Submitted by Seth Chalnick (@seth_oshi),
Inspired by this ZeroHedge article about the Cantillon Effect, a friend asked me today if I follow how Bitcoin is perceived as “deflationary”?
This came within the context of a broader discussion about “fiscal dominance” as it relates to market-breaking events imploding in real-time.
My response follows...
Excellent article explaining the Cantillon effect… i.e. how those closest to the printing presses benefit not just disproportionately, but at the expense of everyone else.
And who can blame them? Centralization leads to more centralization, as oligopolies across different verticals align incentives to play ball. It is, in fact, probable that most of us complaining today would also quietly accept a multibillion dollar payout, if it “just meant that” innocent citizens halfway around the world would die as a result. Especially if plausible deniability couldn’t directly link it back. Especially if we could justify it as a “greater good”. Not saying we would, but its pretty fucking clear as day that others would… and that this is also how the world has always worked, since arguably before man first harnessed the power to create a surplus.
But life has a funny way of balancing out. See guillotines, viruses, and schoolyard bully resolution for reference.
In my opinion, Bitcoin gets misclassified as “deflationary” because people conflate theorical (cyclical?) price declines with an eventual fixed supply of money. Basically they take fiscal (Keynesian) and/or Monetary (Friedman) and/or MMT (idiotic) square peg world views, based on their own malincentives or fears, and rationalize them into round holes screaming FUD (fear/uncertainty/doubt) to justify the status quo and cognitive dissonance.
Bitcoin will actually continue to be “inflationary” until the year 2140, when the last bitcoin will have been mined.
That’s 117 years away.
What Bitcoin actually is… is disinflationary… because people are incentivized to save it rather than spend it, and to make sound investments with it, rather than foolishly levered ones, and to build generational low-time-preference projects, like bridges, universities, infrastructure, cathedrals, artwork, etc… versus spending FIAT now on high-time-preference items, because it will be worth less (worthless?) in the future, such that gambling, fast food, leverage, and immediate gratification get drawn like moths to the lights of extreme celebrity, cancel culture, debauchery, depravity, etc.
Look at all the historical great civilizations. Most of everything meaningful was built during gold standard periods. Bitcoin is popularly viewed as having an erratic valuation, something that moves quickly and beyond our control. In periods where gold was not messed with it became stable. That is, until its derivatives became corrupted. Which is perhaps a tendency of human nature itself, but not inevitable.
Bitcoin is currently undergoing an adoption phase, quite similar but opposite to the Cantillon effect. Those in early, who can withstand the wild swings, will benefit disproportionately, outperforming every other asset class. But it will inevitably settle down. And it will subsume or at least check and balance FIAT/CBDC. And it may very well lead to a gold 2.0 standard. Because it is better than gold in every way (except industrial use). And it is notably more defensible than gold from derivative dilution… because gold has no open source distributed ledger.
Bitcoin is in fact slightly deflationary, in that people can lose their private keys to their bitcoin holdings, and lose it forever, thereby making the rest of the pool more valuable. But this is a small fraction, and will decrease over time, as bitcoin education increases, and custody solutions simplify. This happened a lot in the beginning, because people didn’t know what they were sitting on. Now that its valuable, people either safeguard it or get scared away from it altogether.
Circling back to why it gets a bad rep as deflationary… the primary reason is because the masters of the universe cannot inflate it. They can’t print it. They can’t finance wars with it. They can’t steal its citizens’ life force with it. They can’t hide behind the justification of “saving the world from depression” during the next financial crises. Case in point… compare 2008 banking crisis with the SBF blowout. 2008 was “fixed” by inflating the bubble of the next generation to grotesque proportions. SBF got exposed for the ponzi he was, and what, 5 months later, we’re within $5k price pre-crisis?
Everyone talks about the Great Depression and how we “learned our lessons” to avoid it. Compare the Great Depression with the lesser known depression of 1920-1921. 1920 was the single most deflationary year we ever had. It was extremely painful. Shit burned. And then the economy roared back. What we “learned” was how to more efficiently transfer wealth to the rich. That, and to use war as a vehicle for stealing other people’s lives, possessions, and future life force.
In the end, Bitcoin offers a way to vote with your feet, a parallel system that doesn’t care about your feelings, that will reward those who see its inevitability, that has rules with no rulers, that is incorruptible and beyond the scope of governmental control.
Personally, as geopolitics implode, markets dislocate, and the financial world starts to break… I have never been more bullish or higher conviction on Bitcoin:
The ponzis washed out
ETF approval will not only infuse billions in capital, but more importantly, blast a positive feedback loop of credibility onto the world stage
The next “Halving” starts in about 6 months, which mathematically cuts the new supply creation by 50% every four years, which if past is prologue, will start the next bull run
The next bull run will ramp up in tandem with the next presidential election shit show, and at least two 2nd-tier candidates potentially representing the tying vote are very much pro-bitcoin
The FACT that I introduced three years ago… namely that the US Dollar has LOST its world reserve currency status… will slowly, painfully, begrudgingly… make its way into the American zeitgeist… and Bitcoin will be taken seriously as a vehicle for flight to quality. Smart money (i.e. Larry Fink, Blackrock) is already calling it that.
Now ask yourself… is it more likely:
That spending on social services, military, and debt service repayment will increase or decrease?
That rates remain high enough for longer (if not higher) or decrease all the way back to 1%, which is what it would take to keep the ponzi alive?
That investors will demand more interest, or accept less interest, on the money they loan the US, now that our currency is debasing at an ever faster pace?
That other countries will sell or buy US treasuries to insulate themselves from potential sanctions, and while we head into dollar weakness?
That investors will buy Bitcoin, a .5t market cap with no sustainable derivative market, or Gold, a 10t market cap with artificial price cap, opaque ledger, and difficulty safeguarding?
That a material number of the world’s 50 million millionaires will want at least 1 bitcoin?
Which is problematic… because there are only ~19 million bitcoins minted. Guess what happens to the price when they do start competing… in a market where 85% of supply has not changed hands… EVEN DURING THE SBF DEBACLE.
When the world was down on TikTok and the mob tried to lynch it. Why didn’t they? Because they couldn’t. Try messing around with bitcoin and finding out. When only five people have cell phones, they have cute walky-talkies. When third-world villagers have them, the network changes the world. Get ready for Bitcoin’s network.
Bitcoin is a vote against Davos. Against the Uniparty. Against the Fed. Against censorship, high-timepreference, depravity, cancel culture, vaccines, the war machine, pronouns, gun control, and everyone who doesn’t surf.
