Bitcoin’s Belief System is Better Than Fiat Currency’s Belief System
All economic systems are belief systems, not unlike religion. We express what we believe, consciously or unconsciously, through our economic behavior.
On November 3, 2021, Mark Mobius, the famed 85-year-old investor and founder of Mobius Capital Partners LLP, went on Squawk Box and decried crypto as a “religion” and “not an investment.”
He’s not the first person to criticize the space in this way and, given the vibrant (and, at times, highly esoteric) culture that has emerged around it, there are many who would readily and heartily agree with him. It’s worth noting that though Mobius uses the term “religion” pejoratively, others, like Chris Dixon of a16z, have referred to Bitcoin as a religion in a distinctly non-pejorative way. I want to explore the view of Bitcoin-as-religion in the Mobius sense, which is to say from the perspective that this is a negative attribute. While it’s clear that folks like Mobius believe they are offering self-evidently damning criticism, I think exploring the underpinnings of such a view ultimately reveals more about the fiat system than it does about Bitcoin.
To lay some groundwork and nail down some definitions, let’s acknowledge that there are many different ways to define or conceptualize religion, as religion means myriad things to myriad people. I want to focus on one basic (though certainly not exclusive or exhaustive) framework for religion here.
One way to think about religion is as a belief system and a network of believers. Every religion fundamentally involves a system of beliefs shared by its practitioners. The beliefs are the organizing and guiding force of the religion. Stemming from the belief system itself are practices, rituals, conceptions of morality, prescriptions for living, etc. The practitioners themselves are a network, meaning they form and share connections via this belief system they share.
Now, when someone like Mobius refers to Bitcoin as a religion and not an investment, it’s a comparative statement distinguishing religion from investments (or things worthy of investment). There are a couple of assumptions underlying the view that these things are so plainly distinguishable. The first is that things worthy of “investing,” i.e. fiat-denominated investment vehicles, exist entirely outside of and separate from anything resembling religion. It’s a lightly veiled way to say these investment vehicles conform to discernible, rational frameworks and do not rely on something as human and squishy as belief, but those investments (e.g. Bitcoin) are irrational and conform only to the mercurial logic of belief. The second assumption is that possessing some of the same characteristics as a religion makes something unworthy of investment.
The first assumption is wrong in exceedingly important, though markedly non-obvious ways. I would argue that both the fiat system and the still-hypothetical Bitcoin system are religions in the sense that we outlined above, namely that they are belief systems with networks of believers. The difference is that those who have spent the entirety or majority of their lives in this fiat system fail to appreciate that it is religious in a lot of the same ways that Mobius and others accuse Bitcoin of being religious. Why the failure here?
Well, the inability to have or gain any objectivity about something so ubiquitous is common and to be expected. Recall the parable, made famous by David Foster Wallace in This is Water, of the two young fish swimming in one direction who encounter an older fish swimming in the opposite direction. The older fish greets the younger fish and asks “how’s the water?” The two young fish keep swimming. Eventually one turns to the other and says, “What the hell is water?” This parable highlights how the most obvious, all-encompassing truths and realities can be difficult to see or appreciate, especially when we’ve never existed outside of these realities. Another obvious, though more dystopian, analogy is of course The Matrix.
The fiat world shares many of the same religious characteristics that Bitcoin is accused of possessing, but the set of beliefs that make up the fiat system are so pervasive and inherent to our experience that they’re initially difficult to perceive. They do exist, however. So let’s start to unpack them.
The fiat-world belief system is first and foremost about the supremacy of the United States Dollar (the “USD”). The entire global economy is anchored to and organized around the supremacy of the USD. Both U.S. foreign policy and U.S. domestic policy are and have been committed to preserving the supremacy of the USD. Since neither the USD, nor any other fiat currency, is backed by gold, the entire system is essentially backed by the power of the United States military and the “full faith and credit” of the United States government. The former, as we’ll discuss below, requires expenditures of petroleum and human lives. The latter is regularly eroded as our national debt grows to farcical amounts and foreign buyers stop purchasing our bonds.
Preserving the supremacy of the USD as the global reserve currency in the post-1971, post-gold-standard world has necessitated, influenced, and contributed to a plethora of negative events and trends, globally. The perpetuation of USD supremacy is how we got the petrodollar system, which, though currently fraying, has governed and coordinated the global economy for the last 50 years.
For a deep dive on the petrodollar system I recommend reading “Uncovering the Hidden Costs of the Petrodollar,” an article by Alex Gladstein and watching Petrodollars, a film by Richard James. Suffice it to say, it’s a system whereby Saudi Arabia (and, later, other oil-producing countries in the Middle East, too) agreed to price all oil contracts in USD, in exchange for which the U.S. promised to provide defense.
This was beneficial to the U.S. because we were (and are) running up a ton of debt. Saudi Arabia agreed to take the profits from their oil commerce, commerce which was conducted in dollars, and buy United States debt. To radically summarize how this shaped the global economy, every country needs oil for energy, so most countries needed dollars to pay for the oil, which strengthened the U.S. dollar, which made our exports uncompetitive, which more or less destroyed our manufacturing industry and weakened the middle class, which also led to the financialization of everything, which of course led to more leverage in the system, and here we are.
