Bitcoin, a Deflationary Bomb, was just dropped onto an Inflationary Economy, Part 1
We’re about to find out what happens when an deflationary asset explodes across an infinitely expanding economy. Read Part 2 here.
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:
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.
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.