As a connoisseur of both sides of the decentralized coin I’ve paid attention to anyone who can make a good argument against crypto. Surface level sophists like Schiff and Krugman (The Internet’s effect on the economy is no greater than the fax machine’s) regurgitate boring talking points, however, there is much better critique out there if you know where to look.

In my opinion nobody has presented a clearer and more convincing bear case for Bitcoin than Mike Green. In this article I’ll summarize Mike’s two arguments against Bitcoin, especially his contention that a deflationary currency is ill suited as a replacement to the dollar.

1) The Dollar as a Force for Good 

Today’s zeitgeist is decidedly anti-American. From the left we’re informed that America is a nation of white supremacists and backwards-thinking yokels. The right is more likely to argue that we’ve lost touch with everything that’s made this nation great, and that printing trillions of greenbacks to fund ill-defined “human infrastructure” projects is proof enough that Stalin is knocking at the door.

Zeitgeist aside, Mike argues that under the hood of the narrative we can find serious discrepancy between narrative and fact. Since WWII the world, protected by America’s vast military, has enjoyed a nearly unprecedented level of peace. Skirmishes in the middle east not withstanding, we’ve enjoyed decades of unprecedented cooperation (or if not cooperation, at least not genocide.) Since Bretton Woods, America has enforced peace with an equation that looks (looked) something like this.

  • The US Navy patrols the oceans and maintains safe shipping lanes for maritime trade
  • In exchange for security, all nations that wish to participate in the global order must use the dollar (and play by America’s rules, more or less)
  • In return for following Washington’s lead, nations can ship their goods all over the world (and buy their owns goods/commodities)

We take it for granted that container ships and oil tankers can travel the world at their leisure. However, history suggests that frictionless global trade is an aberration, not a right. It wasn’t always like this, but boy has it been great! Peaceful trade has enabled global prosperity. Increased prosperity has reduced war, famine, genocide and all sorts of other nastiness. When a country’s economic prospects are improving they’re less likely to attack their neighbors and/or revert to authoritarianism. Without a global order secured by the United States, its military and the dollar, how many wars might we have seen? Skirmishes? Genocides? Coups? Terrorist attacks?

Even though the United States has made numerous, highly publicized mistakes, Mike argues that life under the American led order is better than the free for all that has defined much of history. If that’s true then Bitcoin (insofar as it poses a threat to the dollar and the international financial system) is more likely to be deleterious than beneficial.

Love it or hate it, Bitcoin is antagonistic to the dollar. Bitcoiners love to speculate about the day when BTC will replace USD as the world’s reserve currency. Hard money, no more brrr printers, free from government control at last! As utopian as it sounds, Mike argues that you must consider the knock on effects. If the dollar is replaced by Bitcoin, America would likely give up its role as the global policemen. Without a strong military presence global trade and prosperity will decrease. As that happens there will be more conflict and disorder.

Rather than supplanting the dollar with Bitcoin, Mike argues that we should find ways to reform the system. Maintain the good, cast off the bad, and fight for another eight decades of economic growth and relative peace. A cooperating world is possible under an American security umbrella, but unlikely to last long with Bitcoin at the helm of the international monetary order.

2) Deflationary Currencies are Impractical in Practice 

Before we address Mike’s second argument it’s necessary to have a basic understanding of how money is created in our financial system. If you’re not familiar with the money racket you might be surprised to learn that commercial banks create somewhere between 80 and 97% of all the dollars that we know and love. The banks create these dollars out of thin air! Fugazi, fugaehzzi. It’s a woozy, it’s a wazzi. Here’s how it works…

An entrepreneur wants to start a business. He consults with the bank, the bankers like the idea and approve the loan. How does the bank get the money to pay to the entrepreneur? They create it! At their core banks are highly regulated creators of capital. James Bond has a license to kill, banks have a license to create dollars. If you really want to dive into the nuts and bolts you can check out this paper by Richard Werner, however, for our purposes all we really need to know is that,

  1. Banks create (and destroy) money
  2. The terms of this system guarantees that the money supply is flexible

Under a fiat standard banks lend when demand is high (and the perceived risk is low). If there is a surge in entrepreneurship, like what we experienced after WWII, banks can create money and lend it to the entrepreneurs. When entrepreneurship is low, or perceived risk is high, banks tend to not lend money (or lend much less than usual). Although this system can create imbalances (2008), it is flexible and can quickly respond to changes in money demand.

