January 19, 2021

Bitcoin as a battle cry

To the people of Texas and all the Americans of the world. Lt. Col. William B. Travis began his open call to battle from the Alamo with the description of America as an idea withoutborders: "to all Americans of the world." It was an appeal to all those who value the struggle for freedom. When the enemy, who had a tenfold superiority in numbers, demanded to surrender, Travis responded with a cannon shot. He was not even 27 years old then. A week later, Texas declared independence, but in a matter of days the Alamo fell. Travis' letter became the battle cry of the revolution. Remember the Alamo. Ultimately, Texas won independence. It serves as a reminder that when the enemy outnumbs you, it compensates for the inexhaustible desire for freedom. And this is an integral character trait of all Americans in the world.


fragment of an open letter dated February 24, 1836, written by the commander of the Texas forces at the Battle of the Alamo, William Barrett Travis, to the settlers of Mexican Texas.

Despite the absence of sung heroes andliteral proclamation of independence, Bitcoin is quite a struggle for freedom, and it also becomes a battle cry for all those who refuse to humbly accept the fate of our fragile financial system. The very idea of ​​freedom is perhaps the most important principle of the money revolution generated by Bitcoin. When the war is won, this should be reflected in the constitutional amendment (although the first amendment to the US Constitution already covers this): the right to hold bitcoins. Before Bitcoin, everyone was effectively forced to use a flawed currency system. But with the advent of the first cryptocurrency in 2009, everything changed. Bitcoin is completely voluntary, uncontrolled by anyone, and gives everyone the ability to store and transfer value as a currency free from manipulation. Bitcoin may not be comparable to the right to life, liberty, and the pursuit of happiness, but for those who choose to rely on it as the best way forward, it is a fundamental and inalienable right.

Although different people value Bitcoin in different waysFor reasons, it has consistently attracted those who have seen the inherent level of freedom offered by this powerful tool, especially in a world full of endless economic disasters. While the fragility and fragility of the global financial system is becoming more evident every day, central bankers and politicians compete over who can stimulate the declining economy the most. Remember that the instability of the financial system has not appeared now; it is only re-emerging. The same structural problems existed during the 2008 financial crisis.Before the oil war and the pandemic in September 2019, the repo credit markets went down. This was the first bell. If recent events had not served as a catalyst, then some other "force majeure" would have revealed that all this time remained below the surface: a financial system overloaded with debt, ready to fail at the first sign of any significant stress.

: fred.stlouisfed.org

: fred.stlouisfed.org

Even before the global quarantine (i.e. panic accelerated by the authorities) The Federal Reserve System (FRS) providedrepo markets ~ $ 500 billion in emergency financing. Now the oil is literally poured into the fire in barrels. But it is not only the scale that is scary, but the clear signs of a gradual loss of control. After the initial fall in the stock market, the Fed quickly cut interest rates by 50 basis points (bps). The market fell even more, and the Fed announced the gradual provision of short-term financing (1-3 months) to the repo markets for $ 1.5 trillion. The market crashed again, and three days later, a formal $ 700 billion "quantitative easing" program was announced, involving the direct purchase of $ 500 billion of US government bonds and $ 200 billion of mortgage-backed securities. This move coincided with a 100 bp cut in short-term rates. p. (to zero).

: BloombergMarkets

However, the stock market fell again, credit marketswent out of action, and the Fed took a desperate step by announcing an unlimited quantitative easing program. The three most aggressive steps to date have been taken over 10 days. And the latest unprecedented step envisages that the Fed will start buying corporate bonds in both the secondary and primary markets. The Fed has also expanded its purchases of mortgage-backed securities to include mortgages secured by commercial real estate. In addition, the Fed has provided for the issuance of secured securities to buy back student debt, car loans, credit card debt, etc. All this without specifying any price - just a promise to do whatever it takes. It would be funny if it weren't so serious, but here's the real question: if the Fed is in control, why such extreme measures? Why did the Fed change its plans so radically in ten days if it understood the scale of the problem? We are not even talking about unintended consequences; it just shows that the Fed has lost control of the situation. Why announce a $ 700 billion program if you don't expect it to work? This is a classic game of trial and error, only you can see only the immediate reaction of the market, but not the final consequences. The problem is that our economy is at stake.

