Why Bitcoin Will Absolutely Die With The Dollar - The Final Piece of the Bitcoin/Gold Puzzle

A gold currency only maintains value post gold due to existing debt denominated in that currency. Debt ties future to past, maintaining monetary regression to gold. No debt is denominated in Bitcoin.

• TheBitterDraught video clarifies that the dollar's value persists due to previous debts denominated in dollars, anchoring it to past monetary chains back to gold.

• Bitcoin cannot replace the dollar as it lacks debt-denomination, leading to its potential collapse if/when the dollar fails.

• Gold's open interest fell, indicating short positions covering, while Japan's record Treasury sales hint at further yen devaluation.

• Subprime auto loan defaults have surged to 2008 levels. Fun.

TheBitterDraught on Why Gold is Money Solves My Last Bitcoin Question

Phil put up a video yesterday on why gold is money. I recommend you watch it. I want to spend a few paragraphs here reasoning through his most important idea in that video and ultimately why it solves my last remaining Bitcoin conundrum. (I may encounter others in the future but as of now I have none twirling in my head.)

I had a conversation with an Israeli physics professor a few weeks ago, one who believes Bitcoin is money and that the Misesian Regression Principle cannot be used as proof against Bitcoin being money. It was a challenging conversation, and he brought up a few good points I had to think about and really consider. His best point, or at least the one I remember most vividly, was the case of the disembodied Iraqi Dinar.

The story goes (look it up yourselves, I may have gotten details wrong) that between the first and second Gulf Wars, basically for 13 years from 1990 to 2003, Iraq was split into two monetary territories, north and south. In the south, a new currency circulated, the new dinar, with a corresponding entirely new central bank that printed the currency completely unrelated to the old dinar.

In the north meanwhile, the old dinar continued to circulate even after the issuing central bank ceased to exist. The old dinar of the north became, therefore, a completely disembodied currency with no issuing central bank at all, and absolutely no official central-bank-sanctioned exchange rate with any other currency in the world, not even the new dinar. Its chain to the rest of the monetary world was therefore completely severed, seemingly, and yet it survived and its value even rose in purchasing power.

No new notes were printed for those 13 years and so its supply stayed steady and actually fell as old notes physically wore out and had to be discarded or got lost over the years. The new dinar of the south, meanwhile, inflated and its value continually fell.

This Israeli professor's argument was essentially that if you can have a note that maintains value even after it becomes completely disembodied monetarily, meaning its chain back to gold through monetary regression is actually completely broken, then Bitcoin can be money just as well even after the dollar falls through the same principle.

I had to think about that. That was a good, challenging point, empirical though it was and not logical. I was either missing something in the logic or my logic was wrong.

Phil gave me the answer last night. The old dinar was never completely disembodied during that time because of past debts denominated in old dinars. That’s why it still circulated.

The most important idea in Phil's video, in my view at least, is that the only reason the dollar maintained any value after Nixon "closed the gold window" and made the dollar completely nonconvertible, is that existing debts continued to be denominated in dollar terms. The continuation and recirculating and renewal and expansion of that debt in dollar terms is the only thing that keeps the dollar circulating as a monetary medium at all. Why, though?

Because what is debt, prithee, if not a monetary forward-reference point to the past into the future? It is an anchor point to “Time X” serving as an echo of a previous monetary chain at Time X+1, a chain that was, at one point, connected to gold. It is a ghost reference point, a phantom, a placeholder, but still referrencable. (Is that a word?) Ultimately, the reason the old dinar maintained any value for 13 years is that Iraqis in the north still owed debt denominated in that currency, to one another, at the point when the currency was discontinued and its issuing central bank disappeared.

Granted, without an issuing central bank to keep the debt phantom reference point going, the old dinar would have collapsed anyway in debt default or redemption. And so it did, but not immediately.

Now to the dollar. If dollar debt were to be erased by a combination of default and redemption without any new debt being issued in its place by the Fed, the value of the remaining dollars in circulation at the end of the process of default/redemption would end up equaling the value of the remaining gold on the Fed's balance sheet. That would be $42.22 an ounce, but keep in mind that the dollar supply in such a circumstance would be radically smaller to the point where 99% of the people who think they own any dollars now would see their pile of dollars erased. The only surviving dollars would be some physical cash, most of which would also be used to pay down debts by force in bankruptcy proceedings, and the only remaining physical cash that would exist would be hordes that could not be located or else those physical dollars held by people who have no debt to pay down at all in any form.

The banks that hold most of the dollars hold them in the form of dollar derivatives called deposits, which would be erased. That erased purchasing power would all flood mightily into the hands of gold and silver stackers.

That's in the default/redemption scenario. In the hyperinflation scenario, the central bank has to issue so much more new debt to pay back the old debt that the value of each debt unit falls to zero in real terms, and therefore because debt is worthless, all purchasing power flows once again into the raw money holders. All roads lead to the same End Game.

How does this answer the Bitcoin question? Bitcoin cannot exist without the dollar because no debts are denominated in bitcoin, nor will they ever be. It is in fact impossible to denominate any debt in bitcoin terms because its value gyrates so wildly, constantly.

When the dollar falls, bitcoin will have no debt reference point to refer back to. It will die in real purchasing power terms almost instantaneously with the death of the dollar.

And that brings us back to the principle we all know is true. The debt must expand at an exponential rate in order for the dollar to maintain any value at all. Stop the debt expansion and take it off the exponential trajectory, and the banking system implodes, together with 99% of all dollars, with the few surviving physical cash dollars equaling gold at about $42.22 but with its purchasing power going through the roof. Keep the debt going and eventually it goes vertical with gold at infinite dollars and purchasing power ending up in the same place.

Trump cannot stop it, Musk cannot stop it, and bitcoin cannot stop it. There is no escape from this logic.

Anyway, to more grounded topics. Open interest.