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THEN THEY FIGHT YOU: BITCOIN AND THE UNITED STATES’ FISCAL CROSSROADS

In this chapter from The Satoshi Papers, Avik Roy explores the U.S. government’s
looming fiscal crisis and presents three potential responses from the United
States: restriction, paralysis, or assimilation. Could Bitcoin emerge as a
solution—or spark further conflict?
 * Author:
   Avik Roy
 * Publish date:
   6 hours ago



In this chapter from The Satoshi Papers, Avik Roy explores the U.S. government’s
looming fiscal crisis and presents three potential responses from the United
States: restriction, paralysis, or assimilation. Could Bitcoin emerge as a
solution—or spark further conflict?

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 * Bitcoin Magazine Books

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INTRODUCTION

Scholars dispute whether it was Mahatma Gandhi who first said, “First they
ignore you, then they laugh at you, then they fight you, then you win.” What
cannot be disputed is that advocates of bitcoin have adopted the aphorism as
their own.

Bitcoiners commonly prophesize that at some point, bitcoin will replace the US
dollar as the world’s predominant store of value.[1] Less frequently discussed
is the essential question of exactly how such a transition might take place and
what risks may lie along the path, especially if the issuers of fiat currency
choose to fight back against challenges to their monetary monopolies.



Will the US government and other Western governments willingly adapt to an
emerging bitcoin standard, or will they take restrictive measures to prevent the
replacement of fiat currencies? If bitcoin does indeed surpass the dollar as the
world’s most widely used medium of exchange, will a transition from the dollar
to bitcoin be peaceful and benign, like the evolution from Blockbuster Video to
Netflix? Or will it be violent and destructive, as with Weimar Germany and the
Great Depression? Or somewhere in between?





These questions are not merely of theoretical interest. If bitcoin is to emerge
from the potentially turbulent times ahead, the bitcoin community will need to
contemplate exactly how to make it resilient to these future scenarios and how
best to bring about the most peaceful and least disruptive transition toward an
economy based once again upon sound money.

In particular, we must take into account the vulnerabilities of those whose
incomes and wealth are below the rich-nation median—those who, at current and
future bitcoin prices, may fail to save enough to protect themselves from the
economic challenges to come. “Have fun staying poor,” some Bitcoiners retort to
their skeptics on social media. But in a real economic crisis, the poor will not
be having fun. The failure of fiat-based fiscal policy will inflict the most
harm on those who most depend on government spending for their economic
security. In democratic societies, populists across the political spectrum will
have powerful incentives to harvest the resentment of the non-bitcoin-owning
majority against bitcoin-owning elites.



It is, of course, difficult to predict exactly how the US government will
respond to a hypothetical fiscal and monetary collapse decades into the future.
But it is possible to broadly group the potential scenarios in ways that are
relatively negative, neutral, or positive for society as a whole. In this essay,
I describe three such scenarios: A restrictive scenario, in which the US
attempts to aggressively curtail economic liberties in an effort to suppress
competition between the dollar and bitcoin; a palsied scenario, in which
partisan, ideological, and special-interest conflicts paralyze the government
and limit its ability to either improve America’s fiscal situation or prevent
bitcoin’s rise; and a munificent scenario, in which the US assimilates bitcoin
into its monetary system and returns to sound fiscal policy. I base these
scenarios on the highly probable emergence of a fiscal and monetary crisis in
the United States by 2044.





While these scenarios may also play out in other Western nations, I focus on the
US here because the US dollar is today the world’s reserve currency, and the US
government’s response to bitcoin is therefore of particular importance.


THE COMING FISCAL AND MONETARY CRISIS

We know enough about the fiscal trajectory of the United States to conclude that
a major crisis is not merely possible but probable by 2044 if the federal
government fails to change course. In 2024, for the first time in modern
history, interest on the federal debt exceeded spending on national defense. The
Congressional Budget Office (CBO)—the national legislature’s official,
nonpartisan fiscal scorekeeper—predicts that by 2044, federal debt held by the
public will be approximately $84 trillion, or 139 percent of gross domestic
product. This represents an increase from $28 trillion, or 99 percent of GDP, in
2024.[2]



The CBO estimate makes several optimistic assumptions about the country’s fiscal
situation in 2044. In its most recent projections, at the time of this
publication, CBO assumes that the US economy will grow at a robust 3.6 percent
per year in perpetuity, that the US government will still be able to borrow at a
favorable 3.6 percent in 2044, and that Congress will not pass any laws to
worsen the fiscal picture (as it did, for example, during the COVID-19
pandemic).[3]





The CBO understands that its projections are optimistic. In May 2024, it
published an analysis of how several alternative economic scenarios would affect
the debt-to-GDP ratio. One, in which interest rates increase annually by a rate
of 5 basis points (0.05 percent) higher than the CBO’s baseline, would result in
2044 debt of $93 trillion, or 156 percent of GDP. Another scenario, in which
federal tax revenue and spending rates as a share of GDP continue at historical
levels (for example, as a result of the continuation of purportedly temporary
tax breaks and spending programs), yields a 2044 debt of $118 trillion, or 203
percent of GDP.[4]

But combining multiple factors makes clear how truly dire the future has become.
If we take the CBO’s higher interest rate scenario, in which interest rate
growth is 5 basis points higher each year, and then layer onto that a gradual
reduction in the GDP growth rate, such that nominal GDP growth in 2044 is 2.8
percent instead of 3.6 percent, the 2044 debt reaches $156 trillion, or 288
percent of GDP. By 2054, the debt would reach $441 trillion, or 635 percent of
GDP (see figure 1).




