Soft Landing

I heard it somewhere, I think it was from Preston Pysh, who suggested the bitcoin ETFs might be a trap of sorts, wherein once a sufficient number of coins were in their custody*, the government would “6102” them for national security.

* I think Coinbase might actually hold the keys to the ETF coins, so “custody” probably isn’t the right word to describe the arrangement between the ETFs and those buying price exposure to, but not actual, bitcoin via those instruments.

The number “6102” refers to the Emergency Banking Relief Act of 1933 and Executive Order 6102 that authorized President Roosevelt to force American citizens to turn in their gold. (He did this to issue more gold-backed money during The Great Depression.)

Because bitcoin private keys are merely information and therefore difficult to seize from individuals en masse (you’d have to make people cough up information they could claim to have lost or forgotten), the ETFs could be a roundabout way to create a concentrated and easy-to-seize hard money to which to peg the dollar.

As it stands, the US-based ETFs collectively have amassed nearly a million coins, roughly five percent of the total 21 million supply, (a few million of which are likely lost forever.) Let’s fast forward a few years and assume the following (all of which seem plausible to me, though the exact numbers are not important):

The national debt, presently at $35 trillion, balloons to $50 trillion. The interest expense alone on the debt at five percent rates is 2.5 trillion per year, roughly three times the size of the entire (on the books) defense budget. Official inflation numbers are running north of five percent, even though people know real inflation is upwards of 10. Bitcoin is trading at $1 million per coin (roughly 14x where it is now.) If you think that’s crazy, consider $70K is 14x 5K where it was in the spring of 2020. Let’s also assume the ETFs collectively have two million coins (more than 10 percent) at that point.

Essentially, the dollar is on the brink of hyper-inflating, the US at risk of going full Weimar. Gold is at 10K per ounce, but it’s just a rock and can’t underpin a global system where money moves at the speed of light, and there’s no way for people to audit its supply in an environment of increasing global distrust.

The US government policy makers put on a poker face for the public to buy time, but are well aware of the precarity. They are faced with two terrible choices: raise rates to try and tame inflation the way Paul Volcker did in the 1970s, thereby skyrocketing the interest expense on our much larger debt and crippling the economy, or cut rates, make already severely debased money even cheaper and usher in almost certain hyperinflation.

Under these circumstances, where both choices portend a high likelihood of government collapse, it’s not only conceivable, but I’d argue, probable they avail themselves of a third option: 6102 the ETF coins.

I imagine it might go down like this: The administration, whoever it is, meets with Brian Armstrong of Coinbase and the CEOs of the ETF issuers, gives them a very brief heads up: “We’re taking the coins for national security and compensating all your clients at the face value at which they’re trading,” i.e., they would just give them today’s market value if they were to sell, i.e., $1M per coin. So if there were two million coins in ETF custody, that would be $2T distributed pro rata among the investors.

Most of the investors would realize a significant (nominal) profit from where they bought. Moreover, the CEOs would be considered patriots (by the government) if they complied and criminals if they refused. They would probably be allowed/encouraged to buy underlying coins for themselves that day, knowing what was about to happen too. In short, it’s almost inconceivable to me they wouldn’t go along, and in fact, might have an inkling of this end game already.

After the government surreptitiously gained control of the keys to the ETF coins, they would make an announcement: the US dollar is now fully backed by the hardest money in human history and fully redeemable at $30M USD per coin. In other words, their two million coins would now be worth $60 trillion, more than enough to pay off the debt in its entirety and restore confidence in the dollar.

The dollar would inflate immediately now that it was debased 30:1 vs its prior bitcoin price. But that ratio would apply only to bitcoin. Real estate prices might go up 5x, food 2x, it’s impossible to say. The dollar would have real redeemable value for something of finite supply and would no longer be printable via fiat so long as that tether remained in place. In fact, and this is beyond my tech knowledge, the announcement could be tied to some kind of cryptographically unforgeable and legally binding arrangement wherein the dollar must always be pegged at that 30:1 rate. If it could be arbitrarily debased further, there might be no point.

Of course, this would handicap the government significantly — no longer could it print money to fund proxy wars in Ukraine, invade Iraq or shell out off-the-books blank checks for CIA operations in Central America. It would lose much of its power as the expenses of empire would have to be justified or greatly curtailed. And while those that wield this excessive and dangerous power would never go along with it voluntarily, under the circumstances above — facing chaotic collapse — they would have little choice.

There would be significant pain — even my arbitrary estimates of real estate and food inflation would be catastrophic for many, and it could easily be much worse than that. But compared to the alternative it would be like an airplane touching down on the runway during a storm with but a mild bump.