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Theres a financial joke, whose origin I dont know, that has been making the rounds lately. It goes like this: If inflation continues at current rates, the purchasing power of wealth held in dollars will be cut in half over the next eight years. But cryptocurrencies can beat that: They can lose half their value in just a few months.

Haha. But crypto enthusiasts have indeed marketed their products as an inflation hedge. Coinbase, the biggest United States crypto exchange, declares that cryptocurrencies are appealing because theyre more resistant to inflation than fiat currencies like the U.S. dollar. This is, not incidentally, the same argument people used to make for holding gold.

But a funny thing happened as fears of inflation grew, as seen in this chart showing Bitcoins price in U.S. dollars over the past year:

So why have crypto prices crashed at exactly the moment inflation has taken off? To some extent it may be a coincidence: If you believe, as I do, that crypto is to a large extent a Ponzi scheme, this may just happen to be the moment when the scheme has run out of new suckers.

But theres also a more fundamental issue: People who touted cryptocurrencies as a hedge against fiat-currency inflation sort of a digital equivalent of gold fundamentally misunderstood how fiat currency systems work, and also, for what its worth, misunderstand what has historically driven the price of gold. It was, in fact, predictable that an upsurge in inflation would drive the price of Bitcoin down although maybe not that it would produce such an epic crash.

The key point to understand is that while the dollar is indeed a fiat currency that is, the authorities can issue more dollars at will, without the need to back those additional dollars with some kind of collateral America isnt Venezuela or the Weimar Republic, a nation that prints money to pay the governments bills. Our money supply is a policy tool used by the Federal Reserve to help keep prices fairly stable actually, rising around 2 percent a year while avoiding recessions. Sometimes the Fed gets it wrong, as it did over the past year, when it (and I) failed to see the inflation surge coming. But when it does, it tries to correct the mistake.

What this means, in turn, is that an inflationary outbreak doesnt presage a spiral of ever-rising prices, which you can avoid by buying crypto. On the contrary, markets believe that the Fed will do whatever it takes to bring inflation back down to normal levels: The five-year, five-year forward inflation expectation rate, a measure derived from spreads between regular U.S. bonds and bonds indexed to the Consumer Price Index, has barely moved through this whole episode:

And saying that the Fed will do whatever it takes means that it will raise interest rates until there are clear signs that inflation is cooling off. The Fed only has direct control over short-term rates, but long-term rates have already soared in anticipation of continued Fed tightening:

What does this mean for crypto? Well, the rate of return investors can get by buying bonds is up, which makes buying other assets, like stocks and, yes, cryptocurrency less attractive. So cryptocurrency isnt a hedge against inflation, its the opposite: When inflation goes up, the Fed responds by raising interest rates, which makes cryptocurrencies go down.

The thing is, we should have learned all about this from what happened to gold after the 2008 financial crisis. Gold prices soared, which quite a few people saw as a harbinger of runaway inflation:

But the expected inflation never came. What was happening instead was that the Fed reacted to persistent economic weakness by keeping interest rates low, and low returns on bonds pushed people to invest in other things, including gold. Whatever purpose holding gold serves something that, to be honest, remains somewhat mysterious one thing gold definitely isnt is an inflation hedge. And the same is true for cryptocurrency.

So another crypto myth bites the dust. And its hard to avoid wondering what myths are left.

Recently the legendary short-seller Jim Chanos gave Bloomberg a wide-ranging interview in which, speaking of cryptocurrency, he pointed out that a lot of the concepts behind its adoption early on have proven to basically be, you know, not there or wanting. You know, it was going to be a replacement currency. Well, no, its not. Well, its going to be a diversifying asset. Well, no, it hasnt been. And now we know it isnt an inflation hedge either.

Chanos went on to call crypto a predatory junkyard. Well, I wouldnt go that far. Actually, on second thought, I would.

FeedbackIf youre enjoying what youre reading, please consider recommending it to friends. They can sign up here. If you want to share your thoughts on an item in this weeks newsletter or on the newsletter in general, please email me at krugman-newsletter@nytimes.com.