Figure 1. US debt-to-GDP ratio: Alternative scenarios





Credit: Avik Roy, https://public.flourish.studio/visualisation/18398503/.

In this scenario of higher interest rate payments and lower economic growth, in
2044 the US government would pay $6.9 trillion in interest payments,
representing nearly half of all federal tax revenue. But just as we cannot
assume that economic growth will remain high over the next two decades, we
cannot assume that the demand for US government debt will remain steady. At a
certain point, the US will run out of other people’s money. Credit Suisse
estimates that in 2022 there was $454 trillion of household wealth in the world,
defined as the value of financial assets and real estate assets, net of debt.[5]
Not all of that wealth is available to lend to the United States. Indeed, the
share of US Treasury securities held by foreign and international investors has
steadily declined since the 2008 financial crisis.[6] At the same time that
demand for Treasuries is proportionally declining, the supply of Treasuries is
steadily increasing (see figure 2).[7]




Figure 2. Ownership of US Treasuries

Credit: Avik Roy, https://public.flourish.studio/visualisation/7641395/.





In an unregulated bond market, this decline in demand paired with an increase in
supply should lead to lower bond prices, signifying higher interest rates. The
Federal Reserve, however, has intervened in the Treasury market to ensure that
interest rates remain lower than they otherwise would. The Fed does this by
printing new US dollars out of thin air and using them to buy the Treasury bonds
that the broader market declines to purchase.[8] In effect, the Fed has decided
that monetary inflation (that is, rapidly increasing the quantity of US dollars
in circulation) is a more acceptable outcome than allowing interest rates to
rise as the nation’s creditworthiness decreases.

This situation is not sustainable. Economist Paul Winfree, using a methodology
developed by researchers at the International Monetary Fund,[9] estimates that
“the federal government will begin running out of fiscal space, or its capacity
to take on additional debt to deal with adverse events, within the next 15
years”—that is, by 2039. He further notes that “interest rates and potential
[GDP] growth are the most important factors” that would affect his
projections.[10]



For the purposes of our exercise, let us assume that the US will experience a
fiscal and monetary failure by 2044—that is, a major economic crisis featuring a
combination of rising interest rates (brought about by the lack of market
interest in buying Treasuries) and high consumer price inflation (brought about
by rapid monetary inflation). Over this twenty-year period, let us also imagine
that bitcoin gradually increases in value, such that the liquidity of bitcoin,
measured by its total market capitalization, is competitive with that of US
Treasuries. Competitive liquidity is important because it means that large
institutions, such as governments and multinational banks, can buy bitcoin at
scale without excessively disrupting its price. Based on the behavior of
conventional financial markets, I estimate that bitcoin will reach a state of
competitive liquidity with Treasuries when its market capitalization equals
roughly one-fifth of federal debt held by the public. Based on my $156 trillion
estimate of federal debt in 2044, this amounts to approximately $31 trillion of
bitcoin market cap, representing a price of $1.5 million per bitcoin—roughly
twenty times the peak price of bitcoin reached in the first half of 2024.





This is far from an unrealistic scenario. Bitcoin appreciated by a comparable
multiple from August 2017 to April 2021, a period of less than four years.[11]
Bitcoin has appreciated by similar multiples on many other occasions
previously.[12] And if anything, my projections of the growth of US federal debt
are conservative. Let us, then, further imagine that by 2044, bitcoin is a
well-understood, mainstream asset. A young man who turned eighteen in 2008 will
celebrate his fifty-fourth birthday in 2044. By 2044, more than half of the US
population will have coexisted with bitcoin for their entire adult lives. A
robust ecosystem of financial products, including lending and borrowing, will by
then likely have been well established atop the bitcoin base layer. Finally, let
us speculate that in this scenario, inflation has reached 50 percent per annum.
(This is somewhere between the over-100 percent inflation rates of Argentina and
Turkey in 2023 and the nearly 15 percent inflation experienced by the US in
1980.)



In 2044, under these conditions, the US government will be in crisis. The rapid
depreciation in the value of the dollar will have led to a sudden drop in demand
for Treasury bonds, and there will not be an obvious way out. If Congress
engages in extreme fiscal austerity—for example, by cutting spending on welfare
and entitlement programs—its members will likely be thrown out of office. If the
Federal Reserve raises interest rates enough to retain investor demand—say,
above 30 percent—financial markets will crash, along with the credit-fueled
economy, much as they did in 1929. But if the Fed allows inflation to rise even
further, it will only accelerate the exit from Treasuries and the US dollar.





Under these circumstances, how might the US government respond? And how might it
treat bitcoin? In what follows, I consider three scenarios. First, I contemplate
a restrictive scenario, in which the US attempts to use coercive measures to
prevent the use of bitcoin as a competitor to the dollar. Second, I discuss a
palsied scenario, in which political divisions and economic weakness paralyze
the US government, preventing it from taking meaningful steps for or against
bitcoin. Finally, I consider a munificent scenario, in which the US eventually
ties the value of the dollar to bitcoin, restoring the nation’s fiscal and
monetary soundness. (See figure 3.)




