Jökull Sólberg

To HODL is to give up on politics

11. febrúar 2021

Bitcoin maximalism and more generally the idea that crypto is an improvement over fiat signifies deep distrust in public institutions; a rejection of politics and the democratic process – not appreciating that money issuance by the state has a role in serving the public interest. That quite the opposite, fiat is being weaponized against the people.

Many Bitcoin advocates view all political systems as power corrupting and opposed to the public interest. They see "the free market" as a non-political entity and that crypto lowers the threshold of participation of the public.

Screenshot of Naval’s misinformed claims about socialism

Bitcoin and crypto enthusiasts have furthered the distributed ledger technology to an idealistic project with claims of potential, perhaps even inevitability, of corrupting fiat regimes and subverting financial and political institutions that are viewed as corrupt, misguided or working against societal improvements due to their centralized and/or political nature.

Exchanging fiat for crypto becomes, in a scenario of crypto tokens becoming our standard means of payment and storing value, a protection against fiat which loses value through the inflation process.

Two trends explain this distrust in public instutitions and search for alternatives wherein technological improvements unlock a distributing of power outwards from central instutitions:

  1. The discrediting of socialism as a pragmatic and legitimate way to distribute power. This short post will not attempt to capture this multiplexed decades long project of neoliberals.
  2. The mischaracterization of the traditional role of credit issuance (money printing) in fiat based regimes.

In socialist welfare states savings play a relatively insignificant part of incomes as daycare, education, healthcare, housing, retirement etc. are provided for and funded by the state. Savings are non-mandatory and discentivized with progressive taxation on capital gains, inheritance etc. In this scenario inflation and low interest rates can be (should be!) a wealth transfer process from the haves to the have nots and encourage productive private investment. For quasi-socialist market economies like the Nordics, the fiat money issuance story starts with a state that funds programs and creates in the process new money that enters circulation and exits when it is used to settle tax payments. In these economies progressive taxation and a high value added tax act to drain money back from circulation to prevent inflation and maintain the demand network effects of the currency.

In the US this has not been the case with a tax regime that has become less progressive over time as well as letting the corporate tax base shrink relative to the size of corporate sectors. US famously has a weak value added tax, weak corporate taxes and weak welfare provisions. The fiat machanics of money circulation in the US today are the same as described above, but they have not been used in the public interest effectively since Franklin D. Roosevelt’s New Deal in 1933. The dismantling of functioning fiat and the advancement of weaponized fiat became the norm during the Reagan/Thatcher era, wherein lower taxation was provided as a means to excite free markets that would self organize welfare effects throughout the economy without centralized organization. That did not happen.

We need stronger democracy to enable fiat as a mandate to make resources in the economy subservient to people’s needs. That is what strong welfare states do. They use fiat to pay for healthcare, education and even secure housing. Without welfare fiat only works to debase what little savings the public has accumulated — a role reversal that makes fiat the enemy. Fiat and its powerful ability to control economic resources is a weapon and those who hold it decide how it’s used.

Bitcoin, which rises along with its narrative of fiat failing the public, has become the ticket “out of a system that doesn’t serve people”. I cannot blame participants who are not served by democracy and are seeing crypto rise in value beyond fiat. But I want there to be hope for democracy where fiat pays for welfare, income security, housing and dignity. An advancement of crypto into central banks and state budget and spending mechanics will cripple the states ability to circulate money first into the economy to capture necessary resources to ensure safety, livelihood and dignity of its people - along with subsequent correcting inflation. That is why I am against Bitcoin and crypto as fiat alternatives.