"There are endless amounts of cash at the Fed." - Neil Kashkari, Chairman, Federal Reserve Bank of Minneapolis, March 2, 2020

“To issue a loan to a bank, we simply usecomputer, note the size of its account with the Fed [...] It looks much more like printing money than borrowing. " - Ben Bernanke, former Fed Chairman, March 15, 2009

Monetary base of Bitcoin.
: bashco.github.io

Rest assured that the $ 1.5 trillion providedrepo markets, will complement the formal quantitative easing program of the Fed, and, according to conservative estimates, the entire uncertain program will eventually exceed $ 4 trillion. The Fed cannot put out the liquidity fire with short-term financing, and it will have no choice but to monetize more of the credit system than it did in 2008, because the problem is bigger. In addition, Congress is set to pass an initial stimulus package in response to the $ 2 trillion pandemic. With the market already experiencing a liquidity crisis, the banking system does not have enough cash on hand to finance the huge increase in the federal government's deficit. As a consequence, the Fed will be forced to fund any fiscal response through an ever-growing quantitative easing program. This is the only way banks can get cash to finance such fiscal stimulus. All roads lead back to the Fed and endless quantitative easing.

This is the new norm, and it is not viable. But we don't have to accept this reality. There is a better way out. In the midst of worldwide fear and panic, it often seems that there is no alternative. It is unclear exactly when so many people began to believe that the authorities (not a free market) should fight the pandemic, but it seems that manyaggressively demanding such a peace. This is a sign of a misunderstanding of the underlying problem. The fallout from the pandemic is misjudged with the false belief that the only hope is to distribute money created by central banks and governments out of thin air. This is predictably irrational. There is no reason for the world to be on the brink of a global depression, even after several months of a complete economic suspension. On the contrary, it is a consequence of the characteristic fragility of the financial system, dependent on incessant credit expansion, without which it will begin to collapse. The problem is not a pandemic, but the fragility of the global financial system. Don't be fooled. It wasn't a pandemic that caused the financial system to collapse. This would happen 100% whether there was a pandemic or not. If it weren't for its heavy reliance on credit and exorbitant levels of leverage, the S&P 500 futures would not have regularly lowered downside.

Economic dependence on credit and highthe level of systemic leverage is not at all a natural property of capitalism or the free market. This market situation is a consequence of the actions of central banks. The instability is caused by the market structure. In response to every economic slowdown (or crisis) over the past four decades, central banks (including the Fed) increased the money supply and decreased interestrates so that existing levels of debt do not become exorbitant and that more credit can be created. Every time the system as a whole tried to get rid of leverage, central banks prevented it with monetary stimulus, delaying the solution to the problem and allowing economic imbalances to accumulate in the credit system for decades. This is the underlying reason for the inherent fragility of the financial system (see here). And that is why every time an economic disruption occurs, the monetary response of central banks must be larger. With a greater imbalance, there should be more help.


In this case, the system is pushed further and further along the cornice. Critical risks to the system (and currency stability) are getting bigger and bigger. Everyone is involuntarily forced to participate in this discouraging race, but for those who pay attention to what the game really is, Bitcoin is increasingly becoming the clearest way out of this madness. Simplified as much as possible, quantitative easing is a forced depreciation (or devaluation) money savings. It distorts all price mechanisms in the economy, and its goal is credit expansion. When historical books about the pre-Bitcoin era are written, the misunderstanding of the consequences of the distortion of global price mechanisms will be identified as the source of all other critically incorrect assumptions of modern central bank doctrine. It's unavoidable. One can only hope that the consequences will be dealt with. But freedom-loving Americans around the world and from all walks of life are less willing to tolerate it. There must always be a better way out.

