Bitcoin, a Deflationary Bomb, was just dropped onto an Inflationary Economy
We’re about to find out what happens when an deflationary asset explodes across an infinitely expanding economy.
Satoshi Nakamoto must have thought long and hard before unleashing his creation upon the world. I imagine (to go with his pseudonym) an Asianic man sitting on a hill, knees akimbo, a thousand mile stare into both the past and the future.
He might’ve been thinking of the recent banking crisis, the mortgage derivatives that gave the financial institutions a license to steal. So much so that embedded, along with the normal data in the Bitcoin Genesis block, the following phrase:
The Times 03/Jan/2009 Chancellor on brink of second bailout for banks
An interpretation of this phrase is ending the control of Banks and Governments over your money.
For the first time in history, all developed nations use fiat currency. All fiat, and all inflationary. It commenced with verve once Nixon took the US dollar off the gold standard.
Governments decide the extent of the money supply, and through it, it’s worth. The simple reason nations use fiat money today is that it doesn’t limit how much of their currency they can put into circulation. Read: inflation, whenever, and however they want.
What’s the frequency, Kenneth?
I imagine Nakamoto (if that really is your name), squinting his epicanthic folds, pondering the greed of nations, an environment of continually higher prices, the billions of unbanked, bailouts with what amounted to fake money, and how, by releasing his creation Bitcoin, into the wild, some might consider it a monetary bomb.
An act of terror.
At maximum, a Nuclear level incendiary device about to crack the bedrock of the modern economic world: the inflationary economics and the inflationary currencies it relies upon.
No wonder he went by a pseudonym.
The new haves will not be those that hold US Dollars, or any fiat money, the new haves will mostly be the geeks and freaks that are the new gazillionaires. Add to that the Venezuelan bitcoin miners that never needed an excuse to grasp a lifeline that could turn into a firehose of money. Not to mention the remaining hopeful masses who have bought what they believed to be the equivalent of a lottery ticket, perhaps forgotten on a hard drive, or thumb drive, until the second coming of Bitcoin appears.
The fatal flaw of Satoshi Nakamoto is that he believed he created a solution, rather than a new set of problems. To create a kind of algorithmic money takes a special kind of absolutist, nigh well an anarchist. He seems to believe in a utopia where We the People are the banks, we the trusted 3rd parties. The problem is that We the People often are poor guardians of our own money.
And the bad actors are many.
Satoshi doesn’t posit a Utopia, though, just something fatalistically better than what we have now.
relating to or characteristic of the belief that all events are predetermined and therefore inevitable.
We are speeding towards our algorithmically determined Bitcoin destiny, whether we want to, or not.
Problem? What problem?
The benefits of Bitcoin far outweigh what is going on right in front of us.
If you don’t think hyperinflation exists in the so-called First World, have you paid for a movie ticket lately? Maybe seen a show with a large tub of popcorn and a couple cokes? No wonder every year movies perennially break box office records.
Excuse me, in what world does Avatar beat out The Godfather?
While some would argue, not incorrectly, that fiat money and inflationary policies ushered in:
… no greater improvement in the quality of life for the rest of us than the 20–21st century in the history of mankind.
One problem is the rest of the rest of us: the unbanked, the have-nots. Hyperinflation was a thrill ride none expected, nor asked for.
Economies suffering from hyperinflation were obvious. Part of what so-called president Trump called “shithole nations” — Venezuela, Zimbabwe, South Sudan, Argentina…
Europe, and the US are usually spared these aspersions.
But Western Nations suffer as well. Ever consider getting a standard 3 bedroom, 2 bath house? 38 million Americans can’t even afford one. If you can’t afford to, consider lumping yourself with the have-nots.
And if your considering San Francisco, better bring a million dollars, or two (or 3). San Francisco ain’t exactly cheap. Only 1 in 4 residents can afford to buy a home there.