Figure 3. Three US fiscal scenarios


1. THE RESTRICTIVE SCENARIO

Throughout history, the most common response of government to a weakening
currency has been to force its citizens to use and hold that currency instead of
sounder alternatives, a phenomenon called financial repression. Governments also
commonly deploy other economic restrictions, such as price controls, capital
controls, and confiscatory taxation to maintain unsound fiscal and monetary
policies.[13] It is possible—even probable—that the United States will respond
similarly to the crisis to come.






PRICE CONTROLS

In AD 301, the Roman Emperor Diocletian issued his Edictum de Pretiis Rerum
Venalium—the Edict Concerning the Sale Price of Goods—which sought to address
inflation caused by the long-running debasement of the Roman currency, the
denarius, over a five-hundred-year period. Diocletian’s edict imposed price caps
on over 1,200 goods and services.[14] These included wages, food, clothing, and
shipping rates. Diocletian blamed rising prices not on the Roman Empire’s
extravagant spending but on “unprincipled and licentious persons [who] think
greed has a certain sort of obligation . . . in ripping up the fortunes of
all.”[15]



Actions of this sort echo throughout history until the modern day. In 1971, US
President Richard Nixon responded to the imminent collapse of US gold reserves
by unilaterally destroying the dollar’s peg to one-thirty-fifth of an ounce of
gold and by ordering a ninety-day freeze on “all prices and wages throughout the
United States.”[16] Nixon, like Diocletian and so many other rulers in between,
did not blame his government’s fiscal or monetary policies for his country’s
predicament but rather the “international money speculators” who “have been
waging an all-out war on the American dollar.”[17]

Even mainstream economists have convincingly shown that price controls on goods
and services do not work.[18] This is because producers cease production if they
are forced to sell their goods and services at a loss, which leads to shortages.
But price controls remain a constant temptation for politicians since many
consumers believe that price controls will protect them from inflation (at least
in the short term). Since 2008, the Federal Reserve has imposed an increasingly
aggressive set of controls on what economic historian James Grant calls “the
most important price in capital markets”—that is, the price of money as
reflected by interest rates.[19] As explained above, the Federal Reserve can
effectively control interest rates on Treasury securities by acting as the
dominant buyer and seller of those securities on the open market. (When bond
prices rise because of more buying than selling, the interest rates implied by
their prices decline, and vice versa.) The interest rates used by financial
institutions and consumers, in turn, are heavily influenced by the interest
rates on Treasury bonds, bills, and notes. Prior to the 2008 financial crisis,
the Fed used this power narrowly, on a subset of short-term Treasury securities.
But afterward, under Chairman Ben Bernanke, the Fed became far more aggressive
in using its power to control interest rates throughout the economy.[20]







CAPITAL CONTROLS

Price controls are only one tool used by governments to control monetary crises.
Another is capital controls, which hamper the exchange of a local currency for
another currency or reserve asset.

In 1933, during the Great Depression, President Franklin Delano Roosevelt
(popularly known as FDR) deployed a First World War–era statute to prohibit
Americans from fleeing the dollar for gold. His Executive Order 6102 prohibited
Americans from holding gold coin, gold bullion, and gold certificates and
required people to surrender their gold to the US government in exchange for
$20.67 per troy ounce.[21] Nine months later, Congress devalued the dollar by
changing the price of a troy ounce to $35.00, effectively forcing Americans to
accept an immediate 41 percent devaluation of their savings while preventing
them from escaping that devaluation by using a superior store of value.[22]

Capital controls are far from a historical relic. Argentina has historically
prohibited its citizens from exchanging more than $200 worth of Argentine pesos
for dollars per month, ostensibly to slow the decline of the value of the
peso.[23] China imposes strict capital controls on its citizens—essentially
requiring government approval for any exchange of foreign currency—to prevent
capital from leaving China for other jurisdictions.[24]






Increasingly, mainstream economists see these modern examples of capital
controls as a success. The International Monetary Fund, born out of the 1944
Bretton Woods Agreement, had long expressed opposition to capital controls,
largely at the behest of the United States, which benefits from global use of
the US dollar. But in 2022, the International Monetary Fund revised its
“institutional view” of capital controls, declaring them an appropriate tool for
“managing . . . risks in a way that preserves macroeconomic and financial
stability.”[25]

In my restrictive 2044 scenario, the US uses capital controls to prevent
Americans from fleeing the dollar for bitcoin. The federal government could
achieve this in several ways:

 * Announcing a purportedly temporary, but ultimately permanent, suspension of
   the exchange of dollars for bitcoin and forcing the conversion of all bitcoin
   assets held in cryptocurrency exchanges into dollars at a fixed exchange
   rate. (Based on my predicted market price at which bitcoin’s liquidity is
   competitive with Treasuries, that would be approximately $1.5 million per
   bitcoin, but there is no guarantee that a forced conversion would occur at
   market rates.)
 * Barring businesses under US jurisdiction from holding bitcoin on their
   balance sheets and from accepting bitcoin as payment.
 * Liquidating bitcoin exchange-traded funds (ETFs) by forcing them to convert
   their holdings to US dollars at a fixed exchange rate.
 * Requiring bitcoin custodians to sell their bitcoin to the US government at a
   fixed exchange rate.
 * Requiring those who self-custody their bitcoin to sell it to the government
   at a fixed exchange rate.
 * Introducing a central bank digital currency to fully surveil all US dollar
   transactions and ensure that none are used to purchase bitcoin.






