12 min read

A Bitcoin Hypothesis

A Bitcoin Hypothesis
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And when money failed in the land of Egypt, and in the land of Canaan, all the Egyptians came unto Joseph, and said, Give us bread: for why should we die in thy presence? for the money faileth.

--Genesis 47:15.


An $8 Bitcoin (BTC) purchased on August 1, 2011 sells for @$39,000 today.  Volatile and currently plummeting, I know.  But why such a large price increase in such a short time?  What is the reason ?  Smart economists and investors agree that prices signal information.  So what information is the price of BTC communicating to us and why do some of the smartest people and investors in the world disagree about what it means?  

One the one side, Charlie Munger, Warren Buffet, and Peter Schiff hate BTC and they all predict that it will soon reach its "intrinsic value" of zero.  Other the other side, Paul Tudor Jones, the brilliant Naval Ravikant (a Munger acolyte), and Elon Musk all optimistically believe that BTC is the decentralized answer to fiat currencies and the hegemonic nation-state.  They also see it ushering in a decentralized end of the Treaty of Westphalia era.  The disagreement between these smart men I believe reflects their presuppositional epistemology (what they conciously or subconsciously presuppose about man, about man's purpose, and about how money is intended to serve man's purpose). But more on that below.  More specifically, I believe the divide exists because neither camp appears to have consciously thought about the notion of "imputed value," the ultimate source of imputed value, or "why" they believe what they believe.  Examining these positions from the "God is in charge here" presuppositional view shows that both camps may be right and both wrong but for reasons that they do not currently recognize.  


The BTC price hypothesis:  BTC's rapid price increase directly correlates with an irrevocable loss of public trust in the legitimacy of the Fed and the U.S. federal government.  BTC was launched on January 9, 2009, in the midst of the biggest bank bailouts ever.  Following the 2008 financial crisis, BTC investors and proponents witnessed the Fed and the federal goverment publicly and lavishly reward Wall Street and government insiders for a decade of heinous, trillion-dollar mistakes.  This reward-the-crooks crime, whether consciously or subconsciously, was etched into BTC investors' brains.  This is evidenced by the fact that the most credible BTC advocates argue the value of BTC from a moral foundation--that BTC is honest money because it cannot be diluted by insiders.    

The trillion-dollar 2008 bank bailouts brought the corruption of the U.S. government and U.S. money system out into the daylight for all to see.   Mortgage Electronic Registration Systems, Inc. (MERS), the purposefully opaque "'nominal" holder of millions of securitized mortgages, was exposed for what it was and is--Wall Street's attempt to leapfrog over state and local governments and regulations in order to financialize U.S. residential real estate.  Wall Street and Washington invented MERS, located in the D.C. swamp backwaters of Reston, Virginia, to provide a veil of cover for the securitization (fractional interest sale and resale) of residential mortages and at the same time avoid paying local county deed and transfer taxes.  When, in 2008, the fraudulent mortgage securitization system failed and it was exposed that there were over 62 million void, improperly securitized mortgages--meaning that there was trillions of dollars in unsecured debt masquerading as properly collaterized mortgage loans--George W. Bush, Barack Obama, Ben Bernanke, Hank Paulsen, Timothy Geither, and the U.S. Congress all stepped in to protect Wall Street from its own mistakes.

As a result, from 2008 to 2013, the Fed and Congress handed to the Bailout Banks and mortgage-backed-securties investors (including Fannie Mae, Freddie Mac, and European banks) trillions of newly printed dollars.  The bailout beneficiaries then used the new money to fraudulently foreclose upon and dispossess millions of people of their homes.  Despite the fact that 60 Minutes openly exposed the mundane mechanisms of the fraud and despite the fact that highly respected law professors specifically informed Congress of the reasons why most, if not all, securitized mortgages were void ab initio, the courts and every other person in authority nevertheless chose to abet the foreclosure fraudsters.  Team Red's George W. Bush started it and Team Blue's Barack Obama presided over it.  

It was into this milieu that BTC was birthed.  BTC's 13-year popularity thus represents much more than just an inflation/loss of purchasing power hedge.  The people who buy BTC and affix laser eyes to their Twitter profiles do so because of an emotional yearn for trust in an openly, in-your-face corrupt system.  They believe and hope that BTC's blockchain, distributed-ledger technology represents an incorruptible foundation up which an honest, non-dilutable currency can be built.  The current price of BTC since it was established in 2009 thus represents a significant and influential segment of the investing public communicating:  "we repudiate a monetary system that is vulnerable to what happened in 2008-2013--monetary dilution and debasement caused by the 'first pigs in line at the new money trough get the fattest'" Cantillion Effect.

This idea--BTC is popular primarly because it is immune to the Cantillion Effect--is affirmed by the most articulate proponents of BTC when they argue about why BTC is honest "money."  Good-hearted BTC investors viscerally hate the transparent "first pigs in line" aspect of U.S. fiat and desire honest money that cannot be manipulated by the Fed interest rate policy or selectively doled out by Congress.  The actions of 13 years of BTC investors thus impute dishonor, disrepute, and untrustworthiness to the U.S. dollar, the Fed, and the U.S. federal government.  This negative imputation regarding the dollar and U.S. leadership is really the reason for BTC's price increase.  The BTC price reflects an indictment against the legitimacy of U.S. federal leadership and the Federal Reserve system.  