I’m not talking south San Fran, near the roar of the airplanes taking off, where the ex-military suffering from PTSD try not to flinch at imaginary bombers flying overhead. Unless you’re a gazillionaire you probably dismiss the thought, especially if you want to live in the civilized manner you are accustomed to.
Central SF, or bust.
Consider having a date night out, you know, with an appetizer, entree, a glass of wine (or two), and maybe even dessert? Dropping a C-note (or three) would not be out of the question.
I was shocked (shocked!) when paying for a steak meal in Buenos Aires, complete with several sides and a carafe of wine, a meal for two, and it only cost me the equivalent of $20 USD.
My date offered to pay half. I waved her away: tonight, it’s on me.
The disparity between the cost of a meal in a country (Argentina) where hyperinflation took hold, versus a slightly less inflated, more stable currency (USD), was stark, and wildly one-sidedly enjoyable.
Por supuesto que si!
For the HODLers of Bitcoin, I have one question: how would you like your steak? Because you’re about to have it any way you want. On top of a skyscraper apartment in NYC? In your private jet flying to France to ring in the New Year? Kobe or Wagyu? Medium-well, or just bloody-well?
Bitcoin: not just a fixed supply, it’s downright Endangered!
In terms of rarity, Bitcoin is more rare than any blood diamond, any ounce of gold. More desirable than a night out with a Victoria Secret model sweaty-fresh off the catwalk, or a parachute ride into Burning Man.
Consider: we do not know the absolute amount of anything. Any other substance, currency, or precious stone. And an abundance of those rare minerals may be just an planetoid ride away.
Take away what has already been lost, and the mathematically determined 21 million Bitcoins dwindles to 17 million.
More will be lost over time.
If you think Bitcoin has an inflated valuation, imagine in the not so far flung future, when global warming has killed off nearly everything, imagine being invited to dine on sushi made from the last school of blue fin tuna. With a side of polar bear au gratin, followed by creme de rhino noir? I won’t ask how much you’d pay for something like that — you’re better than that. How much would a Trump, or a Soros pay for a dinner like that?
Well, that’s Bitcoin.
Folks will pay anything for a slice. It’s not only rare, it’s not only precious, it’s endangered.
Now imagine the world banks, sovereign wealth funds, the largest wealth conservators on the planet. Imagine they are like the Rapa Nuinians nervously eyeing Bitcoin like the last pines that exist on the doomed isle, wondering who they have to kill around here to get two sticks to rub together?
The prediction of $1 million per Bitcoin may be astoundingly low.
The Satoshi Solution
I imagine Satoshi standing up, brushing off his Samurai hakama pants, adjusting the Bitcoin sword about to cut the Gordian financial knot and think, no, my creation is not any kind of bomb or tool of the terrorist. It’s not any nuclear-level incendiary device at all.
It’s a love letter.
To the recipients of broken promises, to those never been kissed.
Don’t think inflation is ruining your life? Blissed out by the 2–3% official inflation rate? Consider this: $20 in 1913 is worth $520 in today’s dollars. One dollar today will buy you one McDonald’s cheeseburger. In 1913, you could buy 26.
That is inflation.
Inflation is a shit sandwich, and everyone gets to take a bite.
God forbid you get into a serious accident — with or without insurance. A single accident can raise your auto insurance premiums by 41% or more. That’s not even talking injuries.
We all know that the number 1 reason for declaring bankruptcy in the US is medical debt, known as insult to injury, or what happens after.
Still don’t think we experience high inflation? Consider skyrocketing education costs. Back in 1989, when I received my Bachelor’s I had what I considered a bone-breaking debt of around $10k. Today, the equivalent 4 years at the same State college with In-state tuition costs over $40k.
300% inflation in 30 years = 10% inflation
Here’s a solution some fall for: mortgage your hyperinflated house to pay for your hyperinflated treatment, or your daughter’s hyperinflated education.
Which isn’t a solution at all. It’s a coping mechanism when your country is at war with itself.