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Opinion | Wonking Out: Wasnt Bitcoin Supposed to Be a Hedge Against Inflation? - The New York Times

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In the summer of 2021, the Chinese government banned Bitcoin (BTC) mining and cited the typical concerns of harmful environmental effects and money laundering. Now, the Chinese government is working toward establishing its own digital yuan currency. This raises the question as to whether the original reasoning was merely a Trojan horse.

This ban could easily have been a huge blow to Bitcoins momentum. After all, close to 75% of all Bitcoin mining had been conducted in China by late 2019, according to Cambridge Alternative Finance Benchmarks. If the network teetered under the weight of Chinas nationwide ban, other governments might have begun to think that Bitcoin could be defeated after all.

For a brief period, the ban worked as intended by the end of June 2021, the Bitcoin networks hash rate had dropped to 57.47 exahashes per second (EH/s), down by a few multiples. However, the hash rate rebounded to 193.64 EH/s by December 2021 and by February 2022, it reached an all-time high of 248.11 EH/s.

The entire ordeal was a test that Bitcoin passed with flying colors: Banning Bitcoin mining proved as effective as the Prohibition era was at killing drinking culture in the United States.

In early 2022, the obvious explanation for the hash rate recovery was that miners who had set up shop in China had simply fled to the Western Hemisphere. There was plenty of evidence that seemed to support this hypothesis primarily that the United States share of the global hash rate exploded from 4.1% in late 2019 to 35.4% in August 2021.

However, the so-called great migration may not have been the only unintended consequence of Chinas ban. As of May 2022, miners in China accounted for 22% of the global hash rate a figure that is not as dominant as before, but no small slice of the pie, either.

As the Cambridge Centre for Alternative Finance reports:

Indeed, its likely that there is now a massive black market of Bitcoin mining in China.

Try as they might, one of the most authoritarian regimes on the planet cannot prevent its citizens from mining Bitcoin. In economic terms, the potential benefits to the China-based miners outweigh the costs associated with getting caught red-handed.

Despite the concern and skepticism that experts broadcast about Bitcoin, miners in China value the activity so much that theyre willing to risk breaking the law to get their hands on the future global reserve asset.

Despite Chinas black market surge, there is no doubt that the United States economy benefited from Chinas ban. Just outside Kearney, Nebraska, a company called Compute North runs one of the United States largest data centers for cryptocurrency mining. Around the time of Chinas ban, the company received a deluge of calls from operations that were trying to move their mining equipment from China into the United States.

Compute North welcomed its new partners with open arms. We doubled in size, said their lead technician. We were busy nonstop for the whole summer. [...] And theres just continuing more and more demand all the time.

Other towns, such as Rockdale, Texas, and Massena, New York, are also witnessing growth in their cryptocurrency mining ecosystems.

All of this migration could cause a vicious cycle for China and a virtuous cycle for the United States, which means that all sorts of other Bitcoin-related opportunities shift from China to the United States as well. Lamont Black, finance professor at DePaul University, believes that the recent influx of Bitcoin mining into America could bolster the countrys broader blockchain economy.

And that logic works both ways to the extent that Bitcoin miners are leaving China, then ancillary Bitcoin activities will travel along with them.

Although fleeing miners considered countries other than the United States, it seems that miners prefer America because of its relatively robust respect for property rights. One miner migrating from China said, Maybe the governments [of countries such as Russia or Kazakhstan] are not only shutting down the operation, but they also take [...] all your machines. You might lose everything, so the United States is a safe choice.

This black market phenomenon should be a lesson to Western politicians: If the Chinese government cant ban Bitcoin mining out of existence, neither can you.

As the United States forges ahead in studying the regulatory implications of the industry, traditional financial institutions are closely monitoring its movements. Retail and institutional investors are also paying close attention to the market swings as they battle inflation at home. At this point, trying to put the toothpaste back in the tube is nothing but a waste of energy. Bitcoin mining is not going away.

The United States and other world leaders must learn from the mistakes of others so that they dont have to repeat them. China wasted its efforts so that others dont have to.

Disclaimer. Cointelegraph does not endorse any content of product on this page. While we aim at providing you all important information that we could obtain, readers should do their own research before taking any actions related to the company and carry full responsibility for their decisions, nor this article can be considered as an investment advice.

