Embracing the Future: From Gold Standard to Bitcoin Standard
Oct 14, 2023
In the ever-evolving landscape of global finance, two potential paradigms stand at the forefront of discussion: the return to a gold standard and the rise of a Bitcoin standard. Both hold the promise of transforming economic systems, but their impacts on innovation, progress, and individual freedoms vary significantly. In this article, we will explore the historical precedents, potential benefits, and challenges associated with these two approaches.
The Golden Era: 1879-1913
Between 1879 and 1913, the United States experienced an extraordinary period known as the "Golden Era." This era witnessed an unprecedented surge in innovation, giving birth to transformative technologies such as electricity and automobiles. The prosperity of this time was bolstered by a significantly smaller government, as the absence of unlimited money printing constrained its size and scope. This period marked a departure from the prevailing fiat monetary system, characterized by inflation, recessions, and mounting debt.
1. Technological Marvels: The adoption of the gold standard coincided with a rapid proliferation of groundbreaking technologies. Electricity, the telephone, and the automobile revolutionized industries and daily life.
2. Transportation Revolution: Steam engines and railroads dramatically improved transportation efficiency, facilitating the movement of goods and people within the country and enabling broader international trade.
3. Industrial Growth: The industrial sector experienced explosive growth, leading to the establishment of factories and mass production, significantly boosting economic output and employment rates.
4. Communications Breakthroughs: The introduction of the telegraph and telephone revolutionized long-distance communication, transforming business operations, trade, and personal interactions.
5. Economic Growth: The U.S. experienced robust economic growth during this period, with annual GDP growth estimated at around 6.8%, notably higher than recent decades.
6. Standard of Living Improvement: The surge in productivity and technological advancements led to a noticeable improvement in the standard of living for many Americans. Access to electricity, improved transportation, and other modern conveniences became more widespread.
7. Entrepreneurial Spirit: The environment fostered an entrepreneurial spirit, with individuals and companies seizing opportunities to develop and market new technologies and products.
8. Global Influence: The innovations and economic vitality of this period solidified the United States as an economic powerhouse on the global stage.
The Impact of Policy Shifts: 1913 Onwards
Policy shifts in 1913, including the introduction of the income tax and the establishment of the Federal Reserve, marked a significant departure from the ideals of the Golden Era. This ushered in a century marked by wars and deviations from the prosperity and innovation seen in the earlier period.
1. Policy Changes: The introduction of income tax and the establishment of the Federal Reserve led to a century marked by wars and a slowdown in groundbreaking innovation compared to the earlier period.
2. Income Growth: Income growth slowed down compared to the Golden Era, as policy shifts began to shape the economic landscape.
The Potential of a Bitcoin Standard
Blockchain technology, the foundation of Bitcoin, is being widely adopted globally. Advocates foresee a future with a "Bitcoin standard," where Bitcoin serves as the primary measure of value in the global economy. Dr. Saifedean Ammous is a prominent proponent, likening Bitcoin to gold or fiat money as a decentralized alternative to central banking. This standard could act as a buffer against hyperinflation caused by a single government's currency, which could have far-reaching effects in today's highly interconnected global economy.
1. Blockchain Technology: The adoption of blockchain technology is reshaping industries, from supply chain management to decentralized finance (DeFi).
2. Bitcoin Standard and Economic Stability: A Bitcoin standard could potentially provide a hedge against hyperinflation, offering greater economic stability in a highly interconnected global economy.
El Salvador's Bold Move:
El Salvador's recent acceptance of Bitcoin as legal tender provides a glimpse into how the Bitcoin Standard might function. The country has taken significant steps, including creating the Chivo wallet for daily Bitcoin settlements and investing in eco-friendly mining operations. Despite facing objections and protests, El Salvador's embrace of Bitcoin has gained support.
1. El Salvador's Initiatives: The creation of the Chivo wallet and investment in eco-friendly mining operations demonstrate a commitment to integrating Bitcoin into daily economic activities.
2. Controversies and Support: El Salvador's move has sparked both controversy and support, underscoring the complexities of transitioning to a Bitcoin-based financial system.
Banking with Bitcoin: ETFs as Catalysts
One of the pivotal advancements in Bitcoin's integration into traditional finance is the potential launch of Bitcoin ETFs. Exchange-Traded Funds are investment vehicles that allow investors to gain exposure to an underlying asset without holding it directly.
1. Accessibility and Regulatory Oversight: ETFs make it more convenient for traditional investors to allocate funds to Bitcoin, eliminating the need for establishing digital wallets or engaging with cryptocurrency exchanges. Additionally, ETFs are subject to regulatory oversight, providing a level of investor protection.
2. Market Impact and Institutional Adoption: Approval of Bitcoin ETFs can potentially lead to an influx of institutional and retail capital into the cryptocurrency market, potentially driving liquidity and stabilizing prices.
The US Government's Holdings of Bitcoin
Another intriguing prospect is the potential accumulation of Bitcoin by governments. Currently the United States Government holds 210,000 BTC according to data from Glassnode. This is worth approximately $5.6 Billion. The US Government is the 4th largest holder of Bitcoin as of September 2023.
Reserve Asset Diversification:
Bitcoin's decentralized nature and its finite supply make it an attractive asset for countries seeking to diversify their reserve holdings, potentially offering a hedge against currency devaluation and geopolitical uncertainties.
Impact on Economic Policy:
Governments holding Bitcoin could influence economic policies, potentially leading to a reevaluation of monetary and fiscal strategies.
Risk and Regulatory Considerations:
The adoption of Bitcoin by governments is not without its challenges. Regulatory frameworks, risk assessments, and potential market impacts must all be carefully considered.
Broader Adoption Trends
Beyond ETFs and government holdings, broader adoption trends are shaping the future of banking around Bitcoin.
More merchants and payment processors are accepting Bitcoin as a form of payment, enabling greater use of cryptocurrency in day-to-day transactions.
The underlying blockchain technology of Bitcoin is finding applications in various industries, from supply chain management to decentralized finance (DeFi).
Ongoing technological developments are enhancing the scalability, security, and usability of Bitcoin, further solidifying its position in the financial landscape.
The future of banking around Bitcoin is poised for exciting developments, with the potential advent of Bitcoin ETFs, governments exploring Bitcoin holdings, and broader adoption trends. As regulatory frameworks evolve and technological advancements continue, Bitcoin's integration into traditional finance is likely to play a pivotal role in shaping the future of the global economy.