Everyone thinks their country is immune to inflation — until they’re not. Don’t make me bring up the frog in the slowly boiling water!
I mentioned hyperinflation in my previous article (Crypto, this is how the Dollar dies), and compare Bitcoin to the US Dollar.
Every hyperinflated currency, whether that be Bolivars or Pesos, is compared to the USD. Usually, as in how many of the local currency is necessary to purchase a US Dollar. An article in the NY Times, for example, talked about Weimar Germany where a single US Dollar was worth 6.7 trillion German Marks.
Well, a single Bitcoin is currently worth $6,530 US Dollars. Can you pick out which currency is inflated?
It’s telling that it was not an economist who thought up Bitcoin, but a cypherpunk. An economist would likely shudder at the implications of introducing a truly deflationary, borderless and decentralized currency into an inflationary environment.
Meanwhile, cypherpunk Satoshi was hurling his monetary moltov cocktail. Out with the old! Let’s conduct a monetary experiment in real-time!
Because his absolute belief in his invention, in his vision.
In the land of the blind, the one-eyed man is king.
Are we so blind that we can’t see that We are Easter Island? We are the Rapa Nui cutting down so many trees we don’t even have enough wood to build a boat to escape this desert island.
How about Deflation?
Everybody points to Japan as an example of how it sucks to sell something for less than the price you want for it. Yet last I checked no one was held up at gunpoint in Tokyo for lack of food. And consider: how does that equation work when 1 Bitcoin today can buy what 7 could a year ago?
The Dollar cannot fail, it has Value!
Well, gotta trust something.
You still think that the dollar has intrinsic value? Hand me your dollar. I’ll cut it in half, and hand you the other half. There, that’s fifty cents.
Now cut it up 26 times and choose one piece — that’s what happened to the dollar since 1913.
If I gave a beggar half a dollar and say, “go buy yourself a cup of coffee” they’d say, “where’s my 50 cents?” and I’d point to their half and say, “Right there in your hands.”
No, it’s not, it’s just a piece of paper.
Fuck you, that there’s intrinsic value staring at you in the face!
Nope, that’s because the dollar doesn’t have intrinsic value. It’s just an agreed representative means of exchange. If I take a dollar to a bank, they’ll exchange it for the same amount - like 4 quarters, or another bill, but won’t give me a fraction of an ounce of gold for it.
The dollar stopped being backed by anything resembling an asset a long time ago.
And a cup of coffee costs at least $1.50.
Fake it till the government makes it
A dystopian Las Vegas with a bigger budget.
This is what we have come to. Houses are considered investments, not what they actually are: a place to live. Are we really reduced to becoming Martin Shkreli’s, and the old/new moralism of Gordon Gecko: Greed is good?
The past isn’t past, it’s not even past. Easter Island is barreling down our collective throats.
The names change but the hard facts remain
History repeats it self over and over again
Tomorrows rain might wash away the stain
But the hard light clears out the rain
Till what’s left are fact and they will explain
How history has repeated it self again
A new name on the horizon remain
History always repeats itself, and changing the course is hard. But Satoshi has decided he is not going to stop trying.
I don’t want to live in a world where we just fuck each other over for a scrap of fiat currency that will eventually be worth squat. Reminds me of The Social Network’s Savarin with Markie Mark Zuckerberg, or cancer-ridden Paul Allen with Bill Gates, diluting your shares in the sad game called screw-your-co-founder.
Then someone brings up how we need inflation: to fuel economies, to account for the amount of credit necessary to start and continue innovation. Control of the money supply allows nations to create equilibrium, they say. China devalues Yuan, and buys US debt, in order for China to sell cheap crap to the insatiable US appetite.
What’s not to love?
What are we gonna do if the practice of inflating currencies stopped? Stopped being created through debt instruments, and Government “printing,” aka lending?
Savings might actually be worth something, for one.
Currency could actually be considered an investment instrument again, rather than just a means to buy a peppermint latte.
