What translates Bitcoin into Dollars?

The petrodollar is a term that most people are familiar with. You may not be familiar with the details, but you've probably heard the word in history class or on a podcast. It is an abstract word designed to demonstrate the political and military denomination of the US dollar as the only purchase currency of oil in a very basic and reductive way. The United States could “quantitatively ease” its increasing monetary supply into the ever-demanded energy commodity that is oil by making their dollar the only means of trade, whether in treasuries, bonds, or cash.

The notion of linking your monetary system to your energy system may sound strange at first, but view the real capital transaction as a trade of time spent earning the pay (working debt for credit capital) for a direct-product-of or service-based representation of the seller's time. It may sound cliched, but time is money, and it is probably the most valuable commodity in the free market. As a result, by linking your hard-earned dollars to an energy-based economy, you may help protect the scarcity of time spent working.

This is the idea underlying the various bimetallic standards used in the United States prior to, during, and after the Revolutionary War. Richard Nixon shuttered the gold window, breaking the dollar's steady relationship to the price of gold, and guided us into the vast and open skies of fiat money, one central bank and 195 years later. Throughout the next decades, what appeared to be high flight was actually sinking further and deeper into the bottomless pit of an ever-expanding debt balloon. By the time our fiat experiment caught up to us in the winter of 2007, monetary expansion had exploded from $636 billion in January 1971 to an insane $7.4 trillion.

By the time news of a single hedge fund in the EU defaulted, worries about the system's bankruptcy had spread as far as New York City. A bank run at the fractionally reserved Lehman Brothers emptied the 161-year-old institution in a single afternoon thirteen years ago this month. Why might a single company's financial problems create a worldwide recession? Why would a poor hedge fund trade have such an impact on the US dollar system, much alone the rest of the world's currencies? The answers are both complex in terms of specific psychological reason (after all, money is merely a communication medium), yet startlingly straightforward in terms of economics.

Larger hedge funds were happy to purchase these segmented loans in order to collect interest on a piece of their assets held by another company. For a time, it was a good bet: smaller, less liquid businesses obtained much-needed loans, while larger, more established businesses got to earn tiny but compounding percentages on anticipated future earnings. It's a winner-take-all situation, baby. When one of those small debtors fails, like in the instance of a local default caused by some bad and over-leveraged mortgage plays, the larger businesses are left with the realized loss of their now-defaulted debt acquisitions.

But these days of wine-and-roses ponzis of repackaged, fractionalized debt-for-credit-now were enjoyed by the whole financial system, not just a tiny group of companies. The formerly robust and powerful tree had become a rotting log, with nasty, parasitic debtors and gluttonous, filthy creditors eating away at it from the inside. Defaults and bank runs were triggered by a system-wide dollar liquidity constraint, which in turn triggered a system-wide dollar liquidity crunch. A financial catastrophe precisely timed to coincide with the election of a Red and Blue president should ring a bell.

But in 2007, George W. Bush chose Ben Bernanke, who was later renominated by Barack Obama, to bail out a financial sector that had been caught off guard. The American banking sector went to the lender of last resort, the Federal Reserve, to produce liquidity by printing dollars, after gambling with homeowner's debt via fractional reserve margin bets. The bailouts benefited future money printing guru Steven Mnuchin, then of OneWest Bank, who collected enormous service fees and executive compensation for the exact people and businesses that created the recession in the first place.

The once-unifying financial protests gradually devolved into a polarized, nonpartisan culture conflict, with liberals blaming Bush and conservatives condemning Obama. When offered the chance to prosecute Mnuchin for the aforementioned fraud, then-acting DA of California and now-Vice President Kamala Harris rejected, and he went on to become Secretary Treasurer under President Trump just a decade later.

Why didn't enormous dollar inflation, from just under $1 trillion in 1971 to $10 trillion in 2012, put the economy to a halt and hand over economic reserve hegemony to China or Japan, our two largest debtors? The Federal Reserve was back to business as normal by the time millions of Americans lost their homes and the Occupy Wall Street movement faded away, increasing interest rates and restarting bond sales to foreign corporations, and eventually to itself. How did we manage to overcome the mechanics of an unbalanced money supply reducing demand?

The truth is that the US never fully abandoned an energy standard; instead, we just moved from a gold-backed to an oil-based currency system. The gold dollar was abolished by order in 1971, and the petrodollar was born in its place. American imperialism has worn various hats, both red and blue, but it has always had one goal in mind: to generate more money. Starting with the marines landing in Beirut in 1958, the Middle East action morphed into a Cold War proxy war in Afghanistan between the USSR and the US, and ultimately expanded into a full-scale occupation in the summer of 1990 with Bush Senior's directed invasion of Kuwait.

The United States imposed sole denomination of the market share of all petrol sales to international entities in dollars by conquering the region's oil-rich states. This enables the Fed to gradually increase our monetary supply over a 50-year period with no apparent loss of demand. Oil-dependent countries all throughout Eurasia were obliged to buy dollars first, then the valuable fuel they needed to expand their industries. The US dollar system had grown to $3 trillion USD by 1990.

So, why are we removing our military presence from the region at this time? In a time when retail has recognized inflation and a pandemic affects supply networks and labor forces throughout the world, it seems like an odd lever to give up. Why would we want to endanger our role as a world currency reserve by reducing our capacity to maintain demand for the dollar when global interest rates are near zero, and some are much lower? A ponzi scheme cannot simply be tapered, and we are now days away from hitting our debt ceiling and facing disaster.

