Discussing The Birth Of The Bitcoin Dollar

A group of Bitcoiners compare the current petrodollar system with the hopeful alternative Bitcoin offers us.

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[00:00:06] MG: What’s going on Alex? Sorry, I started to write a tweet and unmuted myself. Oh, super good, man. Great week so far. How about yourself?

[00:00:15] AM: Pretty good man. Just waiting on this next bullish news. I don’t know if the third ETF is going to get passed or we’re going to go down or we’re going to go up, what do you think about all this? These all-time highs?

[00:00:28] MG: Oh man. We’re going to see so much volatility for sure. I think we’re definitely in that whipsaw moment, but I’m pretty confident it will be medium and long term up, definitely. So short term, you never know, but I’m pretty, pretty damn bullish, always.

[00:00:45] AM: Yeah, me too. Are we waiting on CK or do you want to dig right into your piece?

[00:00:51] MG: Whatever. Yeah, either or, happy to get going and definitely happy to wait for CK for sure. I can do a little introduction, why not, to fill some time. I’m Mark Goodwin. I live in the Bay Area. I’ve been in Bitcoin for a few years and started multidisciplinary artists. I went to school for jazz drums and then got really into production composition, and then got really into electrical engineering via production and that’s when I got really into Bitcoin and investigating Bitcoin through sort of an electrical engineering background.

And then yeah, I’ve spent the last few years basically being like full time Bitcoin educating myself, and then after March 2020, when everything went insane, that was like when I went 100% in even more so than I was. So, I’ve been Bitcoin only for a few years now. I definitely dabbled, as everyone did at the beginning, but realized pretty quick the difference between Bitcoin and everything else. I’ve just been reading a lot as much as possible. I love Bitcoin Magazine. I love all the spaces stuff. I’m not as much of an audio learner ironically. So, I don’t usually do a lot of Clubhouse space listening. I much prefer to read, but I’m really excited to chat with everyone here today. And obviously, Alex, I was super thankful we had a great talk the other day, that was super fun. Yeah, excited to see what goes on here and spaces and super open to my – I have a very open-door policy. So, super stoked for DMS, and further discussions or spin off spaces and stuff. So definitely feel free to reach out.

[00:02:22] CK: Great introduction. And sorry, I was a little bit late, I got distracted on Twitter. Can you believe it? Yeah, Mark, the focus of this is your extremely interesting article that you wrote at the end of last month was The Birth of the Bitcoin Dollar. I mean, you have a macroeconomic thesis behind this concept of the Bitcoin dollar. I do want to get into that. But before we jump into it, is there anything from the article or around the subject matter that is not necessarily in the article that I guess we should we should know? Or you want to bring up?

[00:02:56] MG: Oh, good question. No, honestly, not necessarily. And I’m sure a lot of stuff. It’s impossible to reduce Bitcoin to any one thesis or any one concept. Of course, there’s going to be a lot of stuff that’s just not covered in the focus of the article. But I think, yeah, I think the idea, obviously, we’ll get into the nitty gritty of it, but main thing that I really wanted to get across was retail and noticed inflation and it’s being talked about. But really looking at the historical precedent of this sort of pendulum of supply and demand, which is just what all markets are, you can reduce markets to that being a pretty simple buyer.

Seller, supply and demand thing. So, the purpose of the article was to just focus on what this new technology does, and having a monetary policy that is completely unaffected by demand. We’re going to get six and a quarter Bitcoins per block, no matter how many people are mining, no matter the interest for this having period. So yeah, the article was to just getting right into that about we can almost look at the Bitcoin as a replacement for the petrodollar pendulum system that we created. I say we, as an American, but we as America as imperialist America, created this scenario where we forced demand to buy dollars –

[00:04:13] CK: Let me jump in really quick. So, I guess, let’s kind of just break that down. A lot of people say that the dollar is backed by the good faith of the American people on the economy and our military, while other people will point to the deal between the Nixon administration and Saudi Arabia to effectively make the dollar, the reserve currency of all oil purchases as really what is backing the dollar. Can you just explain what is the dollar? How’s it backed today? Was the dollar ever backed in your mind? Can you jump into some of those subjects that you covered in the article?

[00:04:48] MG: Yeah, sure. First off, just to go even back before really the dollar that we know of today was around, there was a lot of different currencies and experimentation with different strands and things going on during the formation of America. When people say, “Oh, and hyperinflation can happen here.” Yeah, it has happened. It’s happened multiple times already in America with currencies, closure around to 1776 and before. We’ve seen it before, we’ve seen buy metal standards, meaning, silver and gold, set at some ratio, that you get this green denominated paper that you can go back into the bank, give them your $5 note, gets $5 worth of buy metal. Get that back. We’ve seen that in America and in a couple different expressions. But yeah, where we’re at now, what backs the dollars.