And houses can revert back to being homes.
Isn’t Bitcoin too risky?
The question is: compared to what?
How about stocks? What is Jim Cramer, and the Motley Fools, you know: what the smart money is doing.
To that, have you forgotten the mortgage derivatives, the Enron’s, and Theranos’s? When smart money loses, what hope is there for the rest of us?
The smart money doesn’t seem so smart. How is a mom and pop investor supposed to invest, when the brightest of the bright are defrauded?
Risky assets — we already have them. Fiction? In what world is a 25 P/E considered conservative? With the average price of stocks 25 times earnings, poor Ben Graham is rolling in his grave.
Important asset prices remain elevated and in the U.S. the cyclically adjusted price to earnings ratio developed by Nobel laureate Robert Shiller remains higher than it has been at any time in 137 years (except for 1929, the late 1990s and the early 2000s — also periods of economic crisis). ~ Patrick Tan
We live in a Parallel universe of exploded hyperinflated ordinance-level stock valuations.
Into this we drop a Neutron bomb of Not-Inflation. Don’t worry, unlike a regular nuclear bomb we’ll be able to harvest the bodies, and still live in the buildings. Those without Bitcoin will still suffer — a little bit.
It’s hard to figure out the consequences of the future when it’s right on top of us.
Death throes and dystopian landscapes such as Venezuela are just the canaries in the coal mine signaling the suffocation of, well, everybody.
But S. Nakamoto is here to save the day — the price is the destruction of all the fiat money. When the House of Saud demands oil payment in BTC, a Satoshi (a hundred millionth of a BTC) will buy your fries, maybe even a Big Mac, and a Coke to go with it.
The rich will get fantastically richer, and the poor will get richer. Every illegal BTC miner in Venezuela who is able to squirrel away a nugget of Bitcoin will be living large in the new economy.
Once more, into the breach! No hyperinflation?
How do you enjoy paying Uber $5,000 to get you across town? Oh wait, it’s not called Uber, I meant “ambulance.”
Martin Shkreli (great name for a Vulture Capitalist, btw) can teach his fellow inmates a thing or two about hyperinflation.
Of course hyperinflation exists in the US of A, don’t be a dumbass!
Want to buy a house, get decent healthcare, have a date night, education, or a life-saving treatment — you know, the important things? Well, hyperinflation’s got your back. Consider: seminars are being organized through your local facebook group on declaring bankruptcy as a strategy to get your cancer fixed.
What will it take? A US, a China, a Russia hyperinflation event before we acknowledge that it could happen to us too.
Hyperinflation is happening now. And once folks come to that realization, capital flight follows soon after.
Capital flight is happening now.
Around 7% of citizens of the world, on average, own some crypto. The 7% cleared the hurdles of transferring money from their bank to an exchange. They high-jumped the difficulties of becoming the caretaker of private keys and 15 word passphrases handwritten on paper notes, and pole vaulted the cruel yet obligatory task of safekeeping their crypto in various wallets both hard and soft.
That the percentage is not less than 1% boggles my mind.
Western nations are in the privileged position of belittling inflation as something actually not that bad. But the desperate will call out what the less desperate won’t. They will be the first movers when the topic is survival. How did citizens of shithole countries like Venezuela figure out how to even mine?
The rest of the owners are probably part of the 40% of Americans who have less than $10,000 dollars saved for retirement. Add to that the 20% that don’t have squat.
Do you even lift, bro?
Stresses, like the inability to eat, power civilizations to get off their collective asses. Venezuelans have no issues using bitcoin as cash. No hodling there. Every spike they can buy 2 loafs of bread instead of 1. Every falling price of Bitcoin that the FUDsters crow about still beats out their inflated currency— so, who gives a shit?
Would you rather have magical money, or money that’s worth less every day?
You like our current system of low 3% inflation? What if I told you that in 26 years, right about the time you want to retire, half your money will be gone. Eaten away by the so-called “low” inflation.
