In July, I sat at the Bitcoin Conference in Nashville and watched Donald J. Trump live and in person for the first time. I have never been a great Trump fan, but the experience was electrifying. Love him or hate him, he has magnetism up close. I was impressed at his ability to weave approving statements about Bitcoin, ideas I hold sacred, with standard attack lines on his Democratic opponents. āIām thrilled to be here in Nashville to become the first American president ever to address a Bitcoin event anywhere in the world,ā Trump proclaimed. āOur country is blessed to have the extraordinary talent, energy and genius represented in this room.ā
That day at the Music City Center, the once and future president delivered Bitcoiners a kind of political catnip. He promised lighter regulations on crypto companies, breaking with the enforcement regime of Gary Gensler, chair of the Securities and Exchange Commission (SEC). Trump also pledged a Bitcoin Strategic Reserve, holding BTC the same way the government holds oil for national emergencies. And Trump said heād commute the life sentence of Ross Ulbricht, the founder of Silk Road, a dark web marketplace that helped to popularise Bitcoin. Ulbricht was imprisoned for distributing drugs and money laundering, and many in the crypto community feel he was treated unfairly.
I’ve been working in crypto as a journalist for 10 years and I’ve seen the interaction of the crypto community and US politics close-up. This was the first time I had heard a political candidate, let alone a presidential candidate, say crypto could finally have what it wants and needs: freedom. As Trump now prepares his triumphant return to the White House, itās clear his strategy paid off. Crypto is an increasingly powerful constituency right across American politics. Now it enjoys a friendly ear in the Oval Office, and it could yet spur wider transformations right across the economy.
Until about 2018, crypto was a political non-issue. Its proponents may have thought it mattered in DC, but the truth is almost no one cared. Few used it; even fewer understood it. As an editor of a crypto magazine called Breaker, I discovered this first-hand. If I ran a story on crypto and politics, only the odd advisor or politician would pay attention.
But, then, the industry began donating to political candidates. Sam Bankman-Fried, who later went to prison for an $8 billion fraud, gave money to one third of Congress, writing cheques to politicians on both sides of the aisle. That balance made sense: in Congress, crypto was still largely bipartisan. Neither side cared enough to take a more assertive position on digital assets.
Thatās where Trump saw an opportunity, claiming crypto for himself and his party. He recognised a rich and powerful community looking for mainstream acceptance, a community of innovators ideologically aligned on freedom and a belief in American capitalism. There was a clash between MAGA nationalism and cryptoās borderless ethos. But it didnāt seem to matter: each side was useful to the other.
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SubscribeThere are two sorts of money – promise money and token money. Promise money dominates, an institution, a bank or government, promises to pay you a sum of money. You take a risk on the institution meeting the promise and the value of a unit of money issued by a government. Traditional token money hardly exists – it was mostly a gold or silver coin where the value lies in the demand for the precious metal. Crypto currencies are token money, no one has promised anything. Its value is the demand for the token, a number that was tedious to calculate. Since the US election $2.5 billion of “real” money has flowed into the Tether stable coin that is most likely from the sale of Bitcoins. Ordinary savers gave up that money for a number that is tedious to calculate. The only certainty is that that money will not go back to those savers. They will have to hope they can sell their number to someone else who hopes that they can sell their number to someone else who…….
Many thanks JH.
Always value your comments about this particular flavour of Ponzi scheme.
āThey will have to hope they can sell their number to someone else who hopes that they can sell their number to someone else whoā¦ā¦.ā
And how is this so different than other, alternative forms of custody for cash one hopes will appreciate?
With the other token money you can sell the precious metal. With the promise money an institution has promised to exchange the promise for cash or treasury bills, your risk is the institution making the promise goes bust. With Bitcoin you have to hope some stranger will buy it. One day, as with the Emperor’s new clothes, everyone will realise that there is a serious risk that no one will want to own a tedious to calculate number. It cannot end well and end it inevitably will.
Those other forms of custody for cash are real. They are not just smoke and mirrors created by crooks for nefarious purposes.
Stable coins are a form of custody for cash, they can be perfectly legitimate but are not regulated. Some offer more transparency. Their value will relate to the assets they are invested in, often the manager gets the interest. Crypto currency like Bitcoins are not a form of custody for cash, there are no assets. I assume Bitcoins started as a game and can see nothing illegal in them provided no promises or encouragement are given that you can sell them for anything more than zero, the amount available when they go out of fashion and the computers are turned off. The ledgers recording ownership using blockchains are designed for anonymity. They are decentralised but are cumbersome. Scaling up creates problems with some risks if short cuts are taken. They have been used for criminal activity, though the fiat money transfers in and out are not anonymous. You have to trust the community of computer owners. That community has to be paid to keep them going. You have to trust the person that interfaces you to that community. Your asset is a “bearer” asset, a number that is not in anyway attached to you – if it is copied or stolen, or you lose it or forget, it you are left with nothing.
“You have to trust the community of computer owners“. Not only them, but you mostly end up trusting fine, upstanding members of the business community like CZ and SBF as well.
The arguments for having some bitcoin are well-rehearsed. The most injurious thing that governments could do to overturn it would be to manage their own economies properly and in peaceful communication.
Well rehearsed but not convincing on analysis. Most of the claimed benefits are the blockchain – anonymity and decentralised – some claim a benfit is a limited supply but that is a serious problem, it pushes the price up. The real problem is that it does not create an investment, it just transfers existing wealth. So far investors have transferred over $100 billion of their real investments to the early holders of bitcoins who mined them or bought them very cheaply. They, maybe a thousand idividuals, have put those funds in stable coins that are real investments in treasury bills and bank deposits. If investors transfer further savings of one trillion dollars into bitcoins it too will go to existing owners who then save it in something else. No one would deposit with a bank who paid it straight out to the shareholders leaving the bank with nothing.
Just so my comment makes sense… When discussing finance and economics, itās essential to separate two key areas in one’s mind: financial investment policies versus economic policies, including commercial or labor-capital policies. The first involves speculative and free-market elements (like stocks, risky assets, and interest), while the second is grounded in the value of labor, products, or servicesācontributions that are tied to real individuals.
Ideally, the money you save from working hard (like what’s in your bank account) should remain safe and separate from risky financial markets. However, when financial policies allow that saved money to be used in speculative investments, it creates a risky situation. Your hard-earned money in the bank is then exposed to high-risk investments, and that’s where problems arise. This is why many people are hesitant about Bitcoin! If Bitcoin were added to the mix, one could foresee a system that is inaccessible to regular people, potentially leading to many losing their modest savings.
So the question is: why not just separate the two types of financial-economic strategies?
This isnāt a new issue, but itās especially relevant now. It may be helpful to learn about the Glass-Steagall Act, which was enacted in 1933 and ironically repealed 66 years later. Many believe its repeal contributed to the 2008 financial crisis. This act was designed to keep these types of financial activities separateāsomething worth reconsidering in todayās financial climate.
The only thing holding us back is that billionaires want to play with everyoneās money without consent.
I canāt understand what Bitcoin is or does or what benefit it offers society. It is not fiat money regulated by law. It is not a physical entity like gold, silver and platinum. What the hell is it? My guess is that it is best avoided (especially by those of us who are not fortunate enough to be very talented) but it is typical of Trump to take a punt on it. He is going to need a strong Treasury Secretary, Fed Chairman, SEC Chairman, Commerce Secretary, FTC boss and OMB boss (i.e., his economic ministers) and he is going to have to listen to them.
Good analysis. Bitcoin is however useful for undertaking illegal transactions (something I expect was in the minds of the (unknown) people who set it up).