The problem with a Bitcoin standard is that it would neutralize flexibility in the banking system. Imagine a pure Bitcoin standard where the only way to get a loan is from a financial institution/investor who wants to lend existing Bitcoins. Well, there is a limited amount of BTC and the demand for loans may well outpace supply. If demand is high and supply is exhausted, rates will quickly rise.

Under these conditions, borrowing money could become so expensive that entrepreneurs can’t afford to take out loans and create businesses (or citizens can’t get mortgages, car loans, students loans, etc.) Restricted by a pure Bitcoin standard it’s likely that the country would suffer* since there wouldn’t be enough capital to grease the gears of the economy. What if Steve Jobs hadn’t been able to get a loan because borrowing BTC was 20% per annum?

$10 bacon, worth it to win a war?

*Or is destroyed! Imagine if government spending is constrained during wartime. While we tend to take a dim view of inflation, if creating money to fund a war is the difference between winning and losing (a justified war with a real threat, I.e. WWII), what citizen wouldn’t trade some $10 bacon to keep their national sovereignty intact? 

A hybrid Bitcoin standard could be a more workable solution. In a hybrid system Bitcoin is base money. Just like banks have reserve requirements today, under this new system banks would have to hold some amount of Bitcoin against the loans they make. For example, if the reserve requirement is 20% a bank would need to hold 0.2 BTC for every 1 BTC in loans they issue. Except… Can you see the problem? Banks can’t create new Bitcoin! So whenever they make a new loan they’d need to create some other currency, let’s call it Bitcoin+.

Bitcoin+ solves the flexibility problem, however, at this point we’ve already given up on a “pure” Bitcoin standard. In fact a hybrid Bitcoin system doesn’t even look that much different than the fiat standard we’re already bitching about! So the country goes through all the hassle of adopting Bitcoin, only to create a new system that’s not meaningfully different than the old one. What’s the point?

Everything I’ve just detailed, the impracticality of a hard money standard, is Mike Green’s second argument against Bitcoin. It’s a good one too. Hard money can limit growth in the real economy, much to everyone’s detriment. Another way to think about it is this. George Gammon often talks about the difference between “money” and “wealth.” You can have a lot of money, but if you don’t have anything to buy what’s the point?

Under a pure Bitcoin standards the hodlers might see the value of their coins go up, however, how much benefit would that really provide if there are (a lot) fewer goods and services to spend money on? Who gives a shit about being a trillionaire on a desert island?

Mike Responds 

I reached out to Mike on Twitter to see if this article is an accurate representation of his views, and if there were any other details he thought I’d missed. Half an hour later Mike replied with a nice commendation, as well as a simple formula illustrating the pitfalls of Bitcoin’s deflationary monetary policy. Here’s the full message from Mike, I’ve made no edits.

Very well done. You can extend the rates work with the monetarist equation “GDP=MV=PQ” and further extend that to living standards with “per capita GDP = GDP/Population = (MV/Population)=(PQ/Population)” Under a bitcoin system, if population grows, by definition the M is constant/barely growing (21MM/18.7MM)^(1/118)=0.09% per year) so velocity must rise to prevent deflationary conditions. However, it’s much worse than that because it’s actually a function of the population using bitcoin (~100MM) vs the future population using bitcoin (~8B)…

Increasing the PRICE of bitcoin doesn’t solve the problem of bitcoin access for the no-coiners. The only way they can get them is either (1) a bitcoiner spends… and as the price of bitcoin rises they need to spend less and less or (2) they borrow the bitcoin under which condition V must rise sharply and interest rates ~ V. So bitcoin borrowing rates would have to be impossibly high to offset the risk that the project fails and the bitcoin is “lost” (transferred to another with no prospect of return or actually lost).


Mike Green makes two key points against Bitcoin.

1) Although the United States is flawed, the dollar hegemony has been a net positive for the world. Yes, the system has been abused and the USA has done some incredibly stupid shit, however, global stability has staved off major wars, genocides and mass immigrations which could have been even more catastrophic than anything we’ve seen in the last 80 years.

2) A deflationary currency like Bitcoin lacks flexibility, which ultimately hurts the real economy and hinders the ability of entrepreneur and businesses to expand. Deflationary currencies may benefit those who own them, but they don’t necessarily benefit society as a whole.

I enjoy thinking about how the next Bitcoin bull market could play out. I do mean a Bitcoin bull market, not a crypto bull market. Moving on from the 2017 ICO craze I think the next bull market will be driven primarily by Bitcoin.

Why think about a bull market now, don’t you know we’re stuck in the doldrums?  