William Szamosszegi is the CEO and founder of Sazmining, the worlds first clean energy Bitcoin mining platform for retail customers. He is also the host of the Sazmining podcast and as a Bitcoin evangelist, Will is committed to improving humanitys relationship with time, money and energy. Will is the recipient of Bucknells venture grant, a finalist in SXSWs Digital Entrepreneurship Tournament, a Forbes Fellow and a regular speaker at Bitcoin mining conferences.

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Resistance is futile! 3 reasons why Bitcoin mining will never go away - Cointelegraph

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This is an opinion editorial by Aleks Svetski, author of The UnCommunist Manifesto, founder of The Bitcoin Times and Host of the Wake Up Podcast with Svetski.

Bitcoin or nothing

Its times like this when a little written copium, blended with some philosophically-infused hopium is just what the doctor ordered.

Svetski is here to deliver this cure for your sorrows and ailments. This concoction is for my brothers and sisters in the recent Bitcoin classes of 2019, 2020 and 2021.

Welcome.

This is the moment where you earn your bitcoin. Inheriting the world via first-mover advantage on bitcoin was never going to come easy, and each one of these episodes is an opportunity for you to not just stack some cheap sats, but truly build conviction.

The former is a nice perk, but the latter is what builds character.

In this short piece, I shall endeavor to remind you why we are all here.

We are not the same.

Most freedom- and wealth-LARPing individuals will be running for the hills right about now, with their tails tucked between their legs. They shall be trading their energy money for toilet paper, government- or central-bank-issued funny money.

Its an incredible sight to behold.

But Those who dont, those of you who stick around, are going to be forged into something more powerful and profound.

I am writing this for you, because I and many others have walked this same path. We are still in the early stages of what shall be a multi-decade struggle in which the old empire of lies must be replaced with a timechain of truth. The world cannot go on as it is. The center and the central planners cannot hold.

You are finally going to have an opportunity to become a Bitcoiner. Now is your chance to earn your way into the Bitcoin hall of fame, and I dont mean some public record written on some wall. I mean the laying of a foundation for generational wealth.

We are still in the heat of the battle. What the world needs more of now is battle-hardened Bitcoiners with conviction, who will not, under any circumstance, yield to the enemy.

That enemy is multi-faceted. It includes the get-rich-quick schemes of the shitcoin space, the false gods of the fiat state and the fraudulent machinations of the central banking cartels. Each conspire to turn you into either a battery, a Judas, an Ephialtes of Trachis or simply a mindless blob of gray goo to be molded into whatever suits the hysteria of the moment.

Your job is to resist. The only question is, what will you choose to do? Source.

Bitcoin is not going anywhere because you and I are not going anywhere. Bitcoin is unyielding because you and I are unyielding. If Bitcoin sinks, we transform it into a submarine and we keep going. We find a way to resurface.

There is no plan C. To take the island, you burn the fucking boats.

None of this is novel, its just our generations version of the struggle. The psyche of the victor remains the same.

Nobody is going to devote their lives to the printing of euros by the ECB. But many shall devote their lives to the establishment of a techno-sociological phenomenon that roots the scorecard for the product of our labor into the universal currency (energy).

That inherent advantage is what makes us different to both the lemmings and the parasites, the former who are oblivious to whats going on, while the latter want to maintain the status quo because they get to pull the levers.

The intolerant minority wins, because they shall not yield. Time is always on our side. We may not have the numbers, but we have the advantage of the gravity of truth. The Empire of Lies has to fight entropy. As such, it will lose.

Lock up your bitcoin, make it impossible to touch, and watch what happens.

When I wrote about the 42 reasons to sell your bitcoin in January 2022, I was very clear about what this year was going to look like. Im not even sure I consider what were going through a bear market. At worst, its an intermittent phase within a broader up-cycle. Either way it is irrelevant, because it serves but one purpose; earning your bitcoin.

42 Reasons to sell your Bitcoin:

1. If you believe it won't go lower:

Then youre in for a rude awakening. Sell your bitcoin.

2. If you believe it wont go higher:

Then what are you even doing here?

Sell your bitcoin.

