On a silly piece I just saw on Forbes
I came across this piece today written by Sam Lyman https://fortune.com/crypto/2024/12/06/the-case-for-a-strategic-bitcoin-reserve/
It's pay-walled, but I'll quote the important parts. In summary, it's basically a concise version of Jason Lowery thesis: Once the entire world gets fully enraptured in the forever virtuous greed cycle; we'll be sooo glad we hoarded it first.
I think it's worth going through the individual arguments and calling them out as these are no doubt going to keep coming up. Most of these arguments are just exercises in question-begging, with the question being "will Bitcoin number go up forever?"
Like any good essay, it starts by stating the thesis.
Not only could a strategic Bitcoin reserve significantly reduce our national debt; it could also strengthen the dollar and increase our economic leverage over China and Russia.
How does it work? well the number is going to keep going up:
Consider first the critical role Bitcoin could play in curbing the deficit without raising taxes. Bitcoin’s value may be volatile over the short term. But over the long term, its price has always moved in one direction: up.
It's easy to say that Bitcoin has historically gone up when Bitcoin is at an all-time high, but most of the time, Bitcoin is not at an all time high. So this is a bit of an iffy claim. More importantly, we have no idea how long this arc will last.
Following MicroStrategy’s price models, the bitcoin reserve proposed by Senator Lummis could cut the national debt in half over the next 20 years.
"Could." Right. If we buy at a cheap price and sell at a high price we will be better off! Brilliant. But seriously, folks, take my Bitcoin, please! What exactly is the schedule and actual details in regards to how we take the bitcoins we own and use this to reduce the debt? I still need an ELI5 on this. When we start selling our Bitcoin to pay off our debt, who exactly is going to be buying the Bitcoin, that we are selling, when the whole reason that Bitcoin was going to go up was that we were buying? (The claim, made later in the piece, is that number goes up because our buying sparks a digital gold rush. Our selling, we hope, also will spark a digital gold rush?)
This would bring the nation’s ownership stake in digital gold on par with its ownership stake in physical gold. And it would position the United States as the indisputable leader in the fastest-growing monetary network in the world.
Bitcoin is not the fastest growing monetary network in the world. Very few people use it for actual transactions. Last year, I did have someone pay me Bitcoin for a book; and in 2014 I paid someone in Bitcoin to build me a website. But I very very rarely hear about people using Bitcoin as money, at least outside of some sort of crypto-trading. I think the author has conflated the fact that people like Michael Saylor are paying lots of US dollars for the coins with growth the monetary network. An ETF is not a monetary network. I also have no idea what it would mean to be an indisputable leader here. We would be just sitting on it for 20 years.
But the benefits of embracing Bitcoin go far beyond alleviating the national debt; policymakers could also use the cryptocurrency as a counterweight to China and Russia’s economic hostility.
In recent months, BRICS countries have accelerated plans to introduce their own currency as part of a broader move towards de-dollarization. Leading the charge are China and Russia, which are dumping US Treasuries by the thousands in exchange for gold bullion. In effect, these countries are leveraging gold reserves to reduce their dependence on the US dollar-system. And by their actions, they are encouraging others to do the same.
But what if the United States had a check against gold weaponization? Enter Bitcoin.
As Federal Reserve Chair Jay Powell noted this week, Bitcoin is not a competitor to the dollar—”it’s a competitor for gold.”
This is mildly interesting, but also were it goes horribly wrong when you think two steps ahead. Yes, by dumping our gold to buy Bitcoin, we are, I guess, punishing the BRICS for dumping Treasurys for gold. But then we have to deal with the wrinkle that China could simply spend a few billion dollars producing chips (much cheaper if they invade Taiwan) so as to attack Bitcoin, forcing the demand back towards gold. We end up looking really, really silly then.
As a store of value, Bitcoin possesses many of the same properties of gold. Like gold, Bitcoin is durable, scarce, and difficult to mine. But unlike gold, it is easily verifiable, infinitely divisible, and can be sent anywhere in the world at the speed of light. These superior characteristics have driven much of bitcoin’s price appreciation over the last decade.
Bitcoin is not gold Gold cannot be attacked by someone producing faster computer chips.
The United States has much to gain by moving first. As with any new technology, the greatest benefits accrue to early adopters. And being the first G20 country to embrace bitcoin as a reserve asset would all but require other countries to follow suit. Just as the launch of BlackRock’s Bitcoin ETF marked Bitcoin’s debut on Wall Street, the creation of a US strategic Bitcoin reserve would mark Bitcoin’s debut on the global stage.
Lots to unpack here. Did you know that the greatest benefits of Microsoft Word accrued to people using in the 1980s?
But let's go ahead and do a delve specifically into the main claim:
And being the first G20 country to embrace bitcoin as a reserve asset would all but require other countries to follow suit.
This is the core of Jason Lowery's argument and the core of many of the BSR arguments and it is simple not true. Not at all. There is absolutely no reason that other countries will be required to buy Bitcoin, after we buy Bitcoin. We're just holding it. There is no reason, full-ass period.
Oh, right, the reason they will have to buy it is because at this point the number will be very high, and as we know, once they number gets very high everybody gets FOMO. and the FOMO is irresistible.
That's EXACTLY what will happen according to GAME THEORY
The game theory dynamics of nation-state adoption would spark a digital gold rush, slowing—and possibly even reversing—the flight to physical gold.
(Game theory, in Bitcoin-speak has come to mean one and only one thing, the inevitability of FOMO supremacy.)
Essentially, every argument I've seen for a BSR boils down to this. Once the biggest financial institution in history has already front-run everybody else, everybody else will try to front run Bhutan. (Never mind that, Bhutan already has quite a few bitcoins. And so does North Korea, and Iran and El Salvador... ) Everyone else will try to front-run everyone else who is also trying to front-run everyone else.
But this the question-begging that the infinite bull case for Bitcoin always boils down to. If you assume from the start that everybody is going to eventually buy Bitcoin, sure, you should buy it first. But if you're not stuck in this forever loop, you don't need to play, and you can ignore other nations buying Bitcoin. If you assume everybody in the world is going to speak Esperanto; you should probably learn Esperanto as soon as possible.
