Kane, you've not indicated how a decentralized form of money becomes controlled by a "Digital Bretton Woods." Sure, the long-term transactional rails are still TBD. But how might the underlying Bitcoin be controlled like USD?
Allen - great question. I think we are watching that play out. It feels like most are looking for a clear and evident Executive Order 6102 type moment (see gold). But, when you look at what has happened post 2017/2018 it could be argued that the 6102 moment was enacted and has happened without making Bitcoin illegal to hold.
IMO, there is a reason that the ordering of financial engineering tools followed this path: First futures, options, then futures ETFs, then spot ETFs. Now there are ways to suppress price (like gold) and if you read the fine print of the ETF custody and new TradFi bank custodians -- see things like authorized participants, etc. You can easily connect the dots between the old enforced 6102 moment and the new 6102 without enforcement. You can even throw MSTR into this bucket.
Participating in ETFs, futures, or derivatives is a decision to join the fiat follies. Doing so is not the same as participating in the decentralized world that holds and uses BTC directly. Of course, large-scale daily BTC transaction rails must be built out further for widespread public adoption, and traditional financial orgs will likely lead that. But those two things are wholly separate. Am I missing something?
Yes, you asked: "But how might the underlying Bitcoin be controlled like USD?"
In order to control a money you must have a large pot under control (stored). See what the US did with gold before resetting to the dollar system.
*Most* will join the folly it's just the nature of people and the difficulties of handling money.
Mining is already centralized into a few main pools, making hashrate centralized and the movement is toward corporate holding and custody which centralizes the existing coins. *Some* will use and stay to the ethos and this is a big difference. You have optionality and eventually you will be able to spend that at places (just not really right now).
In order to use bitcoin you really have to sell it and go buy something with dollars or another fiat. i.e. like how you would use a gold bar. Sell a few coins, get dollars, buy good or service. The difference is there is more optionality with Bitcoin and it's instantly convertable unlike gold or the settlement of treasuries and stocks. There are a select few places where you can use it, sort of. This could easily change in the future.
*If* most users move to traditional financial orgs to hold then the optionality becomes a much smaller focus and traditional fractional reserve practices eventually take presidence (Bitcoin controlled like USD), but first you must centralize large swaths of the coins into entities that you can push policy, regulations, and knee bending requirements on.
If most go to financial orgs they will end up using a paper component to transact and not the underlying. Just as we do now in our current system; USD.
This is the reason the derivatives are important. Because they allow that paper proxy to be created and allow the price to be suppressed where volatility isn't issue for financial transactions the way it has been to date. This allows the paper products to be used for financial transactions... Similar to treasuries and dollars on top of gold.
Financial orgs playing a larger role means the eventual centralization of coins. This takes time. Most do not want to jump through the hoops of self custody, the loss and shear time to do a single transaction or pay the high costs.
Remember, the FED started as a "decentralized" network of banks, to use a common term. Though it became co-opted from 1913 to 1944 as the "transaction rails" were being built and the "financial orgs" were being built. There is a lot of similarities here. Especially, when you see the origins of how trusts were used in the industrial revolution and earliest days of modern banking (being re-introduced in Bitcoin).
Take some of the multi-sig companies being built. They are modern day Merrill Lynch or Morgan Stanley's but for Bitcoin. It was these new certificates called "stocks" (1920s). They also needed custody because what if there was a fire or $5 wrench attack and you lost your certificates?
Centralization of coins to date:
+ About 5.5% are unmined
+ ETFs (banks and bank reporting entities) - hold about 4% and growing
+ MSTR holds about 1.2% and growing
+ Miners and others about 0.50 - 1%
+ about 19% are lost (4mm ish).
+Various Trust structures selling to ETFs - Unknown (at least for me)
Also, see the change of Strike pitch in 2022 or so. It went from send bitcoin to send dollars. So, if we only use the rails and don't end in Bitcoin at the exit; then all you are doing is rebuilding 1980s commerical banking. For example: start in dollars and end in yen, never need to use bitcoin because you are using Strike's bitcoin on their Bitcoin rails. Essentially, we are just putting new tech nodes on different continents and having a new protocol communicate fiat back and forth on top. That isn't all that different than SWIFT (though it is more than text and settlement is faster). This works great for collecting fees, but it does not create free money. Rather it creates faster money with slightly lower fees and in many cases, the fees aren't cheaper.
Isn't this just your typical evolution of money? Don't we always start sound and find out there is not enough or it's too hard, so we introduce credit (cashu mints), end up over levered (FTX, BlockFi, Celcius, various funds) and then into MMT type practices (hopefully this is 80yrs away, but with Blackrock involved who knows). It happens over 100 years and is always relatively the same.
I don't agree that BTC will become centralized; no party is even close at the moment, and there are too many global corporate/govt/individual competitors.
I see the public moving away from existing institutions and their fiat follies as their fraud becomes even more obvious.
And in time, not too far down the road, I see BTC becoming transactional money as much as a store of value, with a new set of trusted, transparent intermediaries providing the rails of banking and e-commerce.
I think the world's people are waking up to the IMF/Central Bank/Fed Scam. Most want to move away from it all. We'll all be better off when that happens, too.
Kane, you've not indicated how a decentralized form of money becomes controlled by a "Digital Bretton Woods." Sure, the long-term transactional rails are still TBD. But how might the underlying Bitcoin be controlled like USD?
Allen - great question. I think we are watching that play out. It feels like most are looking for a clear and evident Executive Order 6102 type moment (see gold). But, when you look at what has happened post 2017/2018 it could be argued that the 6102 moment was enacted and has happened without making Bitcoin illegal to hold.
