11-19-2024 
Reserve assets are for idiots
19 November, 2024
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Historically, reserve assets have played a pivotal role in shaping monetary systems. From gold bullion sitting in the vaults of the Bank of England (BoE) to the U.S. dollar’s post-Bretton Woods hegemony, the concept of a reserve asset has always carried a double-edged sword. On one side lies the promise of stability and trust while empowering the empire with the most liquid assets; on the other, the creeping specter of corruption, inflation, and economic inefficiency.
This was the brilliance of Keynes. He gets rightfully criticized for devaluing the purchasing power of the fiat unit, but few understand that Keynes knew this would be the case. His goal was for the British pound to simply outperform other fiat currencies and drive economic growth in the belief that economic growth would also outpace the devaluation of spending power in the United Kingdom. With few exceptions, he was right. This economic philosophy was transplanted onto the U.S. monetary system with some updates in sophistication, leading to similar outcomes: incredible creation of wealth for people in the U.S., despite the fact that purchasing power of the currency was constantly eroding.
Sounds like I’m a Keynesian, huh? I’m not. The system still has major flaws, but we must at least understand their ideas before we deconstruct them.
Sound money
As a staunch advocate of sound money and the principles behind the gold standard, I deeply respect systems that prioritize accountability, scarcity, and real economic balance. I’m essentially a classic Austrian on the topic of monetary economics, but the idea has always had a practical limitation of trust in reserve assets for full reserve banking and lending. Essentially, it’s near impossible to trust that the circulating supply of money is always redeemable 1:1 for the reserve asset, and even if you could redeem, why would you want to be illiquid? So we are stuck with trusting the banks, and their incentives tell them to act like Keynesians, even if they are philosophically Austrians.
Reserve assets, in practice, are antithetical to Austrian ideals. Despite the ideals of thinkers like Mises, Hayek, and Friedman, reserve assets encourage hoarding, creating barriers to circulation—leading to stagnation, which then greases the wheels of fractional reserve lending—turning what should be a stable foundation for commerce into an inflationary house of cards.
Bitcoin fixes this!
Satoshi Nakamoto didn’t simply design a digital asset; he engineered a solution to the inherent corruption of opaque reserve systems. Bitcoin offers the sound money properties of gold, the practical accounting style of cash, and the reduced friction of a global, decentralized payment network. When circulated, Bitcoin balances economic incentives naturally. It’s money in its purest form: not a symbol of value trapped in vaults, but value in motion, fueling commerce and productivity, and it can natively be the reserve asset underlying real-world asset tokens—if the network is implemented for scalability that is…
Reserve Bitcoin: A betrayal of Satoshi’s Vision
Unfortunately, a well-connected cabal of small block “Bitcoin” influencers—led by figures like Samson Mow and Adam Back—are attempting to twist Bitcoin’s original vision. They propose a dystopian system in which Bitcoin becomes a digital reserve asset, akin to gold bars locked away, while a secondary system of fiat inflation, fractional lending, and speculative debt takes place on another network where it is more difficult to audit. Under their scheme, Bitcoin wouldn’t be the revolutionary tool for peer-to-peer commerce Satoshi envisioned but a static asset backing an opaque, centralized financial apparatus, a more technocratic version of the central banking system that we already have.
This isn’t a theoretical danger; it’s happening right now.
And it’s not just happening in the U.S. Argentina is mining bitcoin, El Salvador, and now Poland looks to be joining the chorus of lambs to the slaughter of the Tetheral Reserve! Oh wait… I haven’t mentioned Tether yet in this article.
Consider the role of Tether (USDT), the shadowy stablecoin issued by iFinex. The BTC-as-a-reserve-asset model is at the core of their operation. BTC backs the issuance of Tether, which is then fractionally lent out to traders and leveraged to inflate the value of cryptocurrencies on exchanges and fiat-like derivatives. This creates an endless boom-and-bust cycle, where those closest to the issuance—“early adopters” or whales—can front-run the economy with insiders from the exchanges while everyone else struggles to catch up.
Sound familiar? It should. This is precisely how the central banking system has functioned for over a century. While Samson Mow and his ilk claim to despise central banking, they’re replicating it—just with fewer regulations and even less transparency. The result is not a system of freedom or economic justice, but a hyper-fiat, digital plantation economy where power is concentrated in the hands of a few.
The sad part is that the idea of the Bitcoin reserve asset is attempting to solve the very real problem of run-away inflation without realizing that they are just creating the substrate for it to happen in a bigger and more insidious regard.
The MicroStrategy playbook: A warning to the world
The danger of this model is evident on a microeconomic level. Look no further than MicroStrategy (NASDAQ: MSTR) and Marathon Digital Holdings. Both companies have turned BTC into a speculative feedback loop: borrowing heavily to buy Bitcoin, leveraging their holdings to take on more debt, buying even more Bitcoin, and relying on the resulting price appreciation to sustain the cycle.
What happens when the music stops? What happens when the debt outweighs the liquidity or the market no longer tolerates this game of musical chairs? These companies are playing a high-stakes game, but the real cost will be borne by the global economy if their model becomes the norm.
This behavior incentivizes hoarding rather than circulation, turning Bitcoin into an asset for the few rather than a tool for the many. Worse, it creates an aristocracy of holders who benefit from rising prices without contributing anything to the economy. The so-called “Bitcoin citadels” meme, where social hierarchies are based entirely on BTC holdings, might be a joke to some, but it lays bare the brutalist worldview underpinning this system. It’s a vision of economic feudalism, where productivity is replaced by passive accumulation, and wealth creation and upward mobility of the lower classes grind to a halt.
The path forward: Circulation, not stagnation
The solution isn’t just to criticize these systems but to offer a better way forward. Bitcoin needs to return to its roots as an electronic cash system—a tool for frictionless, global commerce that simplifies the exchange of value and reduces inefficiencies in the economy.
To do this, several steps are necessary:
1. Circulation over hoarding: Bitcoin must be used, not stored. Circulation creates economic velocity, which drives growth, opportunity, and innovation. Sound money works when it flows through the economy, balancing supply and demand organically.
2. Audit and dismantle iFinex and Tether: The unregulated issuance of Tether and its opaque financial practices are a cancer on the Bitcoin economy. Without trust and transparency, no system can claim to be sound or revolutionary.
3. Build systems for commerce, not speculation: Only BSV has embraced this ethos, focusing on scalability, micropayments, and real-world use cases. By enabling billions of daily transactions at low cost, BSV demonstrates what Bitcoin can achieve when prioritizing utility over price speculation.
4. Educate and advocate: The world needs to understand that Bitcoin is not just a get-rich-quick scheme; it’s a foundational technology for a fairer, more efficient economy. This requires pushing back against the toxic culture of small-block maximalism and the rent-seeking behavior it encourages.
The stakes are high
The stakes couldn’t be higher. If BTC’s reserve asset model succeeds, it will entrench an impenetrable hierarchy of lazy, entitled holders while everyone else struggles to compete in an economy devoid of productivity. It’s not just bad for Bitcoin—it’s catastrophic for the world economy. This isn’t hyperbole; it’s a warning based on centuries of financial history.
Reserve assets have always been a double-edged sword, but Bitcoin offers a way to break the cycle. Let’s reject the hyper-fiat plantation economy envisioned by the small blockers and embrace the sound money principles that Bitcoin was built upon. Only by circulating Bitcoin as Satoshi intended can we unlock its true potential and ensure a future of economic freedom and opportunity for all.
And if everyone is just going to jump on this bandwagon, I think we will deeply and powerfully regret it.
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