Bitcoin’s Secular Attack
Bitcoin has proven itself to be an asset that is not going anywhere. Over the past decade it has risen from the dead countless times, recorded by endless articles reveling in its demise.
It rises again.
The current bull market, highlighted by the increase in price past its 2017 high has been driven in part by MicroStrategy and its CEO, Michael Saylor. In short, MicroStrategy along with its founder Michael have gained a staggering position in Bitcoin on its balance sheet, funded by its cash reserves along with an issuance of debt to fund additional purchases. This note issuance along with Michael’s endless bullhorn drives a particular Bitcoin narrative.
The issuance of debt to fund a currency purchase is a shot across the proverbial Dollar bow.
This is nothing new to history. In the early 90’s George Soros famously drove the British Pound to its knees, and profited an immense sum as his reward. As time continues, this type of speculation will not only increase but explode in size and scope, and the target will be the Dollar.
Speculative attacks can not only be enacted by individuals, but groups and populations. In the Soros example, this was one individual tied to one small group who affected a nation. What happens when many individuals, many groups and whole nations take part in the speculative attack of an individual currency?
In 1975, Adam Fergusson published When Money Dies. The book describes in great detail “The nightmare of deficit spending, devaluation, and hyperinflation in Weimar Germany.” Preserved in the book are incredible diary entries, letters and testimony describing the human misery and torture a people can endure when their leaders choose inflationary monetary policies, and ultimately hyperinflationary monetary policies. The immense struggle cannot be overstated or minimized. Hunger. Starvation. Death. The nation of Germany was brought to its knees in part by the consequences doled out by the Allies, and in part by its own citizens. For nearly four years, the financial disaster and malaise in Weimar spread over and over and over again. The only respite was found in early investments or speculation in hard currencies, commodities and land. Even some of those who sheltered their financial value were still affected by roving mobs of bitter, starving citizens.
The attack on the German paper Mark was secular.
A secular market is a market that is driven by forces that could be in place for many years. The forces at work in Weimar Germany were dictated by its leaders. Individuals were forced to spend their paper cash as soon as they could to avoid higher prices. This force was driven into every foundation of the country.
In When Money Dies, Fergusson presents Sir Basil Blackett, Controller of Finance at the British Treasury who wrote:
“The big industrialists are attempting to save something from the wreck by turning all the paper marks they can into foreign currencies or, failing that, into real things — land , machinery, and so on, which have an independent value… The incentive to saving is gone just when savings is of vital necessity to the State.”
Mr. Blackett was touring Germany and reporting back the contrasts he witnessed between the economy of Germany in Britain. Britain at the time had nearly two million unemployed, while Germany had full employment — a mandate by the government. The letter continued:
“The fall in the mark was gradually wiping out the middle classes, the value of whose investments was quickly disappearing.”
A letter written by Erna von Pustau detailed in When Money Dies described the inflation:
“Inflation finished the process of moral decay which the war had started…It was a slow process over a decade or more; so slow that really it smelled of a slow death….In between were times when the mark seemed to stop devaluing, and each time we people got a bit hopeful. People would say, ‘The worst seems over now’.”
The Secular Speculative Attack had just begun for Erna. Her mother had believed that her house had appreciated in number enough to cash out its value, but soon after she had sold, the paper money she was holding had devalued again, so she was forced into speculation. Once again she sold her paper money for something else.
The story is told over and over in the masterpiece by Adam Fergusson. Citizens previously unfamiliar with buying and selling stocks and currencies were compelled to preserve their value by becoming speculators. Thus, the attack on the German mark was widespread and secular.
A newspaper article by Arthur Eichhorn described the flight of capital and its unknown quantity but one could only guess:
“Evasion of taxation, fear of socialisation, and inflation have combined to drive capital out of countries with a depreciated currency into countries where the currency is sound or at a premium…this has nothing to do with international trade or with normal credit operations, but merely increases the chaos of exchange rates.”
The world of the early 1920s was relatively modern. International banking was centuries old. The capital flight from Germany was only encumbered by the friction provided at the time by the 1920s communications networks and financial products.
September 20, 1921, Mr. Joseph Addison, Councillor at the British Embassy in Berlin wrote:
“the daily creation of fresh paper money which the government requires in order to meet its obligations both at home and abroad (services and goods which it is ‘obliged both to render and deliver’) inevitably decreases the purchasing value of the mark and leads to fresh demands, which in turn bring about a further decline, and so on ad infinitum.”
ad infinitum: again and again in the same way; forever.
Mr Addison continues:
“Millions of persons in this country are, I think accurately, reported to be buying foreign currencies in anticipation of fresh tax burdens, and to be hoarding foreign bank notes… I hardly know a single German of either sex who is not speculation in foreign currencies, such as Austrian crowns, Polish marks and even Kerensky roubles. In as much also as a fall in the value of the mark is inevitably accompanied by a rise in the quotation of industrial shares, speculators are supposed to be operating systematically to depreciate the mark with a view to reaping the benefit of higher quotations in the share market.”
It is quite easy to compare the 1920s “German of either sex” to the 2020 version of speculators in the form of TicTok investors. Take a moment and peruse the aptly named @TikTokInvestors on Twitter to get a taste of the modernity. The systematic devaluation of the dollar is upon us, and it will be led by influencers.
What does capital flight look like in the 21st century when one can obtain a pristine asset at the click of a button? A regular man or woman does not need to be a George Soros or Michael Saylor to obtain a loan to purchase an asset. When an individual can not only have their bank account in their pocket, but be an international banker at the swipe of a finger, a speculative attack on the dollar can be secular and widespread at the speed of light. The Bitcoin network provides the outlet. Its easy to understand monetary policy is the safe haven. People do not have to run to a bank, to a grocer or to a manufacturer to preserve their wealth. All they have to do is download an app.
This is Bitcoin’s Secular Attack.