As many of you may know, there is a lot of talk from prominent elected officials in the United States to ban bitcoin.
Senator Elizabeth Warren and Rep. Brad Sherman have begun laying the groundwork to ban bitcoin. They see bitcoin as a threat to the dollar, and they are also making claims that bitcoin is “bad for the environment.”
I will break down in this article why they have it all wrong and why I see the United States ADOPTING bitcoin instead of attempting to push it away.
IS BITCOIN A THREAT TO THE DOLLAR?
The death of the dollar is something economists have been discussing for a long time now. The dollar’s global dominance has fallen from a high of 80% to 60% in the last 20 years. This has emboldened China and others to push to become “the next reserve currency” of the world. China has had its eye on this prize for longer than I have been alive, and they continue to trend towards a takeover.
Will they ever get there? That isn't easy to say, but the US isn’t helping itself. Since the US went off the gold standard, the FED has had nearly $20 trillion printed, 80% of which we have printed in the 18 months following the 2020-2021 shutdown.
As we print money to stave off economic collapse, we also destroy our future and our ability to maintain dollar dominance. Our leaders don’t see anything wrong with continuing to kick the can to the next generation. The system is starting to show cracks, however. Printing doesn’t come without consequences. We don’t see the negative impacts of runaway inflation because the economy is still recovering from the closures. Inflation is rising, but it hasn’t truly set in because the velocity of money hasn’t begun moving. The velocity of money is a metric used to track how often a single unit of money has traded hands. It’s more or less a measure of “how often” we are spending. When it’s low, we aren’t spending, which is arguably a good thing with our current state of affairs.
It would be bad for us to start spending as a whole because there is WAY too much money in the system, and there are WAY fewer goods and services available today than pre-shutdown. But, once those dollars start moving, they will begin competing for the same limited goods and services, and when more people want more goods and services than are available, prices begin to rise. This is how inflation happens and how the buying power of your dollar goes down.
Inevitably, Americans will only put up with so much inflation before there is a revolt. However, the FED has very little it can do to stop inflation. We NEED to keep printing to maintain the system. In the 70’s we had a similar issue. Paul Volcker (the FED chair at the time) made the brave decision to begin raising rates. This has a stifling impact on the economy by reducing the amount of money in the market. It stops inflation, but it also kills the economy. Some wonder if the same path will be taken today, but I’m here to tell you that this scenario is unlikely. In the ’70s, the US had less than $500 billion in debt. Today that number has exploded to nearly $30 trillion. If we raise rates by any significant amount, we will default on our debt which would cause a global meltdown as most of our debt is held by foreign nations.
We are sitting in the eye of the storm as of writing this article. So many people feel optimistic as the economy begins to open, but they don’t realize the re-open could lead us towards another major economic crisis. High inflation rates (hyperinflation?) or debt default seem to be the only way out of this mess, and both are horrible options.
I don’t write this to cause you to worry, only to help you and others realize that the dollar is teetering on the edge of its own destruction and that bitcoin is hardly more of a threat to it than the system the dollar was built on top of to sustain its dominance.
Fortunately, we have bitcoin as a way to store our wealth. Yes, bitcoin’s price will rise and fall just like other assets during a crisis, but holding large amounts of dollars is much more of a risk to your future wealth and spending power. We are lucky to have bitcoin, a highly liquid asset that grows (on average) 250% per year instead of holding dollars which have lost 99% of their buying power over the last 50 years.
I want to drive the point home here that the dollar is failing by no fault of bitcoin. Some will attempt to blame bitcoin for problems the dollar has moving forward (Such as Rep. Brad Sherman), but it’s clear the old system is dying on its own, and we are fortunate that there is a way to opt-out of that old, broken system.
BITCOIN BAD FOR THE ENVIRONMENT?
Elizabeth Warren is making claims that bitcoin is pushing us towards a climate disaster. This section will be much shorter than the previous one because this claim is so easy to refute.
Bitcoin does not have a meaningful impact on carbon emissions. Most of the energy bitcoin uses was already being created. A big chunk of the energy we produce today goes completely unused, and in some cases, we aren’t making that energy available to the market at all. An example of the prior is when you wake up in the morning and turn on the toaster, there isn’t “extra” energy being created to use that toaster. The energy is available whether you decide to use it or not. The same applies to bitcoin mining. In most cases, more energy isn’t being created to suffice the needs of those miners. Also, don’t get me started on comparing the legacy financial systems energy use compared to bitcoin. (See chart below)
An example of untapped energy is in the oil and gas (O&G) industry. All across the United States and the world, O&G providers release methane from the ground when they drill. In addition, most O&G providers set up flare stacks to burn the methane, converting it to CO2 before it reaches the atmosphere. They burn or “flare” methane because methane gas is 24x more potent of a greenhouse gas (GHG) than carbon dioxide.
This is a totally wasted (untapped) energy source, but now we see all across the US, bitcoin miners are setting up shop to use the methane released by O&G providers to power their machines. This means bitcoin miners are taking a wasted energy source and converting it into monetary value. On top of that, miners are burning off the methane gas at nearly 99% efficiency compared to flaring, which can drop to as low as 30% during windy days. This means bitcoin mining is having a meaningful impact on the reduction of greenhouse gas emissions.
Another excellent argument for the bitcoin mining industry is that many (Up to 75%) are using renewable energy to power their machines. The reason for this is because renewables are oftentimes the cheapest form of available energy. Most renewable energy producers create so much excess power that grid operators force the renewable energy producers to shut down (curtail) their energy production, so it doesn’t overload the grid. However, if bitcoin miners are on sight, they can use as much energy as the producer can create. The 2nd order impacts of this relationship are that renewables are becoming more profitable due to less downtime. If renewables are more profitable, they will receive more investment which means bitcoin mining will lead to a revolution in the renewable energy sector.
Unfortunately for Elizabeth Warren, she is receiving bad information on bitcoin mining and its impacts on GHG production. Liz should be supporting bitcoin as it protects Americans from monetary debasement and incentives green energy production. Hopefully, good bitcoiners will get a chance to sit down and speak with her on these issues.
Bitcoin fixes… America?
I have been crafting a tweet about how bitcoin will fix many of the economic woes in the United States. After going back and forth on which issues to discuss, I have finally posted it.
I also launched my latest episode of SMART PEOPLE SHIT with the Chief Strategy Officer of the Humans Rights Foundation, Alex Gladstein. Alex wrote a recent article title “Bitcoin and the American Idea” in which he discusses how American has strayed away from its founding principles and how Bitcoin can help guide it back on track.
You can watch the latest episode on Youtube, where I early release every interview that comes out. If you subscribe & turn on notifications for my channel, you will see every release as it drops. (The episode will also drop on all podcast platforms soon).
I have many more amazing guests lined up for July and August for my show and will continue to push to deliver you some of the best content in the space. As you saw in my last article, this may also mean directing you to content created by others in this space. Again, my goal is to get you the best information available on the given topic.
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See you on the other side,
Dennis
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Great write-up, we all need to help get quality content like this out there to non-bitcoiners/crypto folk.