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Cryptocurrency News Articles
The Evolution of Money from the Dollar System to Bitcoin
Oct 24, 2024 at 10:21 pm
The popular meme "Bitcoin Bitcoin fixes this" suggests Bitcoin solves a range of global and domestic issues—economic, social and governmental.
The popular meme “Bitcoin Bitcoin fixes this” suggests that Bitcoin solves a broad range of global and domestic issues—economic, social and governmental. This idea stems from the theory of sound money, which posits that sound money provides significant benefits over fiat systems. As Bitcoin is the most sound money, with a fixed supply and no distortion from industrial uses, it will maximize the benefits of sound money.
But is it correct? The benefits of sound money will come in time with Bitcoin adoption, but it’s not these benefits that will drive broad adoption. The meme’s utopian vision of immediate benefits overlooks a crucial reality: Bitcoin will not prevent the coming economic decline; rather, its adoption is a response to it. Indeed, this economic slowdown is the driving force behind the monetary evolution toward Bitcoin.
What, then, is causing this evolution? A correct theory of monetary evolution must not only explain the transition from the current system to a bitcoin model but also account for the earlier shift from the gold standard to the credit-based system. Therefore, the negative effects of inflation cannot explain this shift—why would gold have been rejected during 50 years of rapidly inflating credit markets? That earlier transition occurred because low global debt levels and underdevelopment provided fertile ground for credit expansion and growth. Today, however, we are at the end of that story.
The global debt bubble has grown to $315 trillion, or over 300% of global GDP, as reported in the IIF Q1 2024 Global Debt Monitor. This massive debt burden creates a deflationary environment and looming credit crisis, which are the primary drivers of monetary evolution today.
We’re witnessing the breakup of the modern, status quo global economy, driven by deglobalization, diminishing global trust, rising national self-interest, tariffs and demographic collapse. People are questioning U.S. leadership and the effectiveness of global institutions. This is evident in the rise of alternatives to the International Monetary Fund (IMF) and Society for Worldwide Interbank Financial Telecommunications (SWIFT), the growth of BRICS and the Association of Southeast Asian Nations (ASEAN), strained NATO relations, the growing alliances between Russia and China and the “revitalization” worries in the U.N. General Assembly.
These trends signal a shift away from a unified global financial system toward a multipolar world of regional, fragmented systems with high tariffs. If money is debt and these conditions reduce global credit capacity, we are heading toward deflation, not inflation. The old system will try to solve this by adding more debt, but the debt burden will outpace growth. As a result, nations will not want to hold debt of rival nations as reserves and move to neutral, sound money assets—Bitcoin will be adopted as an effect of these global conditions.
Global financial conditions are such that monetary evolution is going to choose a safe haven asset. ... [+] If it weren't for Bitcoin, the market would likely settle on gold.
If Bitcoin did not exist, monetary evolution would still favor the most sound money available, which would be gold. Gold is also ahead in the process because it is held by central banks and governments. Though behind gold at this point, Bitcoin has greater upside potential being more sound money. Bitcoin’s edge over gold lies in its unparalleled scarcity and technological attributes—a mix between a tech stock and gold that cannot be debased and can settle globally in minutes.
The idea of diminishing marginal returns on debt is central to understanding Bitcoin’s future role. This is the economic principle that as more debt is accumulated, each additional unit of debt becomes less effective at generating productive growth. Eventually, it reaches a point where new debt can barely sustain previous obligations. This is where we find ourselves today.
The mainstream belief is that governments and central banks will print their way out of this crisis, but that would require a fundamental shift in how the monetary system functions, moving from debt-based money creation to direct currency printing—a highly inflationary and politically unpopular strategy. Rather, the game theory predicts extending the current overindebted credit model by adding more unproductive debt while stacking bitcoin.
Bitcoin’s role in this scenario becomes crucial. As credit markets deteriorate, Bitcoin transforms from a speculative asset into a defensive, strategic holding. In credit crises, there is typically a shortage of safe and liquid assets, such as U.S. Treasuries and dollars. Historically, gold has fulfilled this role as well, and now Bitcoin joins the same ranks.
Demographic decline and its economic consequences
Compounding the breakdown in credit markets, we face a demographic decline. Most discussions about the fertility crisis focus on labor shortages, often suggesting that AI or automation will increase productivity enough to counter the effects of a shrinking labor force. However, these arguments miss the critical issue of consumption.
Declining populations mean fewer mouths to feed, fewer loans, fewer inventors and entrepreneurs, less demand for goods and weaker overall consumption.
Japan provides a useful example. In a recent analysis of global
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