I think that it’s really important to consider how a Bitcoin bull market could play out so that we can prepare to sell into it. If you’re like me and you’ve just held on through two years of demoralizing bullshit, you probably never want to do that again. I’m preparing now so that once prices achieve orbit I can remain cool headed and follow the plan even as the market goes parabolic.

What I think the next bull market might look like 

Mostly this: Bitcoin’s role as digital gold / store of value / hard money / deflationary asset is going to dominate. Especially as we see more QE (Unlimited QE!!!) bailouts, fiscal stimulus, spending, etc. I think that an increasing percentage of the world’s population is going to look to Bitcoin as a hedge against inflation (especially those who don’t have easy access to dollars).

Now… This demand for Bitcoin as an inflation hedge might not actually be so great in the United States. Already we’re seeing a strong dollar and a number of very smart people have said that the dollar is likely to remain strong for the foreseeable future. If you’re interested in why, this is what they say.

  • The United States is printing tons, the rest of the world is too. Widespread printing means that the dollar stays strong because it’s the least shitty turd in the pot.
  • There is massive dollar denominated debt outside of the USA. Corporations and governments need dollars to service that debt = demand for dollars.
  • There isn’t a good alternative to the dollar. The closest competitor would be the Euro but there’s a non-zero chance the Euro won’t even be around in a few years. If not the Euro then what? Japanese Yen, anyone? Can I interest you in some Pesos?

A strong dollar would apparently diminish the narrative of Bitcoin as a hedge, and that’s probably true to some extent for Americans and other citizens of this fine planet who have easy access to dollars. However, while first world countries might have lots of speculators, they’re not where I would look for people who need Bitcoin, DeFi, etc. As an American or European, you already have access to pretty good, reliable banking infrastructure. What about the Russians, Thai, Mexicans, Turkish, Indians, etc. I think citizens of these countries are the ones who will begin buying Bitcoin as their fiat currencies break down and they find it hard to source dollars.

It won’t take much buying pressure. Bitcoin is a small asset and it responds to small demand (relative to the stock market or gold) so that $20,000 is well within reason if millions of people are buying at the same time. Once we move past the old ATH the speculators will return. Retail will come in, Bitcoin will be on the nightly news, institutions will join the party and as we’ve seen with previous right translated bull markets, the cycle will build on itself and before you know it we’re at a Bitcoin price that previously seemed silly (admittedly in inflated dollars).

How the bull market might accelerate 

What I just laid out is my general idea of how the bull market will reach $20,000. This is what I think the later stages may look like.

  • Traditional fiat currencies are failing, entire countries are insolvent, central banks have exhausted their reserves and are powerless to wipe their own asses. Abandon ship! As millions of people sign up for exchanges a narrative will form that Bitcoin is going to become the world’s new reserve currency. Buy it now and quick!
  • Several central banks will admit to owning Bitcoin / looking for ways to peg their currency to Bitcoin. I expect these to be the central banks of countries that Americans can’t poke their fatty sausage fingers at on a map. Ecuador, Ukraine, Bolivia, etc. I have no idea which ones, it doesn’t matter. What matters is that even just the suggestion that a central bank is playing with Bitcoin, any central bank, will bring legitimacy and new investors (speculators?) to the market.
  • Inflation in first world countries. Not hyper inflation, but not 2% inflation either. Enough inflation that people will notice it and they begin to question the “wisdom” of the Fed’s monetary policy. Possibly, maybe just maybe, the denizens of the first world might ponder whether a mathematically-guaranteed borderless immutable digital currency might have some advantage over a dollar governed by a cabal of self-serving old white dudes.

Why I will be selling into this madness, just as everyone and their grandma is signing up for Coinbase 

I will be selling because it is my firm belief that no matter how dark things may look, the dollar is not going to fail (or hyperinflate) and Bitcoin is not ready to be the world’s reserve currency yet.

  • The network effect of Bitcoin is not large enough. There aren’t enough people using Bitcoin and there just isn’t sufficient infrastructure to allow it (yet) to act as a reliable reserve currency. The crypto community need more time. Bitcoin is growing fast and I think it will get there, but I don’t think that we’ll get there before the peak of the next cycle.
  • I don’t think Bitcoin is secure enough to act as the world’s reserve currency. Mining is still too centralized in China and a few other locations. We need more decentralized mining, or at the very least we need to make damn sure that if the Chinese government goes rogue they can’t force mining operators to perform a 51% attack. Mining is already decentralizing at an increasing pace and I would expect that within the next 3 to 5 years we can confidently say that no one country overwhelmingly controls Bitcoin.
  • Bitcoin is too damn volatile. I know the Morpheus meme about not needing to sell sats, but until you can actually spend this stuff at any grocery store, or at the very least buy a car with it, I can’t imagine people hodling Bitcoin indefinitely. I like Bitcoin, I like eating breakfast more. Also, this last crypto bear market forced capitulation upon (supposedly) committed crypto believers. What will happen to the bull market maniacs after Bitcoin retraces 80% from its new ATH? What happens when it retraces 50% in a fucking day! Until the volatility evens out I find it very, very hard to believe Bitcoin will be able to act as a reserve currency.

