The Metagame
Cryptocurrency doesn’t have any central authority, so determining the direction of the industry is tricky, at best. This article is intended as a response to the wonderful piece written by Ben Hunt, the enigmatic @EpsilonTheory, back in 2018.
If you don’t know me, I live and work in the United States and my life’s work is making, launching, and monetizing cryptocurrencies like Bitcoin. I’ve actually launched more than any other person on the planet and I run a cryptocurrency exchange. When it appeared the US government was going to make my life’s work illegal I personally went to Washington DC and spoke with congresspersons, senators, and met face-to-face with the SEC, CFTC, and OCC. It was my efforts which had the term “blockchain commodity” added to the modern financial lexicon. I say these things not to brag but lots of people know who Ben Hunt is and not many may know who I am or why my opinion matters.
Hunt’s fundamental assumption is flawed.
It’s all about the benjamins because cash rules everything around me.
If you’re not interested in monetary theory, cryptocurrency has little value to you. Humans have indeed wrestled with currency for thousands of years, so I’m not going to talk about sea shells, or big stone wheels, the economics of scarcity, or Austrian economics. I’m going to talk about the law of the United States.
I’m going to start with a fundamental concept which is woefully underdiscussed and yet painfully relevant to fads such as Modern Monetary Theory: coincidence of wants. The only reason for currency is to solve a multivariate coincidence of wants. For the less economically inclined, I’ll take a moment to explain what the coincidence of wants is.
Imagine a marketplace in a small village. Bob is a farmer who grows wheat. Alice is a miller who makes bread. Charles is a cobbler who makes shoes. Bob wants new shoes, but Charles doesn’t want wheat. Alice wants wheat, but Bob doesn’t want bread. Charles wants bread, but Alice doesn’t want shoes. To solve this problem a medium of exchange which has a minimum agreed value to all parties is required. We call that a “currency”. Above all of this, the government wants taxes and cares nothing for wheat, bread, or shoes. As the government is the entity with the means to enforce its will over everyone else, it takes it upon itself to issue a currency to ease commercial transactions and allow individuals to pay taxes.
In the United States, arguably the dominant economic power in the world, the power to mint currency is enshrined in the foundational legal document, the Constitution. In the American system, any right not specifically granted to the federal government passes to the states and to the people. Specifically Article 1, Section 8, Clause 5 of the Constitution is known as the “coinage clause” grants the government an exclusive monopoly on the printing of currency. It states:
The Congress shall have Power To…coin Money, regulate the Value thereof, and of foreign Coin….
And in two short sections later, Section 10 guards that right jealously stating only the federal government may:
coin Money; emit Bills of Credit; [or] make any Thing but gold and silver Coin a Tender in Payment of Debts
There’s no relevance to being on the gold standard or not. There’s no relevance to the Bank Secrecy Act. The government is the exclusive printer of currency in the United States. Full stop.
Great Caesar’s Ghost
All currency is money, but not all money is currency.
Jesus said to them, “Render to Caesar the things that are Caesar’s, and to God the things that are God’s.” — Mark 12:17
In the United States, all currency belongs to Caesar. All transactions involving currency fall under Caesar’s gaze. This means your bank accounts, your stock portfolios, your foreign exchange accounts, and your cryptocurrency exchange accounts all rightfully fall within the law.
While this might on the face of it seem all encompassing, fortunately not everything involving money falls to Caesar. Commodity spot markets are for the most part unregulated (with obvious exceptions) and the CFTC has precious little enforcement capabilities in this regard as spot markets aren’t considered “where the money is.” Options markets are where one finds the regulations one might expect. You don’t need a license or an ID to buy or sell gold and silver. You don’t need a permit to settle a debt with radishes. With all of these examples and more at our disposal, it is quite certain that government regulation of the flow of value is far from absolute and to simply assume so is to assume facts not in evidence. While the reason for governments may be the distribution of wealth, a nation of laws must obey them.
It is in this manner that cryptocurrencies exist and why their existence isn’t simply stamped out with the drumbeat of jackboots. While the government may dictate currency, it may not dictate money. The United States is a nation of laws, not an empire ruled by a jealous figurehead, and it has no right to dictate money. It has every right to dictate currency.
Quite simply, the government can dictate in what form you will pay taxes, it can dictate that for which you owe taxes, and it can dictate what rights and protections one might enjoy if they follow said rules.
Currency comes with instructions. Money doesn’t.
At the foundation of the American system of currency is consumer protections afforded by the courts to those who use the US Dollar. That’s what that little blurb on the dollar bill shown above means. If you use US currency to settle a debt (otherwise known as a “commercial transaction”) then you can enjoy the full power and support of the US legal system to guarantee that transaction is upheld and honored. This is so ubiquitous to our daily existence we don’t even think about it, but it is a testament to the genius of the construction and execution of the legal definitions of the US financial system that the system works so well, for hundreds of millions — if not billions — of people, every single moment of every single day.
If you don’t use government issued currency to settle a commercial transaction, one must create legal contracts to replace them. Using such contracts then introduces risk, as if the terms of the contract aren’t followed one must make sure they have the evidence collected to pursue a civil judgement or, even worse, the contract contains onerous terms which enable one party to take advantage of the other.
Using government currency makes life easier because it reduces risk.
If one accepts the fundamental precepts of cryptocurrencies then the value should become instantly apparent: while more efficient than gold, it is nearly as reliable as government issued currency.
And therein lies the reason, I believe, for Mr. Hunt’s appeal for comment: cryptocurrency competes with government issued currencies as a function of its efficiency, not by some rhetorical argument of its supporters.
Oh, the Sovereign Citizen crowd can get fucked.
This is not some “creative” interpretation of the legal system, like the wackos that believe the courts don’t apply to them if there’s gold fringe on the flag, or that if you spell your name in all capital letters or with strange symbols it applies to some legal entity other than you.
This is simply the law. SEC Chairman Clayton knows it. The army of lawyers at the SEC knows it. Chairman Giancarlo knows it. The OCC knows it. Everyone knows it except the cryptocurrency people, themselves. Anarchists, as a rule, are not well versed on the nuances of government policy and regulatory enforcement.
Endgame.
Cryptocurrencies are competition to the monopoly of fiat money.
Dangerous. Disruptive. Frightening.
But very, very real.
To prove exactly how dangerous this technology is, in 2015 I closed my businesses, sold my home, my Cadillac, and everything else I owned. I allotted myself $1,000 a month to live, and lived out of my car with my dog for six months while I used free Walmart wifi and a Macbook Air to create a cryptocurrency from scratch. I launched and monetized it by myself in 2016. It is currently traded on three exchanges, has over 2,000 active addresses, funded three companies, inspired consumer hardware development, and retains a market cap of no less than $3,000,000.
Let’s assume the government made everything I’ve done illegal overnight. That doesn’t suddenly make that value in my network evaporate. In fact, it gives myself and those who hold my coin the impetus to create goods and services which do not require fiat to function.
In short, criminalizing cryptocurrencies provides the economic incentive to complete the value chain required for them to be truly recognized as legitimate forms of money and not just traders’ toys.
I can promise that if regulators and legislators didn’t realize this before they met me, they were certainly aware of it afterwards. I’ve told that anecdote several times in the last couple of years.
What one can truly say is that regulators have been very responsible (until recently) in their approach to cryptocurrencies with utmost respect for the rule of law and limitations placed upon the government in relation to currency and money.
So there it is. The metagame of cryptocurrencies is simply to survive. No more, no less.