First off, it doesn’t really matter what backs anything in terms of social expression. So, money is just a social expression, and the technology to express volatility between two parties. What’s actually backing it isn’t necessarily important in regards to if it makes it money or not. If it makes it good money, it’s very important. So, we’re realizing that now. But what is the dollar back with right now? Social construct. I wouldn’t even say it’s necessarily social military. First and foremost. I’d say first and foremost, people like to spend the dollars and price things in dollars, because it’s assumed that it’s going to hold its value better than everything else. It’s really the social construct that facts, the communication of expression between volatility of two parties. So, that’s really what backs money, if you really want to get into the psychology of it.

But then, what are the mechanics? Right now, yeah. We’ve been in a petrodollar system for 50 years, 45, 50 years. You can pick and choose when you want to say it actually started when we got off the gold standard. You might argue that we got off the gold standard, actually a little bit before Nixon signed the executive order that actually literally took us off. But you can see a whole lot of weird expressions of funny business going on right before 1971 in markets. So, you can see there was a little bit of something going on there already. But yeah, right now, the US dollar, the reserve, trade currency is backed by the idea that it’s going close to what it’s worth now, tomorrow, which it has the most confidence from universe the market’s peak, and the markets tell us that the dollar has the most confidence.

So, they’re using a mechanism right now that we’ve all heard this concept of the petrodollar, which is where I stole the concept of the Bitcoin dollar. But the petrodollar is basically, it’s a military political mechanism or assertion that forces countries that are oil dependent, that are purchasing oil from the Middle East, generally. We force by denominating oil into US dollar, aka the petrodollar. We’re forcing demand for the US dollar by other nation states that need to purchase oil from the US influenced oil refineries in the Middle East.

We’re able to print and print and do fun things in America and fuck around with our monetary policy and knowing that no matter what these oil dependent countries are going to need to buy our dollars. So, we have a place to offset the inflationary effects of monetary expansion in the US. We hear about these concepts all the time. War for profit and all this stuff. Really what these the real mechanism that the US is exploiting via the petrodollar is it’s how can we hide our inflation? How can we continue to print money and benefit the people closest to the money printer without completely debasing and losing the net purchasing power of the US dollar?

So, they do that by forcing countries to buy dollars. Everyone’s going to need oil. You need it for expansion, for industrial expansion, you need it for so many things. So, by connecting the US dollar monetary supply, purchasing power to this ever-demanded commodity or asset, we’ve been able to kick this can down the road for 50 years, quietly, and then suddenly, debasing our monetary supply without really any tangible effects on the purchasing economy of the dollar. That doesn’t mean the individual dollar is not losing power. Of course, it is. We all see that. But the net purchasing power of the US economy is generally doing fine. It’s all about comparison to the rest of the markets going on and the dollar is actually doing okay, so far, despite expanding 60% in the last 18 months or whatever, monetary supply.

Yeah, I guess I’m postulating, moving forward that Bitcoin is going to play a very similar role in being an energy standard that is denominated in US dollars. So again, we didn’t have a literal monopoly in the Middle East or a literal monopoly on oil sales, but we had just enough to be able to eat up that inflationary power of monetary supply expanding and putting it into this energy commodity that’s demanded. So, Bitcoin is going to be basically the same thing. That’s what I’m postulating. It just is a better from like an equation standpoint, having a fixed tokenized supply versus an oil coming out of the ground or even before that gold or silver coming out of the ground by having this fixed supply human designed, most likely.

Monetary policy of Bitcoin, we’re really going to exploit that independent supply from demand to be able to have this like perfect vacuum to just suck up all of this expansionary, ballooning, monetary, and out of control inflation that we’re now seeing. Bitcoin as a protocol is just this wonderful little vacuum that can suck that up without also causing weird inequities within its own protocol, because its demand is not affected by a supply.

So, I think we’re going to see a very similar, not monopoly, of course, I think, always there will be markets that aren’t denominated in dollar. That will always be the case. But I think we’re going to see a similar embracing of Bitcoin for those purposes by the US government, and by the US purchasing economy. In order to stay afloat, we don’t fuck around. We would never let anything happen to the US purchasing power, the US dollar purchasing power. That’s like the one thing we won’t do. If right now we’re stuck in this moment of choosing between inflating away our debts and this debt jubilee or raising interest rates and letting our compounding debt service catch up to us. We’re stuck in these two places. We can destroy the purchasing power of the US economy, or we can destroy the purchasing power of a singular dollar.