So it is my opinion that we’ll see massive overvaluations in Bitcoin and then, like any other parabolic bull market, it will collapse. In the aftermath what we’ll find is this.

  • Many fiat currencies have failed, things are fucked but generally the dollar is OK (the implication being that selling Bitcoin for dollars near the peak is not going to lead to you losing all your money as the dollar blows up).
  • Dollar inflation will be higher than normal however, it won’t be quite so dire as it may have looked during the peak mania phase of the Bitcoin bull market. Americans will not be taking their wheelbarrows of cash to Trader Joe’s. The Fed will conjure its black magic, the POTUS will do this or that, steps will be taken to keep the dollar relatively safe.
  • In regard to the central banks who have announced that they’re working with Bitcoin, I think what we’ll find is that their idea of “working with” isn’t what we all had in mind. An analogy could be drawn to the long ago announcement that Amex was working with Ripple. To the moon! A few years later what has come of that? Who was expecting $0.12 XRP again?

So there will be a peak in the bull market, driven by these narratives, then comes the crash. Hopes will be dashed, dreams destroyed and Bitcoin will (probably) do its thing and retrace 80% just like in previous bear markets. But none of this will concern me, and hopefully you either, as we will have sold into the rising bull market and taken our profits. Hoorah!

All things come to an end, like this article 

There it is, my theory of how the next bull market will play out. I think about bull markets a lot because I recognize that selling into them, taking profits, will in the madness of the moment be very, very difficult to do. It will feel like insanity to sell the world’s next reserve currency in order to get some fiat which is either going to collapse or inflate out of existence. But I do believe, quite strongly believe, that selling is the right thing to do. Could Bitcoin become a reserve currency for the world? Sure. But I think that’s far less likely than another protracted bear market, something I would prefer to have nothing to do with.


A few other narratives that may play a secondary role in accelerating the bull market.

  • Bitcoin, or digital currencies in general, as more conducive to social distancing, not contaminated like cash.
  • Digital currencies as a way for governments to provide faster relief to citizens and businesses. Lower and middle class Americans get a $1,200 check but whoops, if you don’t have your bank account on file with the IRS (which most people don’t) you won’t get your check for (potentially) a month or two. It’s absolutely pathetic that we can film the movie Gangs of New York, find the Titanic, land a rocket on a little yellow square, build New York City, but it takes two fucking months to get someone money. We may see some demand from citizens for a digital currency which would raise awareness around Bitcoin. If UBI is instituted I would speculate it’s much, much more likely we’ll see serious talks of some CBDC.
  • Crypto as a way to get around currency controls. I think that this would require some fairly “major” country to enact currency controls for this narrative to have any weight. For example, if Nigeria puts in place currency controls (do they already have them?) nobody cares. But let’s say a country like Ireland or Israel or even Canada started restricting their citizens ability to go into the dollar or gold. That would be front page news and would easily drive the narrative to Bitcoin as it’s 10x easier to acquire than most other currencies/commodities.
  • Bitcoin as an asset unhindered by global disruptions. Bitcoin works whether the international order is humming or whether it’s anarchy. Compare that to gold where we saw major disruptions, broken contracts and all sorts of other shenanigans when brokers were unable to deliver physical gold because supply chain were breaking downs. Those in the know have said that this was a very, very big deal. Bitcoin doesn’t care, as long as the internet works it’s business as usual.
  • Bitcoin being used for the settlement of international trade. Take 15 minutes to learn about the Eurodollar mess we’re in now and then think about how much simpler the system would be if Bitcoin was used (even partially) instead of dollars.

The water lily analogy has its stem in The Slight Edgean excellent book I would recommend to anyone. The premise is that even a doubling of progress leads to only marginal improvements in the beginning. The water lily doubles its covering of a pond for many days in a row, and for many days in a row the progress does not seem great. Then the lily reaches the breakout point and within a few days it goes from covering only a corner of the pond, to all of it. A comparison to Bitcoin, and more broadly the entire crypto ecosystem, is imminent. Forget about a price for a moment, when you focus on the fundamentals you can see the growth.