The US government would be unlikely to execute all of these strategies
successfully. In particular, the US will be unable to force all those who
self-custody bitcoin to surrender their private keys. But many law-abiding
citizens would likely comply with such a directive. This would be a pyrrhic
victory for the government, however: The imposition of capital controls would
lead to a further decline in confidence in the US dollar, and the cost to the US
government of purchasing all the bitcoin custodied by American citizens and
residents could exceed $10 trillion, further weakening the US fiscal situation.
Nonetheless, the government in the restrictive scenario will have concluded that
these are the least bad options.


CONFISCATORY TAXATION

The US government could also use tax policy to restrict the utility of bitcoin
and thereby curtail its adoption.

In a world where one bitcoin equals $1.5 million, many of the wealthiest people
in the United States will be early bitcoin adopters. Technology entrepreneur
Balaji Srinivasan has estimated that at a price of $1 million per bitcoin, the
number of bitcoin billionaires will begin to exceed the number of fiat
billionaires.[26] This does not imply, however, that the distribution of wealth
among bitcoin owners would be more equal than the distribution of wealth among
owners of fiat currency today.






Fewer than 2 percent of all bitcoin addresses contain more than one bitcoin, and
fewer than 0.3 percent contain more than ten bitcoin. Addresses within that top
0.3 percent own more than 82 percent of all the bitcoin in existence.[27] (See
figure 4.) Given that many individuals control multiple wallets, and even
allowing for the fact that some of the largest bitcoin addresses belong to
cryptocurrency exchanges, these figures likely underestimate the amount of
bitcoin wealth concentration. They compare unfavorably to US fiat wealth
distribution; in 2019, the top 1 percent held merely 34 percent of all
fiat-denominated wealth in the United States.[28]

If bitcoin ownership remains similarly distributed in 2044, those left behind by
this monetary revolution—including disenfranchised elites from the previous
era—will not go down quietly. Many will decry bitcoin wealth inequality as
driven by anti-American speculators and seek to enact policies that restrict the
economic power of bitcoin owners.



Figure 4. Distribution of bitcoin ownership

Credit: Avik Roy, https://public.flourish.studio/visualisation/18651414/.






In 2021, rumors circulated that Treasury Secretary Janet Yellen had proposed to
President Joe Biden the institution of an 80 percent tax on cryptocurrency
capital gains, a steep increase from the current top long-term capital gains tax
rate of 23.8 percent.[29] In 2022, President Biden, building on a proposal by
Massachusetts Senator Elizabeth Warren, suggested taxing unrealized capital
gains—that is, on-paper increases in the value of assets that the holder has not
yet sold.[30] This would be an unprecedented move since it would require people
to pay taxes on earnings they have not yet realized.

It has long been argued that taxing unrealized capital gains would violate the
US Constitution because unrealized gains do not meet the legal definition of
income, and Article I of the Constitution requires that non-income taxes must be
levied in proportion to states’ respective populations.[31] A recent case before
the Supreme Court, Moore v. United States, gave the court the opportunity to
make clear its position on the question; it declined to do so.[32] As a result,
it remains eminently possible that a future Congress, supported by a future
Supreme Court, will assent to the taxing of unrealized capital gains, and
cryptocurrency gains specifically.

Moreover, a presidential administration that does not like the constitutional
interpretations of an existing Supreme Court could simply pack the court to
ensure more favorable rulings. The FDR administration threatened to do precisely
that during the 1930s. The conservative Supreme Court of that era had routinely
ruled that FDR’s economically interventionist policies violated the
Constitution. In 1937, Roosevelt responded by threatening to appoint six new
justices to the Supreme Court in addition to the existing nine. While he was
ultimately forced to withdraw his court-packing proposal, the Supreme Court was
sufficiently intimidated and began approving New Deal legislation at a rapid
pace thereafter.[33]






A unique feature of US tax policy is that US citizens who live abroad are still
required to pay US income and capital gains taxes, along with the taxes they pay
in the country of their residence. (In all other advanced economies, expatriates
only pay taxes once, based on where they live. For example, a French national
living and working in Belgium pays Belgian tax rates, not French tax rates,
whereas an American in Belgium pays both Belgian and US taxes.) This creates a
perverse incentive for Americans living abroad to renounce their US citizenship.
Every year, a few thousand Americans do so. However, they must first seek
approval from a US embassy on foreign soil and pay taxes on all unrealized
capital gains. In a restrictive scenario, in which the US Treasury is starved
for revenue, it is easy to imagine the government suspending the ability of
Americans to renounce their citizenship, ensuring that expatriates’ income
remains taxable regardless of where they live.


RIGHT-WING FINANCIAL RESTRICTIONS

While many of the restrictive policies described above have been proposed by
politicians affiliated with the Democratic Party, Republican Party officials and
representatives in 2044 may be just as willing to amplify populist resentment of
the bitcoin elite. The United States is already home to a vocal movement of both
American and European intellectuals building a new ideology broadly known as
national conservatism, in which the suppression of individual rights is
acceptable in the name of the national interest.[34] For example, some national
conservatives advocate monetary and tax policies that protect the US dollar
against bitcoin, even at the expense of individual property rights.[35]






The USA PATRIOT Act was passed by overwhelming bipartisan congressional
majorities weeks after the terrorist attacks of September 11, 2001. It was
signed into law by Republican President George W. Bush and included numerous
provisions designed to combat the financing of international terrorism and
criminal activity, especially by strengthening anti-money-laundering and
know-your-customer rules, as well as reporting requirements for foreign bank
account holders.[36]

The PATRIOT Act may have helped reduce the risk of terrorism against the US, but
it has achieved this at a significant cost to economic freedom, especially for
American expatriates and others who use non-US bank accounts for personal or
business reasons. Just as FDR used a law from the First World War to confiscate
Americans’ gold holdings, in 2044 a restrictive government of either party will
find many of the PATRIOT Act’s tools useful to clamp down on bitcoin ownership
and usage.