Obviously, in my mind, and this is what I’m theorizing, the US is going to the former and we are going to inflate away our debt while also inflating away the purchasing power of the individual dollar into this new system, retains our net purchasing power, anything else can debase and go to zero against Bitcoin. We create this amazing demand through payment rails that are denominated in US dollars, with these new regulations such as Basel III that are going into effect at the start of the new year. This new legislation, that means that all banks and investing firms, VCs, whatever, if they have any assets on the books, they need to also have an equal amount of denominated US dollar to that value on the books.

So, if a bank wanted to have $500 million of gold, or $500 millions of Bitcoin, it also needs to have that amount of money set aside and US dollar in their treasuries under the guise of consumer protection. But we can see how that mechanism is already very similarly being implemented. And basically, in effect, the same as the petrodollar sort of system. We’re forcing these entities that would be able to make speculative attacks on the US dollar by taking free money with low interest rates and investing it into assets and commodities, and especially Bitcoin. But we’re basically forcing demand for the US dollar in the neck while we actually get rid of the singular purchasing power.

That’s where the sort of the concept of the birth of the Bitcoin dollar comes from. And then, yeah, obviously, in regards to like, where and when it actually started to happen, I argue in the article that the sort of official start of the Bitcoin dollar was in March of 2020, when all the markets went down at the same time, and we saw oil of this thing that my entire life was a commodity that we go and invade other countries for and literally kill for and colonize for. All of a sudden, it’s trading negative.

Now, again, I know that’s future stuff and it wasn’t literally, they were giving people money to take oil away. But when that sort of a nurse’s system broke, of the last 50 years of status quo of the American economy, in my entire life, I’m 31 now. When I saw that happen, I thought that was very peculiar. I knew something really drastic had happened and I took all the dollars that I had and put it into Bitcoin. But more so, I knew, empirically, that we were about to have a havening, and that this happening was very different than the other havenings, and that it was the first havening that took us below the supply issuance rate below 2%.

So, we went down to six and a quarter coins per block. We’re at 1.79 inflation rate right now for this havening, which is the first time it’s been below the 2%, on average of the dollar or around the 2%, on average of gold coming out of the ground. I knew that this was going to be a very important havening and a very mathematically just important event in bond markets and oil markets and dollar markets. And when that happened imminently, a few weeks before this mathematically important third havening took place, the whole thing just clicked. It just seemed very obvious that this was a mathematical issue, and it was going to resolve itself in this way. It was a physical issue and inertia system that this massive expansion of credit had to go somewhere and now there was a place that it could go and it could hide and this inflation could be placed, that doesn’t necessitate war, that doesn’t necessitate the costs of –

People talk about the energy cost of Bitcoin. What’s the energy cost of the air conditioning for the US soldiers that have to stay in the Middle East? Huge energy costs. Huge human life costs. So, now we have a protocol that can handle that exact same mechanism that it does doesn’t cost the US government anything. It’s an open source, open network. So, now all of a sudden, there is a place for this stuff to go. Yeah, it seemed very obvious to me and I don’t mean that in an arrogant way, because super humble, and I’m definitely a student of this and anything can happen.

But I saw at least an outlet for this violent and vast Cares Act induced monetary supply expansion. I at least saw a place where it could go. And I think we’re seeing that play out. It was at like 3,300 bucks or something around then, around March 2020, that big flash crash. And then a year later, it was over 65,000.

So, now obviously, we’ve broken that a little bit. Yeah, it really just seems like a mathematical pendulum. And as far as I’m concerned, I don’t know why you would want to hold a dollar or a bond or dollar denominated assets, when you could buy this tokenized representation of this just incredibly vast energy market that is going to do really insane things to day to day life, but more so international global markets. I think the dollar has a really big role to play in Bitcoin. So much inflow into the value imbued into the Bitcoin system over the last 10 years or so has been in US dollars. We look at tether, we look at some of these other maybe misunderstood stable coins, but even more so just inflows coming into markets. The US made four times as much money off of Bitcoin last year, about 4.1 billion versus, China was the next at just about a billion in terms of retail citizens.

We have a lot more to lose, if Bitcoin fails, actually. We have a lot more to gain if bitcoin succeeds. I’m not really postulating that Bitcoin is necessarily coming from the United States intelligence community, much more so saying that math is math, and it’s within the best interest seemingly of the net purchasing power of the US economy to let this experiment play out. So, I think we’ll see expansions of both the US dollar supply to pay off our debt, and then also, that the vast expansion should flow into bitcoin predominantly. Then that will, obviously we’ll see some fun stuff. But yeah, that’s how I look at it. That’s where the term came from. It’s a definite homage to the petrodollar. There’s an amazing article by Susan Su, came out in February about the carbon cost of a dollar, but it specifically relates to like the extended carbon cost of the dollar in regards to how the petrodollar system works.

