“I sincerely believe that banking establishments are more dangerous than standing armies.” – Thomas Jefferson
In 1949, Frank McNamara was entertaining clients at Majors Cabin Grill restaurant in New York when he realized he left his wallet in a different suit. For our younger readers, a suit was a uniform men wore to project importance and, in this context, a wallet was a physical thing that carried important paper. Luckily for McNamara, his wife swung by the restaurant to pay his tab, but history was forever changed by that bit of forgetfulness.
Motivated by the embarrassing episode, McNamara and his partners co-founded Diners Club and launched the world’s first multipurpose charge card. In February of 1950, he returned to the same restaurant and became the first person to pay for a meal using a “credit identification card,” and the rest is history. According to data compiled by Statista, there are an estimated 725 million Visa, Mastercard, and American Express cards in circulation today in the US alone – almost four for every adult.
With the proliferation of credit cards and other forms of digital payment, consumers have slowly lost their visceral connection with money. A classic recommendation of budgeting gurus – one that now seems as outmoded as the answering machine – is to only pay for things using physical cash, since it somehow feels more real to part with four $20 bills from your purse or wallet than it does to swipe a credit card or tap your phone for an $80 purchase. Nowadays, such a recommendation would be virtually impossible to implement. The practicality of both accessing and using physical cash in our society is becoming increasingly difficult and rife with stigma.
The standard definition of money is any item or verifiable record that can function as a store of value, a unit of account, and a medium of exchange. When Richard Nixon took the US dollar off the gold standard in 1971, many were concerned the move would greatly diminish its function as a store of value. Judging by the debasement of the dollar’s purchasing power in the intervening 50 years, those concerns were well-founded.
Until recently, the dollar’s durability as a medium of exchange was never in doubt. Every piece of physical US currency was (and still is) adorned with the phrase “THIS NOTE IS LEGAL TENDER FOR ALL DEBTS, PUBLIC AND PRIVATE.”
The digitization of currency ties each individual directly – transparently – to their money and empowers the state with decision power on whether any particular citizen is allowed to transact in modern society. Your money no longer represents stored wealth that can be exchanged for goods and services. Rather, it represents stored wealth that can be exchanged for goods and services as permitted by the state. Mostly gone is the anonymity that comes with transacting in physical cash – the ultimate manifestation of a decentralized currency. (Just try booking a hotel room with nothing but cash and a valid passport.) In its place we find myriad extrajudicial procedures and complex regulations that strip away our freedoms and, if left unchecked, will ultimately make way for the displacement of our representative democracies with totalitarian states.
In a staggering 56-part Twitter thread that recently went viral, an anonymous account by the name of @punk6529 drives home this point brilliantly. A link to the full thread is here. The core thesis is that one cannot have freedom of speech, freedom of assembly, or freedom of religion without the freedom to transact. Robbing a citizen of his or her ability to transact is a devastating punishment, and for the government to claim it has the ability to do so without judicial review or any reasonable recourse is the functional equivalent of totalitarianism. The 18th and 19th tweets in the thread are particularly compelling:
As we described in our last piece, Justin Trudeau has crossed the Rubicon in this regard, and if his actions become normalized, the entire edifice of Western democracy will undoubtedly collapse. Lest our readers think this is hyperbole or that Trudeau’s behavior will be contained to Canada, we point you to an excellent piece called In Praise of Bitcoin written by Dr. Ben Hunt (the article can be found here, and you can follow Hunt’s Twitter account here). In it, Hunt correctly likens the US Treasury to the Eye of Sauron. Here’s a critical passage (emphasis added):
“If there’s a Western governmental institution that is more unclouded by conscience, remorse, or delusions of morality than the US Treasury, I am unaware of what that institution might be. But unlike Wall Street, which is motivated by Flow, the US Treasury has an entirely different (but highly compatible!) goal.
The goal of the US Treasury is to see all of the money in the world.
That’s really all it is. That’s what Anti-Money Laundering (AML) regulations are all about. That’s what Know Your Client (KYC) regulations are all about. That’s what Report of Foreign Bank and Financial Accounts (FBAR) regulations are all about. That’s what the Treasury-led Society for Worldwide Interbank Financial Telecommunications (SWIFT) is all about. That’s what the Bank Secrecy Act (BSA) is all about. None of these programs are really about taxes. None of these programs are really about catching crooks or fighting terrorists. All of these programs are really about information for information’s sake regarding the greatest source of power in the world and the raison d’etre of every government on Earth: money.”
It is through a related lens that we have written skeptically about crypto in the past. We’ve marveled as US regulators allowed the crypto ecosystem to evolve, warned crypto participants that a crackdown is inevitable, and questioned how the “value” of one’s crypto holdings could be effectively transmitted back to the fiat world. Many have filled our Twitter feed and Substack comments section expressing the view that Trudeau’s descent into totalitarianism validates the need for cryptocurrencies. While we don’t doubt the demand for such exposure will increase because of his actions, we draw a more sobering conclusion. Trudeau’s actions destroy the concept that cryptocurrencies will ever be an effective medium of exchange. We recently summarized this view on Twitter:
Imagine you donated C$50 to the Freedom Convoy before it arrived in Ottawa, an action Trudeau has retroactively decided disqualifies you from participating in modern society. (This is not a hypothetical, at least if this Canadian Member of Parliament’s tweet is to be believed). Your bank accounts have been frozen, credit cards canceled, and access to your brokerage account denied. Further, imagine you have accumulated some Bitcoin in a cold storage wallet (i.e., on a flash drive in your possession), carefully ensuring that it is outside Trudeau’s reach. How are you going to pay your mortgage, car payment, tuition expenses, or buy groceries with it? The answer is you can’t. Does that wallet represent a store of value that might be reactivated in the future should the government change its stance towards you, or is itself changed altogether? Absolutely. Does it represent a practical medium of exchange, one that is useful during this personal crisis? Absolutely not.
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At a time of utmost need, cryptocurrencies have proven they are not money. If they can’t be used to transact in the main, they’re just bits of data on a flash drive. Crypto proponents will argue that off-exchange peer-to-peer transfers are still possible and this enables bartering, or that you could move to a country that more widely accepts cryptocurrencies as payment. To these critics, we say thank you for highlighting the exceptions that prove our thesis. If that is all you have left, it is clear how much the government has taken away from you and how feeble cryptocurrencies are as a hedge. This recent Twitter exchange sums up our view nicely:
Unfortunately, we must also admit the same analysis holds true for gold, a conclusion that runs opposite to our previous thinking on the topic. However effective gold might be as a store of value, if the only available functions during a time of personal crisis are to facilitate bartering or fleeing, it isn’t money. Gold bugs and crypto advocates alike should be aghast at what Trudeau has done and at what those in the US Treasury undoubtedly have in store for Americans.
And therein lies the critical conundrum: alternative forms of money require a benign government to allow for their proliferation, but a benign government negates the need for alternative forms of money. This is a political problem, and no amount of Bitcoin or Gold Eagles will help when the political eye turns against you. Money is what the government says it is, and we just got a glimpse that our views – political, cultural…personal – form a relevant condition to being allowed to spend it.
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