BTC investors innately recognize the Biblical sentiment expressed by Isaiah:  "Thy silver is become dross.  Thy wine mixed with water.  Thy princes are rebellious, and companions of thieves..."  (Is. 1:22-23.)  


For the record, I suspect that that both BTC and the US dollar will ultimately reach a price of zero.  But this could be a long time and I could be wrong.  The main question in my mind is which which will be the wise and useful hedge against the other in the economic storm ahead.  I see the idea of "intrinsic" value as a fiction based upon a confused or wrong epistemological foundation.  Nothing is valuable in and of itself.  If mankind were wiped out tomorrow, nothing would have value because no human would be around to place a value on anything.  All value in time and space is imputed by humans, subjectively.  Prices are objective and determined at the margins--based on the last sale of a particular item.  Value is subjective.  The BTC price dispute between two groups of very smart humans illustrates the fact that value is subjective.  

How then can we evaluate the merits of any particular imputation and whether one person's or group's imputation is better than another's?    

In all things, we are wise if we turn first to God.  If we want our imputations of value to have meaning and stand the test of time, we must align what we value with what God values.  God has imputed monetary value to both gold (Gen. 2:10-12) and silver (Ex. 30:11-13.)  God imputes an even higher value to wisdom and understanding.  Pr. 16:16; Pr. 2:3-4; Pr. 8:10-12.  Men, on the other hand, can and have imputed subjective value to gold, silver, dollars, BTC, tulips, sea shells, salt, and now, increasingly, to SDR-backed Russian Roubles and Chinese Renmibi.  Very few men value wisdom or understanding in and of themselves. Indeed, when Wisdom came into the world in the flesh, we men crucified Him.  

The best method to test the merits of man's imputation of value against God's is to look to history, and apply the Bible and the Lindy Effect.  The longer lasting and more stable an alignment between God's imputation and man's imputation, the more likely that man's imputation is correct.  The Lindy Effect is contained within one of the definitional attributes of money:  a reliable store of value over time.  There are other attributes of money; namely, divisibility, durability, portability, recognizability, and a high value to weight ratio.  Gold and silver clearly pass all of these tests.  An ounce of gold purchased a very good suit in ancient Rome as it does today.  

Applying the attributes of money to BTC, it looks more like a tulip or a sea shell than a Byzantine Solidus.  BTC is not money because it does not fit the simplest defintions of money--it is not the "most marketable commodity."  BTC also does not practically function as money because one cannot use it to buy food at the grocery store.  More academically, its ephemeral, electronic nature gives rise to metaphysical questions of whether it is truly divisible, portable, durable, fungible, and verifiable.  Theoretically, and as long as the lights are on, BTC is all of these things.  If/when the electricty goes out (or you lose your Ledger passphrase), it is none of these things.  Gold and silver meet all of the criteria regardless of whether the electricity is on.  

The BTC price information being communicated to us nevertheless appears to be telling us that there in something in BTC and other cryptos that is uniquely valuable.  BTC has more staying power than Dutch tulips.  It seems that the "honesty" built in to the disributed ledger blockchain may ultimately be, much like double-entry accounting, something that has lasting value.  The distributed ledger blockchain could survive well beyond BTC, other cryptos, and the dollar.  This is because the distributed ledger blockchain appears to be a very accurate scale that so far also appears to be immune from third-party manipulation.  If this analysis is correct and the blockchain does have lasting value, then it will be for an epistemologically sound reason--because the blockchain is in fact an accurate scale and because God imputes a very high value to true weights and measures.  Lev. 19:35-36; Pr. 11:1; Is. 1:22-23.  

So the BTC lovers like Paul Tudor Jones and Naval Ravikant may be wrong in regarding BTC's viability as money, but nevertheless may be right in subjectively valuing BTC at a price greater than zero.  They see the big picture wisdom in adopting or at least moving in the direction of a tool and technology that immunizes monetary transactions from false measures, unjust scales, and the Cantillon Effect.  And while Peter Schiff and Charlie Munger are almost certainly right that cryptocurrencies are not money, they may be blind to wisdom, honesty, transparency, and lack of manipulability that appear to be present in blockchain, distributed-ledger technology.  


Despite the honesty factor built into the blockchain, there are some additional reasons to distrust BTC in particular.  First and foremost, the alleged inventor of BTC, Satoshi Nakomoto, is unknown and allegedly "disappeared" 11 years ago.  That is at least odd.  Second, the supposed "crypto" or secret, aspect of BTC is belied by the fact that Russ Ulbricht is in jail for a double-life-plus-40-years term.   There is also fact that at least one of BTC's cheerleaders, Elon Musk, is closely associated with the U.S. military and intelligence apparatus, Mike Griffin, and In-Q-Tel, the CIA's hedge fund.  But then again Charlie Munger has some explaining to do about his whereabouts on September 11, 2001.  If we were forced to judge this issue by the associations of the men in each camp, I would pick Peter Schiff whose father Irwin died chained to a federal prison hospital bed for telling the truth about the federal income tax.  