This is the essence of the very idea of ​​hope and humaningenuity: unwillingness to accept the new norm as a fait accompli. If quantitative easing can be reduced to the depreciation of savings, then Bitcoin can be reduced to the freedom to convert value into a currency that cannot be manipulated. In The Road to Slavery, Hayek describes the function of money in the best possible way: "It would be much more accurate to say that money is one of the greatest instruments of freedom invented by man."... He further explains that ultimately moneygive people a lot more choice than one would imagine without them. They do this by spreading knowledge through a price mechanism, a critical market signal that facilitates economic coordination and resource allocation. But if money begins to provide less freedom, human ingenuity will naturally find a way out and create something new that will more efficiently perform the same functions. This is Bitcoin and there is no turning back. When the push is given, knowledge spreads exponentially.

Bitcoin promises a more stable monetary system. He does not make any promises regarding his value at any given date. He only guarantees that his offer is free from manipulation and systemic depreciation by the central bank. (or someone else)... The question constantly pops up as to whetherBitcoin has been a safe haven, and more recently, why is it correlating with (falling) financial markets. The reality is that Bitcoin is not a safe haven, at least in the conventional sense. It is not held by so many people that it is a safe haven. It is still young, and it is quite predictable that with the onset of the global elimination of leverage, the liquid asset will be sold along with everything else.

However, the fact remains that Bitcoin is an antifragile competitor to an inherently fragile financial system.

In the book of the same name, Nassim Taleb describesantifragility is not just resilience or flexibility, but the opposite of fragility. Antifragile systems get stronger from volatility. Bitcoin's recent volatility is probably just the beginning, but in reality it is a continuous and ongoing price action. Bitcoin has no trading suspension mechanisms or government subsidies. Each participant is as accountable as possible, and this market is free from moral hazard. When the passions subside, what doesn't kill Bitcoin will only make it stronger. Literally. It survives and thrives in vivo, without any central coordination. It is not for the faint of heart, but for the free and brave. If he survives, there will only be 21 million coins, and his very survival will cement his place in the world. With each monetary stimulus to the traditional financial system, the core function of Bitcoin will become more obvious and understandable to more and more people. This will not be an accident, but a consequence of the striking contrast provided by Bitcoin. Even with all its volatility, it lays the foundation for a more stable monetary system.


Since the Bitcoin offer is not possiblemanipulate, in the same way, its price and available credit in it will always be free from manipulation. They will be determined by the market. As a consequence, there will never be exorbitant imbalances in the bitcoin credit system. Apart from his fixed proposal, this is a contrast in practical application. Accumulation of permanent imbalances in the credit system (provoked by central banks) Is the source of the fragility of today's globaleconomy. In a market built on a currency that cannot be manipulated, once an imbalance occurs, economic forces will naturally adjust the course, averting the systemic credit risks that plague the traditional financial system. Rather than frustrating the future by allowing imbalances to pile up under the surface, Bitcoin's free supply will extinguish the fire as soon as it starts. The fragile components of the system will be sacrificed, and as a result, the system as a whole will become more antifragile.

For some, Bitcoin has become clearer thanks to Librafrom Facebook. For others, thanks to hyperinflation in Venezuela. And now, many will increasingly realize that financial crises and quantitative easing are recurring over and over again. No matter how many quantitative easing cycles the Fed and associates still have in store, Bitcoin inevitably turns into a battle cry for all those who foresee a catastrophe and do not want to passively watch. This is not just a collective act of civil disobedience; it is an individual recognition of the need to act in the interests of self-preservation. For most people, there comes a point where common sense and survival instinct naturally take over. For everyone, this can happen in different ways, but ultimately Bitcoin is a way to preserve a certain freedom, which is violated or infringed without it. If the authorities try to ban Bitcoin or are mistakenly blamed for the failure of the traditional system, always keep in mind the simplicity of what it represents. It is nothing more than individual freedom to convert real value into money that cannot be manipulated. This is fundamental freedom, but it must be earned. Therefore, all Americans of the world, be humble, save up satoshi and don't give up. No matter what.