We’re a species with collective amnesia, destined to repeat the mistakes of our past.
Though forgotten by history, FDR’s gold seizure was the lightning rod issue of its time - culminating in a controversial Supreme Court decision that handed the government legal cover for its abrogation of the gold clauses in bonds:
This was a dystopian time, when Executive Order 6102 commanded the confiscation of private property and the Gold Reserve Act of 1934 wiped out savers in government debt. The mask had dropped, revealing the snarling muzzle of a hostile regime willing to rip apart binding contracts and tear up floorboards in home raids. There was a palpable sentiment that this marked the sad ending to the American experiment.
It was all part of an unspoken coup and radical restructuring of the Republic, which included outlawing private ownership of gold, with some very narrow exceptions, and defaulting on gold denominated obligations.
By all indications, the Supreme Court itself was facing immense pressure from the administration and made its decision under considerable duress. Government officials and members of Congress let it be known that they ‘‘were studying the possibility of increasing the membership of the Supreme Court from nine to eleven or twelve.’’
The message was clear:
*If you don’t like us inflating away the money supply, we’ll inflate away the Court.*
This is also known as court packing, and involves manipulating the Court's membership for partisan ends, adding justices to the bench in order to gain a majority and sway the court’s decision in favor of the regime’s agenda.
Even so, the Court went on record condemning the Government’s actions as unconstitutional, but then retreated and granted the regime a technical victory in its final decision. Harvard Law Review called this one of the most baffling opinions the Court had ever issued. The simple truth is that the Court’s condemnation represented sincerely held beliefs, while the final decision reached the required outcome.
Incidentally, Argentina used the American Gold Clause cases of 1933 as legal precedent for its own default on dollar denominated debt. What’s good for the bald eagle is good for the gander, it argued.
How had things devolved so terribly?
***
IMPORTANT MESSAGE:
My LinkedIn Strategist Salina Yeung is hosting a Free LinkedIn Masterclass Series from Jan 22nd to 25th. Her program helped me reach almost 25’000 followers on LinkedIn. She is the real deal and knows all the ins and outs of the platform as a former LinkedIn Director. She covers various strategies from personal branding, content marketing and lead generation for founders, CEOs and entrepreneurs. This is an event she only hosts twice yearly, register now at: https://shorturl.at/aNPT5
***
Money was rapidly failing in lieu of cascading debt unwinds and the nation sank into the pits of The Great Depression. Banks were collapsing at an alarming rate and had destroyed about one-third of the nation’s money supply. There was no FDIC insurance, there were no bailouts. If the bank failed, you lost everything.
This is where the Keynesian phobia of deflation stems from. Falling prices did not translate into increased purchasing power. That’s because large swaths of the population had lost their entire life savings and were left destitute, unable to afford basic products and services no matter how low prices spiraled.
Yes, just as in time immemorial, banks had issued more promissory notes than existed gold reserves, thus effectively counterfeiting the money supply. When the 1929 stock market collapse unraveled the scam (think Bernie Madoff in 2008), trust in the financial system imploded as people discovered they’d built their lives on shifting sands. This made holding gold the last remaining refuge.
Predictably, this act of self preservation was cynically characterized by the regime as immoral hoarding behavior and subsequently forbidden under penalty of a $10,000 fine or ten years' imprisonment or both. The ban remained in place for 40 years and we’ve been living the fiat experiment ever since. Money doesn’t grow on trees, is a phrase that originated during the gold standard. But today, money does in fact grow on trees, or rather cotton plants, to be more precise. In fact, the money supply has been growing exponentially, increasing 40% (!) between the start of 2020 and the end of 2021 in response to the Covid-induced recession.
When the next, and possibly final, financial crisis arrives (and it will), where will the system borrow its credibility from - what can it use to prop itself up against?
Although possible, it’s unlikely it will be gold this time around. That’s because gold has been very effectively disinter-mediated since 1933, with central banks now sitting on 20% of the total supply. Since a system in crisis must reach outside of itself for stability, this makes gold ill suited. If history doesn’t repeat but instead rhymes, it’s possible to imagine a future scenario where digital gold picks up the mantle of private sector money. This may be hard for many to fathom today, but it’s undeniable that markets are directionally starting to price bitcoin as such:
After only 15 years of existence, the asset is trading at ~6% of gold’s market cap, an incredible achievement. Remember, gold has 5’000 years of history and has been universally recognized as money across cultures.
The bitcoin ETF launch is another indicator of bitcoin’s gravitas, surpassing silver as the 2nd largest commodity ETF in only a few days. It’s the most successful ETF launch of all time, with $6.5 Billion in volume after just five trading days - $14 Billion if you include GBTC. Both Blackrock and Fidelity each now manage over $1 Billion worth of coins in their respective funds, and they’re only just getting started.
If you’re willing to ascribe a non zero probability to bitcoin becoming digital gold for a 21st century digital economy (if you’ve read this far, I’m willing to bet you do), the question is whether it will succumb to the same pitfalls as legacy gold.
ETF issuers already control 3% of total bitcoin supply, and they’re only getting started.
This was always inevitable.
ETFs are a black hole from whose gravitational pull nothing can escape, not daylight or sats. It will continue to suck bitcoin into its center. Resistance is futile.
This is neither good nor bad, it’s a fact.
That’s because ETFs are an incredibly efficient product.
It takes about five minutes to open a brokerage account and anyone can buy bitcoin exposure with the click of a button. No need to worry about custody, UTXO management, tax reporting, etc. It’s all taken off your hands.
While all of this is true, it’s also worthwhile remembering that buying bitcoin exposure isn’t the same as outright owning the asset. This will become especially apparent in times of crisis, when large honey pots of digital gold may prove irresistible to a system in crisis.
As this piece lays out, to offhand dismiss the threat is historically illiterate.
If you’ve enjoyed this edition of the Bitcoin Macro Newsletter, please help spread the word by sharing this post with friends and colleagues. We rely on your good word of mouth. Any pledges are greatly appreciated.