Sustaining the petrodollar system, which is a significant component of the USD’s global reserve status, has required the U.S. to intervene militarily at various times and in various ways, much to the obvious detriment of those called upon to fight, the taxpayers, and the environment. After all, the U.S. military is itself the world’s largest institutional consumer of oil3 and, since 1971, has been deployed in several instances, whether indirectly or directly (debates rage on), to defend a system entirely predicated and dependent upon the production of oil.
So one way of looking at the fiat belief system is that it revolves around the supremacy of the USD, which, despite a lot of concentrated benefits accruing to a concentrated group of western elites (financial institutions, defense contractors, large corporations, politicians, etc.), has wrought a lot of harm, cost a lot of lives, and negatively affected a lot of emerging market economies. This belief system has considerably widened the wealth gap by hollowing out manufacturing and production jobs, while simultaneously pumping financial services and accelerating the financialization of the economy which, obviously, benefits those with the capital to plow into financial products.
Another way of framing this belief system is through the lens of the dollar’s ongoing debasement as the result of unprecedented money supply expansion since 2008. As the money supply gets expanded, existing dollars are worth less and less. We’re all familiar with inflation and how the dollar loses purchasing power each year. This process has accelerated since 2008 as a result of the aforementioned acceleration of money supply expansion. About one quarter of the dollars currently in circulation were created since March of 2020, for example.
Since our dollars are continuously worth less, people turn to other assets to store value across time. Think real estate, stocks, gold, oil, etc. These assets are inflating because more and more people are turning to them to serve the store-of-value role that should, ideally, be served by a sound, functioning money. As Jason Lowery has noted, these assets which have taken on a monetary premium are defended by the rule of law and regulated institutions which, importantly, are themselves ultimately defended by the Unites States military:
This is all to suggest that, like Bitcoin, the traditional fiat economic system is also a belief system with a network of believers. The difference between these two systems of belief are that Bitcoin’s tenets are explicit, while fiat’s are, for most people, implicit.
But make no mistake, implicitly or explicitly our economic systems are belief systems, and we choose which system we believe in through our economic behavior.
When one professes, implicitly or explicitly, a belief in the current fiat system, one professes, implicitly or explicitly, a belief in the goodwill of politicians and central bankers, inflation, manipulable money, the Cantillon Effect, decreased and unequal financial access, U.S. military interventions in the Middle East and elsewhere, exorbitant consumption of fossil fuels, money that loses purchasing power every year, a growing wealth gap, and a world in which financial intermediaries determine who can be banked and transact. I would also add that a world in which real assets take on a monetary premium is one which incentivizes those who can and so desire to plunder for those assets.
When one professes, implicitly or explicitly, a belief in a Bitcoin system, one professes a belief in math (no politicians or central bankers required), preventing inflation, un-manipulable money, increased and more equal financial access, banking the unbanked, incentivizing renewable energy use4, advancing a tool for human rights, deterring conflict and plunder, addressing the wealth gap, deterring plunder/war, and disempowering financial intermediaries. Even if you are explicitly only in Bitcoin for the gains (for the “number-go-up technology,” as we say), you are still, through your economic behavior, tacitly expressing a belief in the aforementioned things because your behavior is advancing a technology that advances all of those ideas. Another common, applicable saying in the Bitcoin community is “come for the gains, stay for the revolution.”
By believing in Bitcoin, you believe in “transposing” the monetary premium that has been affixed to other assets (as a result of our continual debasement of the dollar) into Bitcoin. As Lowery notes, the former is protected by the rule of law and our institutions, which, as is oft-overlooked, must themselves be defended by the expenditure of military energy and human lives. Bitcoin, on the other hand, is protected by electricity (an increasing amount of which is renewable), math, and decentralization.
So, to bring this full circle, when folks like Mark Mobius pejoratively refer to Bitcoin as a “religion,” they do so presupposing that the current fiat system is not itself a system of beliefs, requiring a network of believers, which is to say a bit like a religion in its own right.
If each system, the heretofore unrealized Bitcoin system and the current fiat system, is, like religion, a belief system, then we are each, in a sense, choosing our religion. The fiat world’s essential tenets can be difficult to see, or so ubiquitous as to be unnoticeable, which renders acquiescence frictionless and largely automatic. Bitcoin’s essential tenets, on the other hand, are transparent and readily discernible for all who are willing to engage.
This also brings us, finally, back to the second assumption underlying the Mobius view, the assumption that possessing some of the same characteristics as a religion makes something unworthy of investment. We can see now that this relies on a bit of a false dichotomy, since the fiat system, like Bitcoin, is also a belief system. Our economic behavior, namely where we put our money and how we transact, is a vote for the economic system we want to see in the world. The economic system we want to see in the world should be the one that best reflects our beliefs regarding what fundamental principles cultivate a world of shared abundance and human flourishing.
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DISCLAIMER: I am not an investment advisor and this is not investment advice, nor is it intended to be. This is not a recommendation to buy or sell any security or digital asset. This article is intended for educational and informational purposes only.