THE END OF AMERICA’S EXORBITANT PRIVILEGE

Bitcoin is remarkably resilient in its design; its decentralized network will
likely continue to function well despite restrictive measures adopted by
governments against its use. Today, for instance, a considerable amount of
bitcoin trading volume and mining activity occurs in China, despite that
country’s prohibition of it, because of the use of virtual private networks
(VPNs) and other tools that disguise a user’s geographic location.[37]






If we assume that half of the world’s bitcoin is owned by Americans and further
assume that 80 percent of American bitcoin is held by early adopters and other
large holders, it is likely that most of that 80 percent is already protected
against confiscation through self-custody and offshore contingency planning.
Capital controls and restrictions could collapse institutional bitcoin trading
volume in the US, but most of this volume would likely move to decentralized
exchanges or to jurisdictions outside of the US with less restrictive policies.

A fiscal failure of the US in 2044 will be necessarily accompanied by a
reduction in US military power because such power is predicated on enormous
levels of deficit-financed defense spending. Hence, the US government will not
be as capable in 2044 as it is today of imposing its economic will on other
countries. Smaller nations, such as Singapore and El Salvador, could choose to
welcome the bitcoin-based capital that the US turns away.[38] The mass departure
of bitcoin-based wealth from the US would, of course, make America poorer and
further reduce the ability of the US government to fund its spending
obligations.

Furthermore, US restriction of bitcoin’s utility will not be enough to convince
foreign investors that US Treasuries are worth holding. The main way the US
government could make investing in US bonds more attractive would be for the
Federal Reserve to dramatically raise interest rates because higher interest
rates equate to higher yields on Treasury securities. But this would in turn
raise the cost of financing the federal debt, accelerating the US fiscal crisis.






Eventually, foreign investors may require the US to denominate its bonds in
bitcoin, or in a foreign currency backed by bitcoin, as a precondition for
further investment. This momentous change would end what former French Finance
Minister and President Valéry Giscard d’Estaing famously called America’s
privilège exorbitant: Its long-standing ability to borrow in its own currency,
which has enabled the US to decrease the value of its debts by decreasing the
value of the dollar.[39]

If and when US bonds are denominated in bitcoin, the United States will be
forced to borrow money the way other countries do: In a currency not of its own
making. Under a bitcoin standard, future devaluations of the US dollar would
increase, rather than decrease, the value of America’s obligations to its
creditors. America’s creditors—holders of US government bonds—would then be in a
position to demand various austerity measures, such as requiring that the US
close its budget deficits through a combination of large tax increases and
spending cuts to Medicare, Social Security, national defense, and other federal
programs.

A substantial decline in America’s ability to fund its military would have
profound geopolitical implications. A century ago, when the United States
eclipsed the United Kingdom as the world’s leading power, the transition was
relatively benign. We have no assurances that a future transition will work the
same way. Historically, multipolar environments with competing great powers are
frequently recipes for world wars.[40]







2. THE PALSIED SCENARIO

In medicine, a palsy is a form of paralysis accompanied by involuntary tremors.
This term accurately describes my second scenario, in which the macroeconomic
tremors accompanying bitcoin’s rise are paired in the US with partisan
polarization, bureaucratic conflict, and diminishing American power. In the
palsied scenario, the US is unable to act aggressively against bitcoin, but
neither is it able to get its fiscal house in order.

Today, partisan polarization in the US is at a modern high.[41] Republicans and
Democrats are increasingly sorted by cultural factors: Republicans are
disproportionately rural, high school–educated, and white; Democrats are more
urban, college-educated, and nonwhite. Independents, who now make up a plurality
of the electorate, are forced to choose among the candidates selected for
general elections by Republican and Democratic base voters in partisan
primaries.[42]

While we can hope that these trends reverse over time, there are reasons to
believe they will not. Among other factors, the accelerating development of
software capabilities that manipulate behavior at scale, including artificial
intelligence—for all of their promise—brings substantial risks in the political
sphere. The potential for deepfakes and other forms of mass deception could
reduce trust in political parties, elections, and government institutions while
further fragmenting the US political environment into smaller subcultural
communities. The cumulative effect of this fragmentation may be the inability to
achieve consensus on most issues, let alone controversial ones such as reducing
federal entitlement spending.






In the palsied scenario, the US government is unable in 2044 to enact most of
the restrictive measures described in the previous section. For example,
paralysis could prevent Congress and the Federal Reserve from developing a
central bank digital currency because of adamant opposition from activists but
especially from depository banking institutions, who correctly view such a
currency as a mortal threat to their business models. (A retail central bank
digital currency obviates the need for individuals and businesses to deposit
their money at banks because they could instead hold accounts directly at the
Federal Reserve.)[43]

Similarly, in the palsied scenario, Congress would be unable in 2044 to enact
confiscatory taxes against bitcoin holders and the wealthy more broadly.
Congress would fail to enact these policies for the same reasons it has failed
to date: Concerns about such taxes’ constitutionality; opposition from powerful
economic interests; and recognition that direct attacks on bitcoin-based capital
will drive that capital offshore to the detriment of the United States.