3. If you believe in 14-year-old tea-leave analysts with large Twitter accounts:

If this is the basis upon which you bought bitcoin, then you should definitely sell it all. Drawing lines on a screen helps you understand why bitcoin just as much as watching someone else train at the gym helps you lose weight

23. If you think $69,000 was the top:

Then you should sell it.

24. If you think $600 to $300 is any different from $60,000 to $30,000:

Then you cant do math so you should sell it.

25. If you think $42,000 was the bottom:

Then you should sell it.

26. If youre still watching Real Vision:

Then fuck me youre definitely beyond help or reason. These clowns have been right once in 10 years and youre still watching them?

I suggest you not only sell your bitcoin, but buy some BSV, make a poster of Raoul, put it on your wall, take a photo, make an NFT and pretend like you just made some innovation in Web 3.0

40. That transforming the world was going to be easy:

If you wanted salvation and thought it would come with no sacrifice, if you thought that winning was going to be a walk in the park and that we were not going to have to earn this over decades of ridicule, then Im sorry, you were gravely mistaken.

If you think that The Great Transition would somehow be a Kumbaya where we all hold hands and skip happily onto a Bitcoin standard, then youre about as deluded as the next central planner and I would prefer that you just give up now. Go draw unicorns and build smart contracts on Ethereum.

Over here in Bitcoin, we need warriors: The 300, not the Arcadians...

42. If you think Im joking:

No I am not.

I get genuinely happy when bitcoin drops, not because I get to buy more cheap corn (thats nice to have, but $20,000 differences now mean fuck all later), but because it shakes out all the lemmings and losers.

A new elite is forming, and one whose core principles and character is different from the masses that preceded them.

Your focus right now should be on a few simple things:

Number three is a direct corollary to the question of whether or not you wouldve been a camp guard. As Jordan Peterson says, most people would have just obeyed because its easier to go with the crowd or the prevailing narrative. Compliance and obedience is the mark of the masses.

The Remnant are those who cultivate and forge the monster within. They are those who can say no to the false narrative, and stand their ground not because someone told them to, but because its the right, honest and truthful thing to do.

This is where identity is built, and as Tony Robbins would say, the greatest force in the human psyche is the need to stay consistent with ones identity.

Now is the time to forge the identity of the Bitcoiner. The Remnant. The intolerant minority. He or she who shall not yield.

It reminds me of the famous line by King Leonidas of the Spartans.

What is your profession?

Who shall you choose to be?

Are you an Arcadian, or a Spartan? Its fine to be either, but now is the time to choose. Another quick excerpt from Why You Should Sell Your Bitcoin:

This journey is a rite of passage. Its not about getting rich, and its not even about a legacy. Its about building a fucking dynasty.

Cheap sats are a bonus, but it goes far beyond that.

Its about unevenly distributing bitcoin into the hands of those who get it, who care and who are willing to go up with the rocket or down with the ship.

These shakeouts mean that the future kings, lords, emperors and gods will have more.

Whilst the parasites, slaves and lemmings will have less.

We are going back to the age of greatness.

Bitcoin falling in price sharply, on a regular basis wipes out all the shitcoiners and get-rich-quick sub-humans so that the royals, nobles and pure bloods can collect.

Nature is healing.

This is what it looks like.

And as Randy Savage would say You may not like it, but accept it.

This is your opportunity to viscerally learn that the only monetary measure that counts is how much bitcoin you have. If you have more today than you did yesterday or last week, you are winning.

The exchange rate between bitcoin and other units of account is irrelevant, because each of those units are transient in nature. What matters is the absolute territory you can amass on the Bitcoin network and your proportion of the total units of energy money available.

If you can master this mindset, your descendants will have a foundation upon which to build. If you do not, nobody can help you.

This is the greatest time in human history to be alive. Do not squander it. Revel in the pain. Embrace it. Let it forge you into something greater.

You are a Bitcoiner in the making.

Welcome

This is a guest post by Aleks Svetski, author of The UnCommunist Manifesto, founder of The Bitcoin Times and host of The Wake Up Podcast. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.

Go here to see the original:
Going Down With The Ship: Bitcoin Or Nothing - Bitcoin Magazine

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