I hear cat food is tasting better, which is something.
Your children making the same amount will live in a home half the size of your own. College will cost three times as much, and and…
I can hear those from Western Nations yelling, Fuck you! I was lying here just fine, enjoying my illusion of 2–3% inflation. I was enjoying watching sitcoms, and action flicks, blissfully unaware while buying my Free Katie, Save Suri t-shirts on Zazzle, while plastics choke the world.
And for those that like the idea of linking crypto to fiat, the hyperinflated, I like what someone posted on the FB:
Tether, brought to you by the motherfuckers that brought you inflated dollars, available at a shitcoin exchange near you!
Tethering to Fiat is considered great until, like the conscious uncoupling of Gwyneth and the frontman of Coldplay, the unconscious uncoupling of Bitcoin from fiat currency happens. Then fiat’s so-called greatness will cease.
What happens after we stop thinking about converting Bitcoin to its equivalent Fiat is when the magic happens. Instead of dollars, we’ll talk about the equivalent amount of Satoshi’s. As in, how many Satoshi’s for a pizza?
What happens when all the Bitcoin that will ever be created is created? The value will go up stratospherically. And you’ll be able to use a Satoshi, a hundred millionth of a Bitcoin, to buy your coffee.
Notice I didn’t say “price,” I said value.
Bitcoin won’t cure inflation. It will expose its fallacy.
Bitcoin is Magic Money
Apt, given that you could only first buy it from an exchange named after the card game: Magic, the Gathering!
The kind that gets more valuable over time. A true goose that lays the golden egg. Actually, scratch the goose. How about a golden egg that just keeps getting bigger and bigger?
A true economic parallel universe, where you can buy more and more with less and less. Better that than a world of incredible valuations driven by capitalistic dog-eat-dog companies playing the game of beating quarterly profit estimates.
Money for nothing and your chickens for free.
Unfettered inflation is just the world eating its children.
Onto this funeral pyre of hyperinflated economies Monsieur Nakamoto throws down his gasoline-filled gauntlet of a white paper.
I’ve read his white paper, and in my opinion, and despite his genius, Satoshi forgot to mention a couple items.
He forgot to mention that even though Bitcoin is programmatically fixed at 21 million, it’s also paradoxically nearly infinitely divisible, down to a hundredth of a millionth of a bitcoin: the Satoshi.
He lapsed in not discussing the ability of bitcoin to be cash by doling out, say, a hundredth of a millionth of a BTC — a solid Bitcoin will not be necessary. An actual Bitcoin will, in the future, likely be used only for the settling of national debts. Or big time purchases by sovereign wealth funds.
Or, from McAfee to Ver to avoid the question of will he, or won’t he?
For some damn reason, everyone is talking about the death of Bitcoin, but no one is crying about having 1/26th as much money as they used to have. They don’t realize that however great they think the life they’ve been living is, it’s far worse than the life Bitcoin promises.
What Satoshi writ
Satoshi didn’t write a white paper: he wrote a love letter. And as with any love letter, it was stacked with hope. The hope of a new tomorrow of money actually being worth something. Also, immersed in fear: the fear of his love not being returned, cast away like many other human inventions and interventions. With all the teen angst, longing, and unrealistic expectations a love letter implies.
What he failed to write can only be inferred. His hatred of the current fresh economic hell we all agreed to. Of Nation States, and financial corporations battling it out, with the losers being We the People.
What he wrote, if you read between the lines, is a love letter to the future: Survive this with me, and I will grant you everything. As with any revolution there will be turmoil and strife. I bestow upon you an ever expanding asset more precious than diamonds, more rare than a mountain of semi-precious stones.
What he failed to write was substantial. What he failed to write is what should have been the final line of his love/white-letter/paper:
This is not to say that I love you. This says: I’ll never stop.
Nothing in this article is to be construed as investment advice. Neither the author nor the publication takes any responsibility or liability for any investments, profits or losses you may incur as a result of this information.