Fear of the Fed: Is Bitcoin Threatened by Policy?

Episode • Feb 25, 2023 • 1h 25m

Round Two with Lyn Alden and Joseph Wang

On this episode of Magic Internet Money, host Brad Mills invites two previous guests back onto the show. Lyn Alden, an investment strategist with a focus on macroeconomics and Joseph Wang, the CIO of Monetary Macro, return to the show to discuss macroeconomics and Bitcoin with Brad.

Brad delivers a recap of his previous discussions with the pair of experts recalling problems with proof-of-stake systems resembling fiat money. Joseph ended the previous podcast with questions about the possibility of state intervention which could disrupt Bitcoin, but Brad didn’t have enough time to cover the topic on the show. Brad’s intent with this meeting of macro experts is to bring this discussion to light.

Peer-to-Peer Technologies

Brad kicks off the discussion where he left off with Joseph, about censorship resistance and how Bitcoin protects against censorship. Joseph brings his traditional finance experience into the discussion and offers a perspective of healthy scepticism, given his knowledge of the banking system and more generally, the financial sector as it is traditionally known. Joseph’s first concern is the case of the New York Fed testing CBDCs and in the event that a CBDC ends up being a better use-case than Bitcoin, that could present a threat to Bitcoin. Lyn brings up an important consideration here, which is jurisdiction. This episode revolves around the United States and Canada, but there are other jurisdictions like Europe and China which present different threats to the Bitcoin space.

Lyn brings up some case law from the 1990’s, where a US court tried to ban peer-to-peer encryption. This particular case resulted in a loss from the US government and peer-to-peer encryption was protected due to it being an expression of speech. While the original case presented peer-to-peer encryption as an inherently villainous thing, peer-to-peer encryption is now a critical component to contemporary banking.

Lyn sees a balance between two things when it comes to policy about Bitcoin which are the need for the technology and jurisdiction to quote Lyn; “...part of it also depends on need… Most people (In the United States) don’t feel a pressing need to get into Bitcoin”. Lyn makes the comparison to Argentina, where Bitcoin is more widely considered.

The peer-to-peer nature of Bitcoin is what makes it censorship resistant across jurisdictions, but in order for Bitcoin to take off at a larger scale, individuals first need to see a need to hold Bitcoin in the first place. In countries with a strong currency, individuals may not have that need.

What is the Value of Wall Street?

The podcast continues and Brad discusses his trip down the rabbit hole about what money really is and how he felt like he was “living in a big ponzi scam”. Brad asks, “what is the value that Wall Street brings to the world?” For Brad, Wall Street affiliated financial markets feel like casinos. In more simple terms, Wall Street does not produce value, it extracts it and this extraction contributes heavily to wealth inequality.

For Brad, Bitcoin is a path away for individuals to protect the value they’ve created and save in a form of money that won't be debased. Brad mentions his previous affiliation with Austrian economics and libertarianism and his venture away from a libertarian position towards a position without a political label.

Brad’s position is that Bitcoin has two critical components which make it worth investing in. Bitcoin competes against a centralised system which constantly debases the money supply by offering a decentralised alternative choice to that system. Secondly, Bitcoin has an amount of censorship resistance as a peer-to-peer network, as previously discussed. Bitcoin’s ability to evade interventions from other institutions is the critical point of its use case.

Lyn mentions some data which supports Brad’s position about censorship resistance. Bitcoin has higher instances of use in countries which Lyn describes as “authoritarian” and also have weaker currencies than the US dollar. Lyn remarks “I think it kind of starts in the periphery and moves inward.” Mentioning the fact that the chain analysis crypto adoption index shows that of the top 20 countries adopting cryptocurrency of all kinds, 18 of them are developing countries, with the other two being the US and UK.

Bitcoin and Fiscal Policy

Joseph asks Brad if his concern is monetary policy, which involves a discussion about inflation. Brad and Joseph debate about whether or not the disinflationary nature of Bitcoin would make it a bad global currency. Brad mentions cases of Bitcoin forum discussions from 10 or more years ago where Satoshi and other early adopters were discussing how to start Bitcoin banks with a fractional reserve. With this potential, Brad is of the opinion that if Bitcoin were to become a reserve currency, it may resemble eurodollars.

Time Stamps

00:00:20 - Introduction and Recapping Guest Appearances

00:14:00 - Show start

00:19:10 - Bitcoin and the Advance of Peer-to-Peer Technologies

00:28:15 - Bitcoin vs Emerging Market Currencies

00:41:43 - Bitcoin and Taxation

00:49:10 - Privacy Coins

01:01:24 - What is the Value of Wall Street?

01:09:30 - Credit Creation in Bitcoin vs Crypto

01:14:25 - The Real Risk of ETH flipping Bitcoin

01:21:15 - Last Words and Closing Remarks

Links to Mentions in the Show: