Why Hold Less Fiat?

Grayson McLeod·16 Dec 2020Share

The slow dismantling of currencies through inflation and fractional reserve banking is arguably the greatest sleight-of-hand in human history. In a society as globally connected as we are today, the inevitable blow up of fiat currencies will only solidify what anybody who has fallen down the Bitcoin rabbit hole sees them as: an unsustainable and evil experiment.

“Hold less fiat” is one of the main phrases you may see us repeat, and there’s more to it than just being a catchy slogan. Holding fiat over the coming decades will prove to be one of the most detrimental things to people’s wealth and freedom. A lucky majority of us Bitcoiners were able to find this incredible monetary phenomenon out of curiosity, however a decent amount of us were forced into this space through necessity.

Fiat (noun): by order or decree.

Money is one of the most fundamental tools and mediums of information in any civilization, however its origins and mechanics are not typically taught in modern schooling. This is not a coincidence, as the loss of confidence would only propagate faster if we were really taught how much of a “house of cards” a fiat and/or debt based economy becomes. Economics graduates and proponents of MMT (modern monetary theory) will tend to try and justify the glaringly obvious shortfalls of this system without ever stopping and asking themselves “what is money?” It is this one question which ultimately leads down the rabbit hole of the history of fiat, introduction to Austrain Economics, and ultimately Bitcoin.

One of the earliest examples of fiat being a major cause of a civilization collapse is the Roman Empire. While Rome was once the most powerful empires in the world, it still wasn’t able to spot the ultimate downfall of its reign until it was too late: hyperinflation. The Roman monetary standard, originally composed of gold and silver coins, was inflated away due to less precious metals being mixed into the supply or through “coin clipping”, where debasement was hidden by incrementally clipping the edges off coins. Saifedean Ammous summarises this downfall extremely well in his book The Bitcoin Standard. The practice of coin clipping mirrors what is commonly referred to as “shrinkflation” nowadays, as products get smaller or are produced with less quality, going unnoticed by the majority.

Toblerone chocolate bar

One of the most common attitudes toward the problems of fiat is “that can’t happen in my country”. Australia has already had its fair share of currency scares, and as time goes on it can only get worse as interest rates go lower and more stimulus is applied to an obviously struggling economy. The AUD has also seen currency control tactics such as the $10,000 cash ban in the name of “fighting financial crime”, as well as a general push for people to move to electronic transfer methods. An interesting tool to see just how fast the AUD is depreciating can be found here.

Larger cracks are showing in the global economic system too. As the US national debt approaches $28 Trillion (https://usdebtclock.org/), British GDP falls 20%, and a lot of Europe facing the possibility of negative interest rates, things are not looking too good. Just like Australia, central banks around the world still only have two options: print money, and lower interest rates. The MMT (modern monetary theory) and UBI (universal basic income) supporters should be increasingly worried about pure capital flight as traditional investors finally look to Bitcoin as the true “release valve” that it really is. Looking at the M2 Money Supply vs velocity of M2 money, we can see the “slowly at first, then all at once” really starting to play out.

M2 Money Stock vs Velocity of M2 Money Stock graph

As the future of traditional currencies become increasingly uncertain, companies such as Microstrategy are starting to allocate their cash reserves into Bitcoin and have even issued convertible notes in order to borrow money to buy Bitcoin. Black rock, JP Morgan, and CitiBank are also shifting their Bitcoin sentiments as it begins to show its true strength on the world stage once again. The interesting game-theory at play here is that as more institutional investors/ funds add Bitcoin, the more attractive and acceptable it becomes.

“The unknown consequences of record low interest rates, unprecedented levels of global monetary and fiscal stimulus and deglobalization are all adding fuel to the fire of awareness and adoption.” - Fidelity Digital Assets

When using Bitcoin, there can be no debasement, coercion, censorship, or bail-ins. Mainstream Bitcoin “etiquette” still has its downfalls, however, as there are still a large portion of people who choose to hold it on an exchange or custodial service. Yes, on the surface level you may own some Bitcoin, however when it comes to it you are still trusting someone to hold it for you. Bitcoin is built to be a trust-minimised system, and it should be used accordingly.

Bitcoin is money, and should be used accordingly. From a store of value, to medium of exchange or unit of account, people are free to use Bitcoin however it best fits their needs. The idea that you should “never sell your Bitcoin” is unfeasible for most as the average Bitcoin holder will still have fiat denominated bills and payments that need to be met. As time goes on and evermore people decide to store their value in Bitcoin, the bridge between fiat will only become more important to the average holder. Paybtc allows you to hold more Bitcoin, which anyone should be able to sell quickly and easily when needed.