The palsied scenario is no libertarian utopia, however. In such a scenario, the
federal government would retain the ability to regulate centralized exchanges,
ETFs, and other financial services that facilitate the conversion of US dollars
to bitcoin. If a majority of US-held bitcoin becomes owned through ETFs, the
federal regulatory agencies would maintain the ability to limit the conversion
of bitcoin ETF securities into actual bitcoin, heavily restricting the movement
of capital out of US-controlled products.






Most importantly, however, partisan paralysis means that Congress will be unable
to solve America’s fiscal crisis. Congress will lack the votes for entitlement
reform or other spending cuts. And by 2044, federal spending will continue to
increase at such a rapid clip that no amount of tax revenue will be able to keep
pace.

Under the palsied scenario, Americans who hold bitcoin will be better able to
protect their savings from government intrusion than under the restrictive
scenario. They will not have to flee the country to own bitcoin, for example.
This suggests that a significant proportion of the bitcoin community—both
individuals and entrepreneurs—will remain in the United States and likely emerge
as an economically powerful constituency. But the institutional environment in
which they live and work will be frozen in dysfunction. Anti-bitcoin policy
makers and pro-bitcoin political donors may end up in a stalemate.

As in the restrictive scenario, in the palsied scenario the failure of the
dollar-denominated Treasury bond market could force the United States to
eventually get its fiscal house in order. In both cases, creditors may very well
demand that the Treasury Department issue debt securities that are
collateralized by hard assets. By 2044, bitcoin will have over three decades of
validation as a preeminent store of value, and the American bitcoin community
will be well positioned to help the US adapt to its new circumstances.







3. THE MUNIFICENT SCENARIO

The munificent scenario is both the least intuitive and the most optimistic
scenario for America in 2044. In the munificent scenario, US policy makers
respond to the fiscal and monetary crisis of 2044 by actively moving to remain
ahead of events, instead of being compelled to react to forces ostensibly
outside of their control.

The munificent scenario involves the US doing in 2044 something similar to what
El Salvador did in 2019 or Argentina did in 2023 when those countries elected
Nayib Bukele and Javier Milei to their presidencies, respectively. Though Bukele
and Milei are different leaders with somewhat differing philosophies, they have
both explicitly expressed support for bitcoin, with Bukele establishing bitcoin
as legal tender in El Salvador[44] and Milei pledging to replace the Argentine
peso with the dollar[45] while legalizing bitcoin.[46] Milei has also used his
presidential authority to significantly reduce Argentine public expenditures in
inflation-adjusted terms, thereby achieving a primary budget surplus.[47]

Imagine that in November 2044, the US elects a dynamic, pro-bitcoin president
who pledges to adopt bitcoin as legal tender alongside the dollar (à la Bukele)
and works with Treasury bondholders to reduce the US debt burden (à la Milei).
One could imagine a grand fiscal bargain in which Treasury bondholders accept a
one-time, partial default in exchange for Medicare and Social Security reform
and an agreement to back the US dollar with bitcoin going forward, at a peg of
sixty-seven satoshis to the dollar (that is, $1.5 million per bitcoin).
Bondholders will likely be glad to accept a partial default in exchange for
significant reforms that put the US on a sustainable fiscal and monetary footing
for the future.






Such reforms need not punish the elderly and other vulnerable populations. A
growing body of research suggests that fiscal solvency need not be at odds with
social welfare. For example, the Foundation for Research on Equal Opportunity
published a health care reform plan that was introduced by Arkansas Rep. Bruce
Westerman and Indiana Sen. Mike Braun in 2020 as the Fair Care Act. The plan
would reduce the deficit by over $10 trillion in a thirty-year period and make
the health care system fiscally solvent while achieving universal coverage.[48]
The bill achieves this in two primary ways: First, it means-tests health care
subsidies so that taxpayers are only funding the cost of care for the poor and
the middle class, not the wealthy. Second, it reduces the cost of subsidizing
health care by incentivizing competition and innovation. In these ways, the
proposal increases the economic security of lower-income Americans while also
increasing the fiscal sustainability of the federal government.



Similarly, the US could reform Social Security by transitioning the Social
Security trust fund from Treasury bonds to bitcoin (or bitcoin-denominated
Treasury bonds).[49] Such an idea is less practical in the era of high
volatility that has characterized bitcoin’s early history, but by 2044 the
bitcoin-dollar exchange rate is likely to be more stable. The post-ETF
maturation of bitcoin trading, as large financial institutions introduce
traditional hedging practices to the asset, has significantly reduced bitcoin’s
dollar-denominated price volatility. Soon, bitcoin’s price volatility may
resemble that of a stable asset such as gold. By collateralizing Social Security
with bitcoin, the US could ensure that Social Security lives up to its name,
providing actual economic security to American retirees in their golden years.






The munificent scenario has additional benefits. The US government, by directly
aligning itself with bitcoin’s monetary principles, could help make the
twenty-first century another American one. It is highly unlikely that America’s
primary geopolitical rival, China, will legalize a currency such as bitcoin that
it cannot control. America’s culture of entrepreneurship, married with sound
money, could lead to an unprecedented era of economic growth and prosperity for
the United States. But this would require US leaders to place the nation’s
long-term interests ahead of short-term political temptations.

The Satoshi Papers is now available for pre-order in the Bitcoin Magazine Store.