Whatever the case, it is certainly plausible to conclude that the unknown people behind BTC are government/banking/intelligence see its as a shrewd means of dislocating demand for gold as the dollar's purchasing power falls.   All other things being equal, if BTC and the blockchain had not come onto the scene on January 9, 2009, it seems likely that the price of gold would be well over $50,000 an ounce.  Then there would be little debate over what information the price of gold was communicating--the imminent death of a dishonest fiat dollar.  Measuring things in the price of gold, like the DJIA, is sobering, realistic, and epistemologically sound.   Historical chart trends, measuring honestly using God's ruler, indicate that the bottom of the current market will be when the Dow-to-Gold ratio is between .5 to 1 and 1 to 1.  


No one alive in the West has ever known or experienced a separation of money from the state.  Since 1913, the Federal Reserve Act and legal tender laws have given the Federal Reserve's fiat dollar banking cartel exclusive monetary authority in the United States.  This is not normal.  Cartels established and maintained by the force of law are not normal.  There is no Biblical precedent or authority for the union of money and the state.  This--an innate sense that money should naturally come from Mr. Market and not be compelled by dishonest governments working in concert with central banks--is perhaps another reason BTC and other cryptos are so popular.  Cryptos are, or at least appear to be in the eyes of crypto investors, free from the yoke of government.    

The Bible's best statement on the separation of money-and-state issue is from Christ Himself when he told the Pharisee to "render therefore unto Caesar the things that are Caesar's." (Matt. 22:21.) Christ made this statement in the context of several circulating and competing currencies--the Jewish shekel, Roman denarius, as well as Tyrian and Greek coins.  The Roman denarius was government-mandated money.  It was what one needed to pay taxes or tribute to Rome.  When the Pharisee showed Christ the denarius, the coin of the Empire which contained the blasphemous statement proclaiming Caesar to be God, Christ's answer was swift and firm.  Christ said, in effect, give that statist coin, steeped in violence, oppression, and disrepute--to its owner, Caesar, keep it far away from Me.  This may be the sentiment the price of BTC is communicating about the dollar and what the price of gold likely would be communicating if BTC did not exist.        

The blockchain technology embedded in cryptos, however, including especially smart contracts, has the very real potential to cause and also soften a future separation of money and state.  Blockchain technology has the potential to keep track of and factilitate transfers of assets of all types--shares of stock, accounts payable and receivable, invoices, etc.--without the need of government or other regulatory authorities.  Blockchain technology thus reduces the need for trust and makes possible the elimination of middlemen of all types.  This includes all government-enforced cartels, including the Federal Reserve banking cartel.  That said, even if the blockchain represents an honest, accurate, and non-manipulable measure, it will still be worthless unless and until it is measuring real things that God values.  

If and when the blockchain can measure and account for things of real value--gold, silver, real estate, or perhaps "Real Bills"--and if and when those blockchain "bits" or "tokens" are also redeemable and exchangable for real things that God and history value, then Mr. Market and the blockchain will be on the road to meaningfully separating money from the state.  A crypto token or bit that is an accurate measure and is also redeemable for real things would be a true service to the market.  Honest currencies, including the Byzantine Solidus (312 - 1092) and Spanish pieces of eight (1497 - 1868), are one of Christendom's greatest gifts to the world.  The blockchain appears to have the potential to support a future honest, redeemable currency much like the Solidus and the Piece of Eight.  If that happens, then there will be real reason for optimism.  Until then, as Paul Tudor Jones says, cryptos may simply be the best horse in the inflation race.    

Because an honest, redeemable money system requires trust and because breaches of trust and contract require enforcement, if the state has any role in such a future system, it will be to enforce crypto contracts.  BTC dreamers and anarcho-capitalists who believe that a system can be devised that does not require human trust and does not contain a means to enforce trust are likely deluding themselves.  If the blockchain is simply a very accurate and incorruptible scale, that may eliminate the need for trust in measurement or accounting but it will not remove the need for trust in the delivery and redeemability of the good or thing that it is measuring.  If the operator of a metal- or goods-backed blockchain fails to redeem and breaches trust and delivery of gold, silver, real estate, shares of stock, or widgets to a "bit" or "token" owner, there must be an authority who will enforce the breach.  


For those who believe in a Sovereign God, there is reason for hope.  Although, just as in Isaiah's day, the world currently seems as far from reliable authorities and just judges as it is from a redeemable currency, it does appear that we are headed in the right direction.  While the economic instability on the horizon appears to include mass inflation, a falling stock market, a falling real estate market, and a deceptive bond market in which nominal yields go up while real, dollar-denominated yields fall, blockchain technology, together with a little wisdom and understanding, may help us use the crisis as an opportunity to gently and non-violently being the process of shedding a corrupt monetary and tax system and replace it with an honest and epistemologically sound one.