Avik Roy on “Bitcoin and the U.S. Fiscal Reckoning”

Think-tanker Avik Roy has a long (5700 word) article in the current issue of National Affairs, “Bitcoin and the U.S. Fiscal Reckoning”.

From the conclusion:

From an American perspective, it would be ideal for U.S. Treasury bonds to remain the world’s preferred reserve asset for the foreseeable future. But the tens of trillions of dollars in debt that the United States has accumulated since 1971 — and the tens of trillions to come — has made that outcome unlikely.


… [T]he Treasury Department should consider replacing a fraction of its gold holdings — say, 10% — with bitcoin. This move would pose little risk to the department’s overall balance sheet, send a positive signal to the innovative blockchain sector, and enable the United States to benefit from bitcoin’s growth. If the value of bitcoin continues to appreciate strongly against gold and the U.S. dollar, such a move would help shore up the Treasury and decrease the need for monetary inflation.


Bitcoin represents an enormous strategic opportunity for Americans and the United States as a whole. With the right legal infrastructure, the currency and its underlying technology can become the next great driver of American growth. While the 21st-century monetary order will look very different from that of the 20th, bitcoin can help America maintain its economic leadership for decades to come.

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Newt Gingrich is working with a company called International Bitcoin Advisory Corporation advising central banks to hold some of their reserves in Bitcoin.

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Could be a trap. CCP is making its own crypto – perhaps convertible to real assets… gold, oil, etc.

Worst case is China hacks bitcoin and flight to “quality” after bitcoin crash, would be CCP Crypto.

Dogecoin to the rescue?

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I doubt that the US would ever willingly permit serious competition with its currency monopoly - much less try to benefit from Bitcoin. Following the recent rumblings in congress (sic), I expect more efforts to legislate torpedoes aimed at crypto - especially Bitcoin. Myself, I made very small bets on Ether and Ripple. I don’t understand crypto well enough to know just how the state can destroy it, but I am pretty sure that will be the attempted response. Remember when we thought the internet would make centralization, surveillance and censorship impossible?

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You don’t have to understand crypto to know. You just have to understand Guvment. They make it illegal to own. They will call it treasonous to own.

Already they keep the fear door ajar with tales of drug deals and terrorist activities. If that doesn’t sufficiently scare the public, you will get stories of the link between Bitcoin and COVID or …… I was going to add global warming but they already are on that.

On another note. I wonder how much of China making Bitcoin illegal was simply due to their energy crisis?

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Thanks for your comment. I’m afraid (literally) I DO understand government in the sense I understand cancer; while I may not understand the biochemical mechanisms involved, I do know that cancer’s first job - like gummint - is to metastesize. Welcome!

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Here is an interesting perspective in a Twitter thread from Alex Good, whose biography card identifies him as an "Options and crypto trader“ and who is followed by, among others, Marc Andreesson.

Click the link on his name to read the whole thread. One observation I found particularly interesting is item 7:

This is consistent with the big banks becoming increasingly involved in crypto. Part of this is driven by their clients seeking transaction processing, investment and hedging vehicles, and advice, but also from the proprietary trading side viewing it as one of the best-performing asset categories of the last several years. Goldman Sachs, JP Morgan, and UBS (the largest Swiss bank) have all either set up crypto units or announced they are in the process of doing so. UBS put on a one hour video conference on crypto for their private banking clients last month. Given the extent the big banks jerk the chains of politicians, if they’re deeply involved in crypto and view it as a profit centre, politicians may be disinclined to try to shut it down.

Second, crypto is increasingly a source of taxation for governments, particularly those that tax “capital gains” on appreciation of cryptocurrencies versus their central bank kleptocurrencies. The current “infrastructure” bill apparently contains some more turns of the screw in this direction, although I’m not sure of the details since they’ve been changing so rapidly. If crypto is a significant source of tax revenue, politicians may not want to kill the goose that lays the blockchain taxes.

My guess is that what will happen is that in a few years the big monetary blocs will roll out their “central bank digital currencies” (CBDC) and promote them as a “better, safer form of crypto”, then try to co-opt the pioneer cryptocurrencies as they eliminate physical and anonymous cash. I wrote about this “slave money” here on 2021-10-10. As Mr Good notes, the big players may already be moving to Bitcoin and Ether as a way to get their assets out of fiat money before they are forced into a CBDC in a couple years.

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From Abik Roy: “With the right legal infrastructure, the currency [bitcoin] and its underlying technology can become the next great driver of American growth.

No, not really. Growth comes from things which improve productivity – new mines, new crops, new inventions. A currency cannot be a driver of non-speculative growth (see John Law), merely a facilitated means of exchange – and only a relatively short-term store of value, since its value depends on what someone else is prepared to exchange for it at some point in the future.

Side thought – we all know that so-called “renewable” energy like bird-whackers and imported Chinese solar panels put the electric grid at increasing risk of instability and failure. What is that bitcoin worth when the grid goes down?

