistemic quicksand.

This theory champions the idea that markets, driven by the diverse and unknowable preferences of individuals, efficiently allocate resources and preferences. Yet, it paradoxically assumes a collective market desire for sound money, an epistemically incoherent stance given its foundational principles. This contradiction undermines the theory’s claims about the nature of money and its role in the economy.

Austrian economics frames itself as a neutral economic theory but operates more like a moral philosophy, making normative claims about what constitutes “good” money based on a shaky moral epistemology. It fails to address the is-ought problem in ethics and relies on a subjective preference for the virtues of sound money, which doesn’t universally hold across market participants.

In fact, empirical evidence shows that markets have not naturally gravitated towards fixed-supply commodity money but have instead shown a preference for flexible, state-issued fiat currencies. This preference has been propelled by a consensus belief that flexible money supplies support economic stability, innovation, and practicality in a modern, interconnected economy — contradicting the Austrian ideal.

Austrian’s for their part, will immediately fire back, and say that no such consensus exists. Instead, the support for state-issued currencies stems from a form of regulatory capture, by a pernicious parasitic economic elite. Further, that this system has been allowed to persist because of a lack of consciousness by the public at-large about the grotesque truth about the nature of the system — that the Federal Reserve system can create money out of thin-air, that banks can rehypothecate deposits, and that participants in the primary money markets have a systemic advantage at gaining access to money ahead of its inflationary effects. Part of the reason why it’s so easy to believe this is what’s going on, is there is some truth to all of this. The problem isn’t so much that these people err in identifying problems within what they derisively refer to as the fiat system, it’s that they’re making the mistake of ignoring the possible benefits of that system — and why despite these problems, aggregate market preferences might still gravitate towards state-issued fiat in politically stable contexts.

The fact of the matter is, we don’t hear market participants demanding sound money. We mostly only hear political libertarians and anarchists calling for it. This is very important, because it aligns with my general underlying theory of contemporary Austrian economics to begin with: it is a political-economic philosophy. Its grounding epistemology — praxeology — gives up the ghost on the fact that Austrian thinking is libertarian thinking. They go hand in hand with each other.

From a moral philosopher’s point of view there’s some really important questions to ask about the Austrian conception of what “good” money looks like. Why ought saved money increase in purchasing power over time? The answer, that say Jeff Booth gives in The Price of Tomorrow, is because that rewards savers with the benefits of productivity gains over time. But why is that obviously the correct thing to do? It sounds good. It feels good. But as David Hume might say, it’s nothing more than a moral sentiment. Why is this an obviously better way for an economy to distribute productivity gains than the stock market, redistributive welfare in the form of transfer payments, or even sovereign wealth funds? There’s nothing obviously correct about this. Why is there an obvious moral imperative to distribute productivity gains at all? These arguments take a lot for granted!

In fact, if productivity growth is the goal, then as the vast majority of economists today believe, fiat currencies have commodity currencies beat. Because central banks can mediate the price or risk-taking in a market, by acting to cheapen money during periods of low investment and high savings, and make money more expensive during periods of irrational exuberance and low savings. These tools cannot exist with a fixed money supply.

But this is where the Austrian thought process is obviously cognitively unstable to me: free markets, despite their inherent drive towards deregulation and autonomy, have historically shown a preference for state-issued currencies. This is largely because private currencies can introduce risks and incentives that may lead to instability and market failures. State-issued currencies, with the backing and regulatory oversight of governments, offer a level of trust, stability, and uniformity that private alternatives struggle to match. Consequently, the collective market — through democratic processes and economic behavior — tends to support political solutions that ensure the integrity and reliability of the monetary system. I think there’s a much stronger argument that fiat money is in fact, the revealed emergent preference of the market!

So why is bitcoin so valuable? It’s valuable because while fiat money, inside a political order is generally preferable to commodity money — alongside rule-of-law — is there’s always still political risk. There’s risk the central bank will be captured, or will engage in very bad policies that lead to out-of-control inflation. There’s risk that political orders will break down, and financial freedom will be undermined. There’s risks that countries will erect capital controls to keep money coming in, out, or both. This means that the risk of political money — which all fiat is — becoming compromised is always a non-zero risk. Bitcoin is a piece of financial technology, that is now the best possible way for someone to price that political risk and trade that political risk. So bitcoin is non-political money. That means it is going to have a non-zero expectation value, and that means you can use it to move value around the world, because there’s always going to be a perennial market for people who want to hedge against political risk.

This means bitcoin has a bright future! It means bitcoin is going to keep growing in value — at least for some time to come. But it doesn’t mean hyperbitcoinization is in the cards. That’s, in fact, highly unlikely. And you probably don’t want to live in the world where political risks have become so acute, that hyperbitcoinization would be seen as rational by all economic actors. Because that world would be an extremely dangerous place to live in.

So absolutely, hodl your bitcoin. There’s good reason to add it to your asset mix. There’s especially good reason to hold it, if you exist in an adversarial environment — if you’re a freedom fighter against a tyrannical regime that has removed your financial freedom. But this is the nature of bitcoin’s value. It’s why the bitcoin doubters will be proven wrong, and why it’s not going anywhere. But it’s not the reason why the world would move to a bitcoin standard.