Author: Avik Roy, Bitcoin Magazine; Compiled by: Five Baht, Golden Finance

Foreword

Scholars debate whether it was Mahatma Gandhi who first said: “First they ignore you, then they laugh at you, then they Fight with you and you win.” Indisputably, Bitcoin advocates have adopted this motto as their own.

Bitcoin supporters generally predict that at some point, Bitcoin will replace the U.S. dollar as the world's primary store of value. [1] Less discussed is the fundamental question of how exactly this transition will occur, and what risks may exist along the way, especially if fiat currency issuers choose to fight back against challenges to their monetary monopoly.

Will the United States and other Western countries be willing to adapt to the emerging Bitcoin standard, or will they adopt restrictive measures to prevent the replacement of fiat currencies? If Bitcoin does surpass the U.S. dollar to become the world’s most widely used medium of exchange, will the transition from the U.S. dollar to Bitcoin be as peaceful and benign as the evolution from Blockbuster Video to Netflix? Or will it be as violent and destructive as Weimar Germany and the Great Depression? Or somewhere in between?

These questions are not just of theoretical interest. If Bitcoin is to emerge from the potentially turbulent times ahead, the Bitcoin community will need to think carefully about how it can adapt to future conditions and how best to achieve the most peaceful and least disruptive economic transition to once again be built on sound monetary foundations economy.

In particular, we must take into account the vulnerability of those with income and wealth below the affluent median - who may not be able to save enough to protect themselves at current and future Bitcoin prices Protect yourself from upcoming economic challenges. “Staying poor is fun,” some Bitcoin supporters retort to their skeptics on social media. But in a real economic crisis, poor people don't have fun. The failure of fiat-based finance will hurt most those who rely most on spending to maintain economic security. In a democratic society, populists in various fields will have strong incentives to stimulate the dissatisfaction of the non-Bitcoin holder majority against the Bitcoin holder elite.

Of course, it is difficult to predict exactly how the United States would respond to a hypothetical fiscal and monetary collapse in the coming decades. But potential scenarios can be broadly grouped in terms of being relatively negative, neutral, or positive for society as a whole. In this article, I describe three such scenarios: a restrictive scenario, in which the United States attempts to actively restrict economic freedoms to stifle competition between the dollar and Bitcoin; a paralyzing scenario, in which partisanship, ideology, and special interests conflict paralysis, limiting its ability to improve U.S. fiscal conditions or prevent the rise of Bitcoin; and a generous scenario in which the U.S. incorporates Bitcoin into its monetary system and restores fiscal soundness. I project these scenarios based on the high likelihood of a fiscal and monetary crisis in the United States in 2044.

AlthoughWhile these situations may also occur in other parts of the West, I focus here on the United States because the U.S. dollar is the reserve currency of the world today, so the U.S. response to Bitcoin is particularly important.

The Coming Fiscal and Monetary Crisis

We know enough about the fiscal trajectory of the United States to conclude that if the federation fails to change course, not only is a major crisis likely by 2044, And it's likely to happen. In 2024, interest on the federal debt will exceed defense spending for the first time in modern history. The Congressional Budget Office (CBO)—the Legislature’s official, nonpartisan fiscal scorekeeper—projects that federal debt held by the public will be about $84 trillion, or 139% of gross product, by 2044. This represents an increase of $28 trillion in 2024, or 99% of GDP. [2]

CBO’s forecast makes some optimistic assumptions about the country’s fiscal position in 2044. In its latest forecast at the time of this publication, CBO assumes that the U.S. economy will grow at a robust 3.6% annually through 2044, that the U.S. will still be able to borrow at a prime rate of 3.6% through 2044, and that Congress will not pass anything that would lead to fiscal Laws that have worsened (for example, during the COVID-19 pandemic). [3]

The Congressional Budget Office understands that its forecast is optimistic. In May 2024, it published an analysis of how several alternative economic scenarios would affect the debt-to-GDP ratio. The first scenario, in which interest rates rise 5 basis points (0.05%) annually above the CBO's benchmark, would result in debt reaching $93 trillion, or 156% of GDP, in 2044. An alternative scenario is that federal tax revenues and spending continue to remain at historic levels as a share of GDP (e.g., due to the continuation of so-called temporary tax relief and spending programs), resulting in a debt of $118 trillion in 2044, a share of GDP 203%. [4]

But a combination of factors makes it clear how dire the future has become. If we adopt the Congressional Budget Office's high interest rate scenario, in which interest rates increase by 5 basis points per year and then gradually reduce GDP growth from that level, so that nominal GDP growth in 2044 falls from 3.6% to 2.8%, then the 2044 Debt will reach $156 trillion, equivalent to 288% of GDP. By 2054, debt will reach $441 trillion, accounting for 635% of GDP (see Figure 1).