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Just as much, or more, I’d say, than “book entry” fiat currency which exists only as ephemeral records in computer systems of counter-parties to myriad transactions. Gerald Celente calls this “money that isn’t worth the paper it isn’t printed on.”

Actually, I’d say that Bitcoin is more robust, since every transaction is mirrored on an immutable blockchain of which a multitude of copies exists (every miner must maintain a complete journal of the blockchain going back to the Genesis block). So it would take a power and/or Internet outage on the global scale to lose access to records of ownership or to be unable to clear transactions and, even if that were to occur, if and when power was restored the survivors would be able to get things running again from backups made before the calamity.

Growth comes from things which improve productivity – new mines, new crops, new inventions. A currency cannot be a driver of non-speculative growth…

True, but inventions also encompass innovations in financial instruments, institutions, and infrastructure which facilitate investment and commerce. For example, the introduction of financial futures in the 1970s allowed corporate treasuries to hedge their exposure to foreign exchange risks, interest rate shocks, and inflation, and has unquestionably facilitated international trade and long-term capital investment. Exchange-traded stock options have allowed long-term value investors and founder-owners of companies to generate income from their stock holdings without being forced to sell to generate income. The SWIFT system dramatically improved trans-national commerce compared to bank letters of credit which moved at a glacial pace. Blockchain technology (which goes far beyond cryptocurrency itself and encompasses the world of decentralised finance and smart contracts) has the potential of accelerating growth and prosperity in the same ways. This is not a fringe crypto-nerd view any more: the research directors of a number of big banks are saying this in public fora and spending money on figuring out how their organisations can meet the challenge it poses to their business models.

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But the left has embraced MMT and as such taxes are not necessary. Thus, taxes only function as a punishment or a means to destroy your political enemies.

As I read that last sentence… maybe nothing changes regarding taxes and MMT. No change. Carry on.

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As I understand it, taxes are actually essential to MMT. The difference between the tax rate and the money creation rate is the inflation rate, which needs to be monitored and controlled to prevent the whole economic house of cards from falling down.

Personally, I think MMT is misguided, and all they are really trying to do is expand the money supply (increasing the inflation rate) to compensate for the upward flow of money and the large amounts of capital that are tied up in financial markets. Hyperinflation is a real concern if there are any miscalculations, especially with China.

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John W: “For example, the introduction of financial futures in the 1970s … Exchange-traded stock options … The SWIFT system….”

No disagreement that financial innovations can certainly facilitate trade – anyone who remembers traveler’s checks will agree! However, there has to be an underlying trade in real goods & services to facilitate. That is the problem with Mr. Roy’s hope that a financial tool can become “the next great driver of American growth”. The problem facing American growth is the under-production of real goods & services to trade – no matter how efficiently we trade them. Just one person’s view, of course.

I fully agree about the problems with fiat currencies, but I am also singularly unimpressed with gold (physical gold in possession, as well as paper certificates promising there really is some un-rehypothecated gold in a vault in London with my name on it). And I have my doubts about bitcoin and its like, but will admit to needing to learn more about them.

I have a general suspicion that the problem comes when we try to use currency (in any form) as a store of long-term value rather than merely as a means of facilitating current exchange; because the value of that currency at some point in the future depends entirely on what real goods & services someone else will then be prepared to exchange for it. For long term store of value, we need to invest savings (directly or indirectly) in actual productive assets. Again, just one person’s view.

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Yes, in “modern monetary theory” (MMT) (more accurately called “coin clipping from antiquity”) the idea is that a sovereign can print as much funny money (backed by nothing of intrinsic value) as s/he/it wishes and then suck the excess liquidity this creates back out of the system via taxation, which requires those who have received it to pay it back to the treasury in taxes, thus depleting their bank accounts.

This is, of course, the equivalent of an energy production economy fueled by unicorn flatulence created from eating magic beans from a vine growing unto the sky, nourished from unicorn poop. It presumes that those whose fixed incomes and savings are being looted by money printing will accept it as a law of nature, that creators of wealth will not move elsewhere, and that trading partners in the global market will accept constantly depreciating currency for their real-world products. To see how plausible any of these assumptions are, just set the WABAC Machine to the 1970s.

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I spilled many electrons on gold in the preview to the next financial meltdown we experienced back in 2008. Here are the Gnome–o-grams from then:

The key thing about gold is that, in forty centuries of recorded history, it has never gone to zero. Every other paper asset and almost every sovereign-defined asset has (and the way to bet is that those that haven’t yet will eventually). We do not have this experience with cryptocurrencies, whose purchasing power for real goods and services is defined by what people are willing to provide in exchange for them.

But the question is, “compared to what?” When inflation in the kleptocurrencies spewed out by illegitimate, coercive governments’ central banks begins to kick in, those with freedom to choose will increasingly opt for alternatives which cannot be debased at the whim of politicians. Bitcoin and Ether/Ethereum, by having a fixed supply, meet this test. So do gold and other hard, commodity-based assets, but cryptocurrencies have the advantage of an infrastructure in place which permits transactions to be executed quickly and at low cost.

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