[1] A widely held view among academic economists is that for something to be
considered money, it must serve as a store of value, a medium of exchange, and a
unit of account. These features of money are not binary, but rather reside on a
continuum; some forms of money are better stores of value, and others might be
more widely used in trade and commerce. Bitcoin’s emergence as the premier store
of value is the most significant development because this is what fiat
currencies do most poorly. See Friedrich Hayek, Denationalisation of Money, 2nd
ed. (London: Profile Books, 1977), 56–57.



[2] Congressional Budget Office, “The Long-Term Budget Outlook: 2024 to 2054,”
March 20, 2024, https://www.cbo.gov/publication/59711.





[3] Congressional Budget Office, “Long-Term Economic Projections,” March 2024,
https://www.cbo.gov/system/files/2024-03/57054-2024-03-LTBO-econ.xlsx.

[4] Congressional Budget Office, “The Long-Term Budget Outlook Under Alternative
Scenarios for the Economy and the Budget,” May 21, 2024,
https://www.cbo.gov/publication/60169.

[5] Credit Suisse AG, “Credit Suisse Global Wealth Report 2023,” accessed June
16, 2024,
https://www.credit-suisse.com/about-us/en/reports-research/global-wealth-report.html.

[6] Avik Roy, “Bitcoin and the U.S. Fiscal Reckoning,” National Affairs, Fall
2021.
https://nationalaffairs.com/publications/detail/bitcoin-and-the-us-fiscal-reckoning.

[7] Federal Reserve Bank of St. Louis, “Federal Debt Held by Federal Reserve
Banks,” accessed June 16, 2024, https://fred.stlouisfed.org/graph/?g=jwFo.

[8] Lowell R. Ricketts, “Quantitative Easing Explained,” Federal Reserve Bank of
St. Louis, accessed June 16, 2024,
https://files.stlouisfed.org/files/htdocs/pageone-economics/uploads/newsletter/2011/201104.pdf.



[9] Atish R. Ghosh et al., “Fiscal Fatigue, Fiscal Space and Debt Sustainability
in Advanced Economies,” Economic Journal 123, no. 566 (February 2013): F4–F30,
https://onlinelibrary.wiley.com/doi/full/10.1111/ecoj.12010.





[10] Paul Winfree, “The Looming Debt Spiral: Analyzing the Erosion of U.S.
Fiscal Space,” March 5, 2024,
https://epicforamerica.org/wp-content/uploads/2024/03/Fiscal-Space-March-2024.pdf.

[11] Coinmarketcap.com, “Bitcoin Price Today,” accessed June 16, 2024,
https://coinmarketcap.com/currencies/bitcoin/.

[12] Coinmarketcap.com, “Bitcoin Price Today.”

[13] Ray Dalio, Principles for Navigating Big Debt Crises (Westport, CT:
Bridgewater, 2018).

[14] When the denarius was introduced circa 211 BC, it contained around 4.5
grams of silver. In AD 64, the Roman Emperor Nero reduced the amount of silver
to 3.5 grams. By the time of Diocletian’s reign, there was almost no silver left
in the denarius, and the currency was abolished. For further reading on
hyperinflation in ancient Rome, see H. J. Haskell, The New Deal in Old Rome: How
Government in the Ancient World Tried to Deal With Modern Problems (New York:
Alfred A. Knopf, 1947).



[15] Antony Kropff, “An English Translation of the Edict on Maximum Prices, Also
Known as the Price Edict of Diocletian,” April 27, 2016,
https://kark.uib.no/antikk/dias/priceedict.pdf.

[16] Richard M. Nixon, “Address to the Nation Outlining a New Economic Policy,”
August 15, 1971,
https://www.presidency.ucsb.edu/documents/address-the-nation-outlining-new-economic-policy-the-challenge-peace.





[17] Richard M. Nixon, “Address to the Nation.”

[18] Vernon Smith and Arlington Williams, “On Nonbinding Price Controls in a
Competitive Market,” American Economic Review 71: 467–74.

[19] Swen Lorenz, “3 Lessons I Learned From Jim Grant, the Wall Street Cult
Hero,” accessed July 5, 2024,
https://www.undervalued-shares.com/weekly-dispatches/3-lessons-i-learned-from-jim-grant-the-wall-street-cult-hero/.

[20] Avik Roy, “Bitcoin and the U.S. Fiscal Reckoning,” National Affairs, Fall
2021.

[21] US Congress, “The Gold Standard Act of 1900,” accessed June 16, 2024,
https://www2.econ.iastate.edu/classes/econ355/choi/1900mar14.html.

[22] Gary Richardson, Alejandro Komai, and Michael Gou, “Gold Reserve Act of
1934,” accessed June 16, 2024,
https://www.federalreservehistory.org/essays/gold-reserve-act.



[23] Fitch Ratings, “Overview of Argentine Capital Controls (History and Recent
Impact on Corporates),” April 6, 2021,
https://www.fitchratings.com/research/corporate-finance/overview-of-argentine-capital-controls-history-recent-impact-on-corporates-06-04-2021.

[24] Robert Kahn, “The Case for Chinese Capital Controls,” Council on Foreign
Relations, February 2016,
https://www.cfr.org/sites/default/files/pdf/2016/02/February%202016%20GEM.pdf.





[25] International Monetary Fund, “Executive Board Concludes the Review of the
Institutional View on the Liberalization and Management of Capital Flows,” press
release, March 30, 2022.
https://www.imf.org/en/News/Articles/2022/03/30/pr2297-executive-board-concludes-the-review-of-the-institutional-view-on-capital-flows.

