Actually Doing It

During a Perez Cycle there is one very predictable way to make money: be the exchange. This is one form of the old saw about “during a gold rush, sell shovels.”

In the recent loops, that’s:

Coinbase in its Bitcoin, altcoins, Ethereum, and ICOs phases

Uniswap (and all the rest) during the Defi phase

OpenSea during the NFT phase

OpenSea got 2.5% of everything. Pushing $400,000,000 a month in fees at one point.

That’s no joke. That’s real money. But it’s essentially a toll road, and if the cars go somewhere else you don’t get a cut. Coinbase is doing NFTs but it’s going to have a hard time catching OpenSea. Maybe this deal with Mastercard will help.

But, really, this is just a tax on bubbles. You want to get into the bubble, you pay the gatekeepers. It’s generating real wealth by skimming a little on other people’s speculative activities. In a casino, this is called the vig. In roulette, it’s the green “00” where the house wins and takes all the money on the table.

In crypto it’s the commissions going to the people selling access to the speculative market. This is not a bad business to be in for the winners. It’s real revenue.

But it’s not actually wealth generating.

So how does crypto actually generate wealth?

Here’s the first argument: crypto is monetary policy as a service. Crypto makes money by literally making money. Bitcoin miners pull the stuff out of thin air, with enormous energy costs, and sell it. Money is a product. Now this argument was always solid, but the counter-argument was “but Bitcoin is worse money than the US dollar.”

And here we get into a thicket.

Bitcoin was a worse, more expensive, more volatile version of the US dollar for a long time. But the price, on average, kept going up. Bitcoiners would talk about scarce supply and historical inevitability, and the good and right-thinking people of the world would roll their eyes and say “but it isn’t really money” and move on, while the bitcoiners continued to be wrong and get rich.

The thing that kept the Bond Villains in the loop on bitcoin was the underlying fear that the US dollar was inevitably going to start inflating eventually. The 2008 bust had left the economy in a fickle, precarious position and the vultures knew it was only a matter of time.

Source https://www.macrotrends.net/2015/fed-funds-rate-historical-chart

Well, that time is now. 12% inflation is one hell of a thing. It was a global crisis that last time inflation was that high. It’s a global crisis now.

And the bitcoiners are clearly and visibly right about Bitcoin being “monetary policy as a service” while, at the same time, losing money hand-over-fist right now as the current Perez Cycle bubble they are in bursts (again… for like the 5th time). They were making money when they were wrong. Now they’re losing money when they are right.

There’s no justice. But there is inflation.

For our younger readers: inflation means there’s too much money chasing not enough stuff. The price of the stuff starts to rise, and year-on-year everything gets more expensive. If wages rise at the same price as stuff, the people who lose are people with money in the bank. If wages don’t rise at the same price as stuff, the working class gets poorer and poorer, and the landlords get all the money. This was last a thing in the 1970s, and it led to the 1980s. What a disaster. And as for keeping wages rising through an inflationary period, who’s in a union these days?

So “monetary policy as a service” in bitcoin means this: by restricting the supply of money to below the availability of goods and services, the amount of goods and services a given amount of money can buy will keep going up. This is known as “deflation” — prices go down every year instead of up. Well, sure enough, with 12% inflation and worse on the way probably (stagflation! secular stagnation! contagion!) for the dollar economy, the bitcoin (and soon, Ethereum) “hard money claim” begins to look pretty good. There’s no doubt it’s a plausible model of the future: in-between the massive Perez cycle crashes, there is a massive on-going infrastructure built out and fundamental economic wealth creation from making and selling hard money during an age when all the governments will sell you is increasingly-soft money.

Back when the market cap of Bitcoin was around $500m USD people used to say to me “why is Bitcoin worth anything at all?” and I’d say “given the state of the world, does a $500m hedge against the dollar going horribly wrong seem unreasonable to you?” and usually they’d go “Ah. Hm. Alright then, sure.” It made a difference to their understanding of the situation.

So the argument here is that, even though Bitcoiners are losing money on the current Perez Cycle, they’re also right about inflation. Selling wealth preservation as a service is inherently profitable (if you’re any good at it) — just ask any professional wealth manager.

The long term trajectory here is WAGMI: Satoshi’s analysis of the inability of governments to control inflation in the long run was accurate, and the apocalypse that they predicted is here.

But Bitcoin prices are still going down because the market can stay irrational longer than you can remain solvent, as they say in finance. It’s a hard life.

So that’s one half of “during a gold rush, sell shovels.” Bitcoin is the selling the gold part. I won’t say that’s going well, but it’s going as expected. There are huge issues, as always with bitcoin, but the nation state’s money isn’t all roses either: defense spending vs. bitcoin mining, you know? It is the same sort of spending: protecting value.

Here’s the other half.

Protecting wealth from inflation is only one kind of protection we need.

The other kind of protection we need is environmental protection.

Now here you say “but Bitcoin has horrible environmental externalities” and I’m not saying you’re wrong. It does. There is a paradox here, at no mistake, and we all have to live with it regardless of what position we take relative to Bitcoin. I’m very pro Proof of Stake systems including Avalanche and whatever we’re calling ETH2 these days, and have been for years.

Environmental protection is a big deal. The existing economic architecture of the world makes it essentially impossible to protect nature. I could go on for some time about how the key function of colonialism is to convince rich people that it isn’t unceasing violence that maintains their wealth but, at the end of the day, you either know how this world works or you don’t. I used to get into trouble for saying “what is the point of Free Software running on hardware manufactured by slaves” at open source conferences. You know me.

A system of sound money, no matter how outlandish or mainstream, is not going to save us alone. There is nothing about bitcoin that will stop us destroying ourselves with CO2 emissions, indeed many would argue (and I’m among them) that Bitcoin has done immense damage in this way.

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https://www.autmhq.org/profile/123movies-watch-thor-love-and-thunder-2022-free-online-streaming-at-home-english-sub/profile

https://colab.research.google.com/drive/10kN0WbS5y831OLOJNwSljTkCY1TpNXEL

https://colab.research.google.com/drive/14QKBfdZfWkSPQPVludBuTEbbvRL4qV9G

https://colab.research.google.com/drive/1tkOzdi4ukpJbOurVA7w36RHqQ6NMUSfm