So, I was really influenced by that, came up with this concept of something that I just saw happening. I don’t necessarily think any of my ideas are necessarily super unique. It’s more just that I saw them occurring and pointed them out. So yeah, I know, that’s where I got to, and I’ve been seeing it play out for the last year or so.

[00:17:52] CK: So, Alex, I want to let you get a question in, but I have one question for Mark. So, we did spaces I think two weeks ago with Aaron Segal talking about the emergence of the mass investor class. And while you’re discussing about how March 2020 was like the birth of the Bitcoin dollar, or this world where the US is going to back the purchasing power of its dollars, with Bitcoin as some sort of like an energy asset, I think that’s directionally correct in the ultimate kind of long game for all nation states, but I couldn’t help it disagreeing and saying that March of 2020, was the birth of the asset Fiat. That’s like, we’re creating a class of investors now that are just passively throwing money into their assets. I think that’s like a much lower hanging fruit than Bitcoins, per se, even though I’m a Bitcoiner, I think that it’s mathematically superior asset to be this inflation sink. What’s your response to that?

[00:18:49] MG: That’s interesting. Yeah, I agree. I think you could say the birth of the retail investor or something equally, as much as you could say, the birth of the Bitcoin dollar. I’m definitely not saying that. I think people should be like, somehow investing in like the net purchasing power of the US. I do think trust is broken within the US dollar system in a lot of ways. Remember, we’re seeing that more and more every day with like the social construct of the purchasing power of the dollar breaking down. But I guess, I just suggest, humbly to check out that.

Yeah, Fiat as an asset is a really interesting concept. But I think that looking at the numbers that you just postulated, you can say there’s a mathematical thesis here for being the best bet. I would just look at that some more and I think that the, maybe the important part of the argument that it’s within the best interest of the United States’ purchasing power the economy for Bitcoin to hyperbitcoinization happen via hyperinflation into it of the US dollar. I just think it’s going to, A, I think it’s going to mathematically happen. But B, I just think that it’s yeah, it’s like a political and economic and mathematical and physical and an energy market like all at once, there’s all of these reasonings behind why I think this is going to happen. As obviously, I think you agree, generally.

So, I think it’s easy to miss the US Dollars’ role and the purchasing power of the economy in the Bitcoin story. I think that might almost be on purpose. You’re not really supposed to think about America’s like wanting this to happen. Or like, why would America take advantage of this? Or started or whatever? Don’t we have so much to lose? Because we lose the reserve currency? Or aren’t we the last ones that would want Bitcoin to win? But when we actually look at what’s really going on, it’s China, which probably has the biggest incentive as one of our biggest creditors for the US dollar, hedge money to fail. They’re the ones banning it. They’re the ones putting social pressures on it, unsuccessfully in a lot of ways, but successfully in some ways, too.

So, I think we might see some more political stuff around it. But in terms of from an investment standpoint of what I think a retail investor should do, watching this political macro kind of play out, to me, I don’t think that there’s another investment that even comes close. I do agree that an asset is better than a Fiat, and I completely agree with you on that. But I think very specifically, it’s not just about is silver or gold, or will this probably going to appreciate and value vastly? Yes, I do think so because they’re priced and denominated in US dollars, and I do think that the money supply is going to continue to expand rapidly.

What is everything going to go to zero against Bitcoin? I think that there’s the mechanics of it. All other assets are just not as good of a mathematical investment as Bitcoin can with its supply issuance, its decentralization, and it’s all the other things we love Bitcoin about. So, I agree with you 100%. It’s definitely assets and commodities over Fiat all day. Absolutely. But again, I think really specifically, Bitcoin as literally what it is, how it works, how it relates to energy markets, how its supply is not affected by its demand, how it will continue to be distributed and decentralized as a function of that being a distributed economy versus say like a centralizing proof of stake, which just gets shittier and more centralized, as every day goes, bitcoin does the opposite.

So yeah, I would completely agree on asset versus Fiat. But I think in terms of the asset world, I don’t even think that there’s like really a question, and maybe I’m being arrogant or maybe naive, but I don’t think so. I’m pretty critical of my own thesis because got a lot of money invested. I don’t want to fuck that up. I would just argue within the asset world, which I agree with, there’s just nothing that even really comes close to Bitcoin from an economic like mathematical standpoint.

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[00:22:40] CK: What is going on plebs? We’re going to take a break from our programming to tell you about the resurrection of our print magazine starting with the El Salvador issue. Starting this fall, Bitcoin Magazine will be available on newsstands nationwide, and at retail stores such as Barnes and Noble. Don’t want to get off your couch, though? No problem. You can also go to store.bitcoinmagazine.com. So,..