December 9, 2024
Reserve currency vs. 'deep reserve' currency
Dear Reader,
I believe it's alright not to like Bitcoin.
Plenty of people despise it — including Warren Buffett and his late business partner, Charlie Munger, who famously called Bitcoin 'rat poison squared'.
But, I think it unwise to ignore the Bitcoin story, or to consider what it represents.
No, this is not a 'Bitcoin maxi' email, in which I try to convince you about the virtues of this notoriously controversial asset (or currency, or hedge, or whatever you want to call it).
Rather, I'll share some recent revelations about currency, scarcity and wealth.
To start with, let me take you to Wellington, New Zealand, last week.
Trillionaire status: Attained
I have a friend who manages a vintage and collectible coin store.
He gave me a tour when I stopped by last week.
I saw shelf after shelf, case after case, drawer after drawer of notes and coins.
Different eras, different countries, regimes, you name it.
The ancient Roman coins were the oldest.
But the most interesting to me?
The hyperinflation notes.
Here's one from Germany in 1923:
That note was legal tender for 20 million marks a century ago.
You know it's bad when you're printing notes for 20 million.
And you really know it's bad when you're printing them for a hundred trillion dollars, as per this example from Zimbabwe in 2008:
It was a note such as this that made me a trillionaire — my friend being kind enough to gift me one of these remarkable pieces.
Between 2008 to 2009, Zimbabwe’s monthly inflation reached an estimated 79.6 billion percent.
It's the most stark modern example of what can — and does — happen to fiat currency.
'Go to fiat, you're screwed...'
Sometimes, I watch podcasts.
And sometimes, a podcast strikes me as exceptionally insightful.
This episode of The Bitcoin Frontier by Unchained is one such podcast:
It's hedge fund manager and on-chain analyst Willy Woo's first interview in three years.
And there's one section of it, in particular, that I recommend you listen to.
Here's some excerpts:
'If you look at money over a broad timespan... not the last 100 years, but I'm talking 1,000 to 10,000 years... really we've been following multiple empires, rising and falling, rising and falling... there's a number of empires that have all rotated being the global reserve currency. But that wasn't the money. They were all traded back for gold or silver. So really, we've had about 6,000 years of gold and silver having this trust of the world, having some value, and then we based a currency over it.'
Currency used to represent convertibility to a hard asset like gold or silver.
Woo points out that, when we disconnect money from hard assets, trouble tends to follow:
'With the U.S. dollar since 1971, it's really just a liquidity crisis that happened... they cut that convertibility because there wasn't enough gold... now people think this is money. No it's not. It's always tiding over a liquidity crisis. You go back in history and it's always: You go to fiat, you're screwed. You blow up. And the whole world's on fiat. That's kind of a first. Can we go back to a gold standard? We can't. Because gold's no longer going to be scarce in the future.'
If you're reading this thinking, that was then and this is now, that can't happen again.
Then let me show you something.
I ran a basic calculation on US dollar inflation over the past 10 years:
The US dollar, of course, is the current global reserve currency (read about the currencies that rose to, and fell from, reserve status before the dollar assumed its current position).
The calculation shows you that what cost you $100,000 ten years ago, would now cost you more than $133,000.
In other words, your money is now worth 33%, or one third, less than it was in 2014.
With no connection to a hard asset, which derives its value from scarcity (scarcity = value in economics, of course)...
Fiat currency becomes worth less and less, the more time passes.
That's over 10 years, let alone the 1,000 or 10,000-year timespans Woo looks at.
New standards in securing value
So, why don't we just re-establish the gold standard the world abandoned in 1971, and get money back on track?
Because gold is about to get a whole lot less scarce:
There's an asteroid called Pysche 16 about four billion kilometres from Earth.
NASA's Jet Propulsion Laboratory has an orbiter craft en route.
When it gets there, 'it'll have a front-row seat to a space rock worth many trillions of dollars'.
It sounds like science fiction, right?
So did electricity, telephones, the internet.
On a long enough timeline, what once seemed impossible can, and does, become expected and normal.
Right now, the only precious metals we have available are here on our planet.
But that's changing — thanks to technology driving the cost of space exploration lower and lower.
With these new frontiers opening up, where does that leave the financial system?
Here's Willy's take:
'The only way we can have non-fiat money... is to use a new gold standard, a new secure consensus that prevents someone inflating the supply. The only way is to use energy. No matter how high your technology is, the technology uses energy to create stuff. If you can make energy the thing that's scarce, then that's how you create a scarcity. We've created that with Bitcoin. It's an energy-secured digital scarcity. That will not break 10,000 years into the future. That's how I look at Bitcoin. That's how I think we should look at it.'
If you're still struggling to accept that perhaps there's more to the Bitcoin story than rampant speculation every few years, check this out:
So yeah, I'm a trillionaire now — in a currency that added so many zeroes so fast it became totally worthless in the relative blink of an eye.
Meanwhile, the current global reserve currency is chipping away at its holders' wealth by 33% a decade...
While NASA journeys to explore a $700 quintillion asteroid...
And Bitcoin just hit its latest milestone:
That's it for The Benchmark this week.
Forward this to someone you know who'd enjoy reading.
And if one of our dear readers forwarded this to you, welcome.
Invest in knowledge,
Thom
Editor, The Benchmark
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