  • In Hong Kong, for instance, we just witnessed more trading on Local Bitcoins than at the height of the previous bull market.
  • Record levels of Bitcoin trading in countries like Argentina and Turkey.
  • The amount of money locked up in DeFi has doubled since the beginning of the year.
  • And so forth… Crypto is clearly growing, but how long might it take?

Doubling Our Way to Mass Adoption

Let’s say, generously, that there are a million active Bitcoin addresses. If you double that to two million it’s still 0.03% of the world’s population. Insignificant. Double it to four million and now it’s 0.06%. A bit better, sure, but still just the guts of a splattered fly on the economy’s windshield.

So Bitcoin doubles for years and the progress seems slight, few pay much attention. But what most don’t realize is that Bitcoin is a water lily, moving inexorably towards the breakout. Speaking practically, the way I see this happening is word of mouth. If one person in Argentina tells their friend about Bitcoin and that friend creates a wallet and acquires some, Bitcoin usage has doubled (in regards to our micro-example). Now imagine both those people convince a person to get some coin. We’ve gone from two to four. And then… You see where this is going. The doubling effect of people convincing other people, this is where the power of a movement makes itself seen. It will get easier over time.

When you just have one crackpot friend telling you to buy magic internet money it’s easy to ignore them. When half the people you know are buying Bitcoin the temptation to jump in will be much stronger. That tipping point, the accelerating network effect the world over, is how Bitcoin could make its mark on the world.

Tl;dr – Focus on the fundamentals. Things (like Bitcoin) can double in usage/adoption/price/public perception for a long, long time without making much impact. However, once the tipping point is reached just a few more doubling events can lead to massive, disproportionate progress.

Credit where it’s due, the phrase “mercenaries vs. missionaries” comes from the formidable Ryan Selkis. Maybe he borrowed it from someone else, I can’t say. In any case, it’s a great way to express an idea that occurred to me a month or two ago. Let’s have a look.

The Problem with Ripple

Ripple (the company) is hiring a bunch of mercenaries to work on their project. A mercenary is a homo sapien whose allegiance is to the dollar not the project. Not that I’m friends with many mercenaries, but I speculate they rarely feel much love for the cause. Let a check bounce and see how long they stick around.

So we see Ripple dishing out $100 million to get XRP integrated into video games, on the smaller side we see a $1.5 million investment into Coinme, more recently, and this is the one that really made me think, they’ve bought Logos Network and tasked them with creating a DeFi ecosystem based on XRP. How artificial!

The real DeFi movement, the one happening on Ethereum, is driven by passion. Sure, loads of projects are taking in funding but there are also thousands of talented developers volunteering their time to build out the space. Also, the companies getting funded, they’re getting that cash because they have an innovative idea that could make DeFi better. That’s the opposite of this XRP DeFi deal where Logos Network was working on something else, then Ripple bought their souls, and now they have to work on what will benefit XRP.

That’s not to say none of this works out for Ripple. When you throw $500 million (that’s half a billion) at a problem you generally tend to get a few solutions. And, ironically, I actually have a stake in XRP and will materially benefit if it takes off. Yet… To me it feels like it’s all wrong: people should work on a project because they’re passionate about it, not because their paycheck demands it.

The Holy Writ of Bitcoin and Ethereum

More than anywhere else in crypto we see a fantastic community of missionaries contributing to these two projects. Thousands of passionate people who believe so deeply in the ultimate success and benevolence of these currencies that they’ll give up their weekends in order to debug code. Or whatever programmers do, I’m not one myself. There is money of course, but nobody is handing out $100 million grants the likes of Ripple’s offerings.

So now, the final point. What has become clear in the last year or so is that the best technology does not guarantee success. Bitcoin, by a huge margin, is the largest crypto even though fees are high and transaction are slow. In terms of developer activity and Dapps being built, Ethereum decimates the competition even though it can’t clear 20 TPS. There are a dozen viable competitors for the top spots, all with ostensibly better technology, but where are they now?

What Bitcoin and Ethereum have are huge communities and this, I believe, is perhaps the best predictor of a project’s eventual success. Imagine you have to move to a new town and you have two choices.

  1. The town with a thriving community and abundant social resources, but the internet is slow and the power goes out sometimes.
  2. The high-tech town with fiber optic and reliable infrastructure, but only a few people live there and they don’t talk to each other.

Which one would you choose? In deciding which projects I’d like to be affiliated with, it’s pretty clear to me what matters most. I’m with the missionaries.