IMO, there is a reason that the ordering of financial engineering tools followed this path: First futures, options, then futures ETFs, then spot ETFs. Now there are ways to suppress price (like gold) and if you read the fine print of the ETF custody and new TradFi bank custodians -- see things like authorized participants, etc. You can easily connect the dots between the old enforced 6102 moment and the new 6102 without enforcement. You can even throw MSTR into this bucket.
Much of this I've talked about across various articles and podcasts so I didn't directly call it out. I banged the drum pretty hard in 2021 but it seemed no one really cared - https://podcasts.apple.com/us/podcast/ep17-lawrence-lepard-how-traditional-players-use-derivatives/id1583424361?i=1000547559145.
Showing how new is like old in FX land - https://x.com/kanemcgukin/status/1574237309632905216
Just this week you see Pomp and Willy Woo starting to connect the dots - https://x.com/kanemcgukin/status/1841839416253317538
Are we just rebuilding commercial banking on bitcoin rails? https://x.com/kanemcgukin/status/1575454932282523648 & https://x.com/kanemcgukin/status/1834222082512576721 & https://kanemcgukin.substack.com/p/build-on-bitcoin-or-buy-bitcoin - which discusses how if we move fiat over Bitcoin, we are just rebuilding the same as what we have but on new instantaneous settlement rails.
Great question. Let me know if this answers what you were asking.
Participating in ETFs, futures, or derivatives is a decision to join the fiat follies. Doing so is not the same as participating in the decentralized world that holds and uses BTC directly. Of course, large-scale daily BTC transaction rails must be built out further for widespread public adoption, and traditional financial orgs will likely lead that. But those two things are wholly separate. Am I missing something?
Yes, you asked: "But how might the underlying Bitcoin be controlled like USD?"
In order to control a money you must have a large pot under control (stored). See what the US did with gold before resetting to the dollar system.
*Most* will join the folly it's just the nature of people and the difficulties of handling money.
Mining is already centralized into a few main pools, making hashrate centralized and the movement is toward corporate holding and custody which centralizes the existing coins. *Some* will use and stay to the ethos and this is a big difference. You have optionality and eventually you will be able to spend that at places (just not really right now).
In order to use bitcoin you really have to sell it and go buy something with dollars or another fiat. i.e. like how you would use a gold bar. Sell a few coins, get dollars, buy good or service. The difference is there is more optionality with Bitcoin and it's instantly convertable unlike gold or the settlement of treasuries and stocks. There are a select few places where you can use it, sort of. This could easily change in the future.
*If* most users move to traditional financial orgs to hold then the optionality becomes a much smaller focus and traditional fractional reserve practices eventually take presidence (Bitcoin controlled like USD), but first you must centralize large swaths of the coins into entities that you can push policy, regulations, and knee bending requirements on.
If most go to financial orgs they will end up using a paper component to transact and not the underlying. Just as we do now in our current system; USD.
This is the reason the derivatives are important. Because they allow that paper proxy to be created and allow the price to be suppressed where volatility isn't issue for financial transactions the way it has been to date. This allows the paper products to be used for financial transactions... Similar to treasuries and dollars on top of gold.
Financial orgs playing a larger role means the eventual centralization of coins. This takes time. Most do not want to jump through the hoops of self custody, the loss and shear time to do a single transaction or pay the high costs.
Remember, the FED started as a "decentralized" network of banks, to use a common term. Though it became co-opted from 1913 to 1944 as the "transaction rails" were being built and the "financial orgs" were being built. There is a lot of similarities here. Especially, when you see the origins of how trusts were used in the industrial revolution and earliest days of modern banking (being re-introduced in Bitcoin).
Take some of the multi-sig companies being built. They are modern day Merrill Lynch or Morgan Stanley's but for Bitcoin. It was these new certificates called "stocks" (1920s). They also needed custody because what if there was a fire or $5 wrench attack and you lost your certificates?
Centralization of coins to date:
+ About 5.5% are unmined
+ ETFs (banks and bank reporting entities) - hold about 4% and growing
+ MSTR holds about 1.2% and growing
+ Miners and others about 0.50 - 1%
+ about 19% are lost (4mm ish).
+Various Trust structures selling to ETFs - Unknown (at least for me)
Also, see the change of Strike pitch in 2022 or so. It went from send bitcoin to send dollars. So, if we only use the rails and don't end in Bitcoin at the exit; then all you are doing is rebuilding 1980s commerical banking. For example: start in dollars and end in yen, never need to use bitcoin because you are using Strike's bitcoin on their Bitcoin rails. Essentially, we are just putting new tech nodes on different continents and having a new protocol communicate fiat back and forth on top. That isn't all that different than SWIFT (though it is more than text and settlement is faster). This works great for collecting fees, but it does not create free money. Rather it creates faster money with slightly lower fees and in many cases, the fees aren't cheaper.
Isn't this just your typical evolution of money? Don't we always start sound and find out there is not enough or it's too hard, so we introduce credit (cashu mints), end up over levered (FTX, BlockFi, Celcius, various funds) and then into MMT type practices (hopefully this is 80yrs away, but with Blackrock involved who knows). It happens over 100 years and is always relatively the same.
If I didn't answer your question let me know.
I guess we have different visions of the future.
I don't agree that BTC will become centralized; no party is even close at the moment, and there are too many global corporate/govt/individual competitors.
I see the public moving away from existing institutions and their fiat follies as their fraud becomes even more obvious.
And in time, not too far down the road, I see BTC becoming transactional money as much as a store of value, with a new set of trusted, transparent intermediaries providing the rails of banking and e-commerce.
I think the world's people are waking up to the IMF/Central Bank/Fed Scam. Most want to move away from it all. We'll all be better off when that happens, too.