We've always had a place to put that newly discovered debt expansion into the imposed needs of a currency system built on petroleum. What distinguishes this threat of default from the financial crisis of 2008? It's almost the same scenario, with a diverse, debt-ridden real estate market on the verge of defaulting, China's Evergreen playing the role of Lehman Brothers, and the global dollar system facing short-term deflationary pressure. More printing is expected to avoid China's real estate market from collapsing, as well as the United States from defaulting on its debt.

We can't just raise interest rates to cover the cost of debt payment, but with inflation expected to exceed the 2% target, the once-dominant long-term federal bond yields have rendered the $120 trillion dollar-denominated bond market virtually useless. If a bank purchased a significant number of 10-year bonds with the expectation of a 2% yield over ten years, their money is now locked in a position where it is no longer profitable.

For the first time in history, the relative bitcoin supply issuance was less than 2%, putting it below the average inflation of both gold flowing out of the earth and the average inflation of the US currency. Bitcoin has risen from little over $3,200 to over $65,000 at the same time the following year. A new financial instrument was created on that dark Thursday in March, despite the fact that relatively few people were aware of it at the time: the bitcoin-dollar.

Satoshi Nakamoto's Bitcoin was directly motivated by the events of 2008, with its first genesis block immortalizing The New York Times' headline from January 9, 2009. Today, we're once again on the verge of another bailout. The Fed's dot chart signaling of reducing bond purchases produces market retraction, and a Fed chair's explanation the next day promotes dovish reclaims of yesterday's all-time highs. If we raise interest rates, we will be unable to pay our debt; if we do not raise interest rates, we will enable additional debt expansion, monetary debasement, and the net dollar system's buying power to erode.

In retrospect, the dollarization of the first country to embrace bitcoin was unavoidable. El Salvador, the first country to accept bitcoin as legal currency, is one of the world's 66 dollarized countries. Not only are almost 70% of the population unbanked, but USD-denominated remittance payments account for nearly a quarter of the country's GDP. The usage of a stablecoin pegged to the dollar is included into their Chivo wallet, a Lightning-enabled software based on Jack Maller's Strike. In truth, Strike employs the frequently misunderstood Tether, or USDT, which is the most stable coin by market size at over $70 billion in a few countries.

We have effectively reproduced the identical, ever-present need for an expanding quantity of dollars seen in the petroldollar system by establishing an infrastructure on-ramp to Satoshi's protocol that is denominated in dollars. The U.S. market ensured that the value being infused into the now-disinflationary protocol would always be symbiotically connected to the dollar system by increasing the Tether market cap to $68.7 billion over the first dozen or so years of Bitcoin's life, when 83 percent of total supply was issued.

We replicated the petroldollar processes that allow the US economy to maintain net buying power despite monetary base growth. If a dollar-denominated stablecoin's peg goes below one-to-one, huge arbitrage possibilities for investors, bankers, and nation governments to get dollar-strength purchasing power for 99 cents on the dollar arise. When the supply of stablecoins grows faster than demand, people attempting to buy dollar-denominated commodities on bitcoin/USD pairings are obliged to sell at a little loss.

If the price of gold doubles, gold miners may send twice as many miners down the shaft, inflating supply twice as quickly and lowering demand and price. However, regardless of how many people mine bitcoin and how high the hash rate rises this month, the supply issuance stays at 6.25 bitcoin per block. Bitcoin is the only decentralized financial model now in use, therefore the concept of a "decentralized stable currency" is almost certainly a logical error.

Tether and its peers have pegged the short- and medium-term success of the bitcoin market to the dollar by creating a robust, heavily margined ecosystem sustained and overwhelmingly supported by inflows from dollar-denominated tokens; when bitcoin retracts, arbitrage opportunities now exist for the dollar system to inflate further into the hard-capped, ever-demanded monetary system. Since the energy-based bimetallic and oil standards of the past, this pendulum-like market mechanism has been a fundamental component of the most significant technical progress in banking. The advent of the bitcoin-dollar era has permanently altered the global economy.

Perhaps we should be less startled by this discovery than we are; there are several hints pointing to a government-encouraged and implied policy approach to the dollarization of bitcoin. For instance, the National Security Agency created SHA-256, one of the secure hashing algorithms used in the Bitcoin network. However, from a strictly financial and regulatory viewpoint, the United States stands to lose far more than the rest of the world if the reserve dollar system loses its purchasing power.

Would the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) allow American investors to transmit a significant portion of our retail GDP to an open-source network if there was no strategy in place to protect our purchasing power? Although none of these regulatory bodies has authorized an ETF, it allows businesses like MicroStrategy to take advantage of zero-interest rates and stockpile cheap debt in order to launch a speculative attack on the US currency system. The six figures of bitcoin they bought on their balance sheet are now worth billions of dollars, which has piqued the interest of their Langley Park neighbors.

Any bank seeking to hold a bitcoin or gold position on New Year's Day would also have to hold an equal-part dollar-denominated worth of their investments. Despite a loss of individual buying power owing to inflation, this creates a net demand for dollars in the dollar system. There will undoubtedly be a future regulatory reckoning in the unregistered security sales of centralized protocols with known human leadership, but even Gary Gensler, the now acting chairman of the Securities and Exchange Commission, has declared Bitcoin and Nakamoto's innovation to be "something real."

During the increasingly critical first decade of tokenized supply issuance, pegging this new energy remittance market to the dollar has irrevocably tied the destiny of the dollar's purchasing power to the store of value qualities of bitcoin. The United States has demonstrated time and time again that it would go to any length to defend the dollar's purchasing power. The bitcoin-dollar is just the next step in the evolution of the energy-capital system required for a global economy to function.