[26] Balaji Srinivasan, “The Billionaire Flippening,” February 5, 2021,
https://balajis.com/p/the-billionaire-flippening.

[27] “Bitcoin Rich List,” accessed July 7, 2024,
https://bitinfocharts.com/top-100-richest-bitcoin-addresses.html.

[28] Congressional Budget Office, “Trends in the Distribution of Family Wealth,
1989 to 2019,” September 27, 2022, https://www.cbo.gov/publication/57598.



[29] William White, “80% Crypto Capital Gains Tax? 15 Things We Know About the
Rumors,” Yahoo! Finance, April 23, 2021,
https://finance.yahoo.com/news/80-crypto-capital-gains-tax-153027836.html#.

[30] Garrett Watson and Erica York, “Proposed Minimum Tax on Billionaire Capital
Gains Takes Tax Code in Wrong Direction,” Tax Foundation, March 30, 2022,
https://taxfoundation.org/blog/biden-billionaire-tax-unrealized-capital-gains/.

[31] Steven Calabresi, “Taxes on Wealth and on Unrealized Capital Gains Are
Unconstitutional,” Reason, October 11, 2023,
https://reason.com/volokh/2023/10/11/taxes-on-wealth-and-on-unrealized-capital-gains-are-unconstitutional/.





[32] Wall Street Journal Editorial Board, “A Supreme Court Mistake on Wealth
Taxes,” The Wall Street Journal, June 20, 2024,
https://www.wsj.com/articles/moore-v-u-s-supreme-court-mandatory-repatriation-tax-brett-kavanaugh-amy-coney-barrett-23d99510.

[33] Charles Lipson, “Packing the Court, Then and Now,” Discourse, April 21,
2021, https://www.discoursemagazine.com/p/packing-the-court-then-and-now.

[34] Avik Roy, “Freedom Conservatism Is Different, and That Matters,” National
Review, July 18, 2023,
https://www.nationalreview.com/2023/07/freedom-conservatism-is-different-and-that-matters/.



[35] Peter Ryan, “Is Bitcoin ‘America First’?” The American Conservative,
February 13, 2024,
https://www.theamericanconservative.com/is-bitcoin-america-first/.

[36] USA PATRIOT Act of 2001, Congress.gov, accessed June 16, 2024,
https://www.congress.gov/107/plaws/publ56/PLAW-107publ56.htm.

[37] Ryan Browne, “Bitcoin Production Roars Back in China Despite Beijing’s Ban
on Crypto Mining,” CNBC.com, May 18, 2022,
https://www.cnbc.com/2022/05/18/china-is-second-biggest-bitcoin-mining-hub-as-miners-go-underground.html.

[38] Some bitcoin-based wealth may be denominated in fiat currencies, such as
equity stakes in digital-asset exchanges such as Coinbase and bitcoin-mining
companies such as Marathon Digital Holdings.





[39] Barry Eichengreen, Exorbitant Privilege: The Rise and Fall of the Dollar
and the Future of the International Monetary System (Oxford: Oxford University
Press, 2011).

[40] Donald Kagan, On the Origins of War: And the Preservation of Peace (New
York: Anchor, 1996).

[41] Ezra Klein, Why We’re Polarized (New York: Simon & Schuster, 2020).



[42] Nick Troiano, The Primary Solution: Rescuing Our Democracy from the Fringes
(New York: Simon & Schuster, 2024).

[43] Avik Roy, “There’s No Such Thing as an ‘American-Style’ Central Bank
Digital Currency,” Forbes, April 12, 2023,
https://www.forbes.com/sites/theapothecary/2023/04/12/theres-no-such-thing-as-an-american-style-central-bank-digital-currency/.

[44] Avik Roy, “El Salvador Enacts Bitcoin Law, Ushering In New Era Of Global
Monetary Inclusion,” Forbes, June 9, 2021,
https://www.forbes.com/sites/theapothecary/2021/06/09/el-salvador-enacts-bitcoin-law-ushering-in-new-era-of-global-monetary-inclusion/.

[45] Ryan Dubé and Santiago Pérez, “Argentina’s New President Wants to Adopt the
U.S. Dollar as the National Currency,” The Wall Street Journal, November 20,
2023,
https://www.wsj.com/world/americas/argentinas-new-president-wants-to-adopt-the-u-s-dollar-as-national-currency-86da3444.





[46] On Twitter/X, Milei’s foreign minister and economic adviser Diana Mondino
(@DianaMondino, December 21, 2023) declared, “We ratify and confirm that in
Argentina contracts can be agreed in Bitcoin.”

[47] “The spending cuts that allowed Milei to turn around Argentina’s economy,”
Buenos Aires Times, April 23, 2024,
https://www.batimes.com.ar/news/economy/the-expenses-cut-by-milei-to-achieve-a-fiscal-surplus.phtml.



[48] Avik Roy, “The Fair Care Act of 2020: Market-Based Universal Coverage,”
Foundation for Research on Equal Opportunity, October 12, 2020,
https://freopp.org/the-fair-care-act-of-2020-market-based-universal-coverage-cc4caa4125ae.

[49] Under 2024 forecasts, the Social Security Trust Fund will be fully depleted
by 2033. I assume, for the purposes of my scenario analysis, that Congress finds
a short-term solution before then that postpones Social Security’s reckoning
past 2044.


By
Avik Roy
 * 
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 * 
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