The Congressional Budget Office's forecast for federal debt is very optimistic

(Debt to GDP ratio, CBO baseline and alternative scenarios, %)

Figure 1. U.S. debt-to-GDP ratio: Alternative scenarios

In this scenario of rising interest rates and slower economic growth, by 2044, the United States would pay $6.9 trillion in interest, accounting for nearly half of federal tax revenue. But just as we cannot assume that economic growth will remain high over the next two decades, we cannot assume that demand for U.S. debt will remain stable. At some point, America will run out of other people's money. Credit Suisse estimates global household wealth, defined as the value of financial and real estate assets net of debt, at $454 trillion in 2022. [5] Not all wealth can be lent to the United States. In fact, the share of U.S. Treasury securities held by foreign and international investors has been steadily declining since the 2008 financial crisis. [6] While the demand for Treasury bonds has declined proportionally, the supply of Treasury bonds has steadily increased (see Figure 2). [7]

Foreigners are reducing loans to the United States

(National debt has declined since 2008 shareholding ratio)

Figure 2. Ownership of U.S. Treasury bonds

In the unregulated bond market , falling demand and rising supply should cause bond prices to fall, meaning interest rates rise. However, the Federal Reserve has intervened in the Treasury market to ensure that interest rates remain below normal levels. The Fed does this by printing new dollars out of thin air and using them to buy Treasury bonds that the broader market refuses to buy. [8] In fact, the Fed believes that monetary inflation (i.e., rapidly increasing the number of dollars in circulation) is a more acceptable outcome than allowing interest rates to rise as creditworthiness declines.

This situation is unsustainable. Economist Paul Winfree, using a methodology developed by researchers at the International Monetary Fund,[9] estimates that “the federation will begin to run out of fiscal space, or its ability to take on additional debt, to respond to adverse events” over the next 15 years—also That is until 2039. He further noted that "interest rates and underlying (GDP) growth are the most important factors" that will influence his forecast.

For the purposes of our preview, let us assume that the United States will experience fiscal and monetary failure in 2044, a major economic crisis characterized by rising interest rates (caused by the market's lack of interest in purchasing Treasury bonds) and High consumer price inflation (brought about by rapid monetary inflation). Over the course of these two decades, we also imagine that Bitcoin’s value gradually increases to the point where Bitcoin’s liquidity, measured by total market capitalization, becomes competitive with U.S. Treasuries. Competitive liquidity is important because it meansLarge institutions such as the National Bank can purchase Bitcoin on a large scale without unduly disrupting its price. Based on the behavior of traditional financial markets, I estimate that Bitcoin will reach a state of competitive liquidity with U.S. Treasuries when its market capitalization is approximately equal to one-fifth of federal debt held by the public. Based on my estimate of federal debt of $156 trillion in 2044, this equates to a Bitcoin market capitalization of about $31 trillion, which equates to a price per Bitcoin of $1.5 million, which is about the price of Bitcoin’s peak price in the first half of 2024 20 times.

This is by no means an unrealistic scenario. From August 2017 to April 2021, in less than four years, Bitcoin appreciated by a considerable multiple. [11] Bitcoin has previously appreciated by similar multiples on many other occasions. [12] If anything, my forecast for U.S. federal debt growth is conservative. So, let’s imagine further that by 2044, Bitcoin will become a well-known mainstream asset. A young man who turned 18 in 2008 will celebrate his 54th birthday in 2044. By 2044, more than half of the U.S. population will have lived with Bitcoin their entire adult lives. By then, a robust ecosystem of financial products, including lending, may have been built on the Bitcoin base layer. Finally, let us speculate that in this case inflation has reached 50% per year. (This figure is between the over 100% inflation rates in Argentina and Turkey in 2023 and the nearly 15% inflation rate in the United States in 1980.) In 2044, in this scenario, the United States will In crisis. A rapid depreciation of the dollar would result in a sudden drop in demand for Treasury securities, with no obvious way out. If Congress adopts extreme austerity measures—such as cutting spending on entitlements and entitlement programs—its members could be driven out of office. If the Fed raises interest rates enough to sustain investor demand—say, more than 30%—financial markets will collapse, and so will the credit-fueled economy, just as they did in 1929. But if the Fed allows inflation to rise further, it will only accelerate its exit from Treasuries and the dollar.

How will the United States respond in this situation? How will it treat Bitcoin? Next, I consider three scenarios. First, I consider a restrictive scenario in which the United States attempts to use coercion to block Bitcoin as a competitor to the U.S. dollar. Second, I discuss a paralyzing situation in which division and economic weakness paralyze the United States, preventing it from taking meaningful steps for or against Bitcoin. Finally, I considered a generous scenario in which the United States eventually pegs the value of the U.S. dollar to Bitcoin, restoring fiscal and monetary soundness. (See Figure 3.)

Figure 3. Three fiscal scenarios for the United StatesScenario

1. Restrictive Scenario

Throughout history, the most common response to currency devaluation has been to force its citizens to use and hold that currency rather than a more sound alternative, a phenomenon known as financial repression . Other economic restrictions, such as price controls, capital controls, and confiscatory taxes, are often adopted to maintain fiscal and monetary deficiencies. [13] It is possible, even likely, that the United States will respond similarly to the coming crisis.

Price Control

In 301 AD, the Roman Emperor Diocletian issued the "dictum de Pretiis Rerum venalim" (dictum de Pretiis Rerum venalim) in an attempt to solve the problem in Rome. Inflation problems caused by the long-term devaluation of the currency denarius for 500 years. Diocletian's decree imposed price ceilings on more than 1,200 goods and services, including wages, food, clothing, and freight. Diocletian blamed rising prices not on the extravagant consumption of the Roman Empire, but on "unprincipled and dissolute men, who think that avarice has some obligation..." to the destruction of everyone's wealth.

Such behavior has existed throughout history and into modern times. In 1971, President Richard Nixon, reacting to the imminent collapse of U.S. gold reserves, unilaterally abolished the dollar's peg to thirty-five ounces of gold and ordered a 90-day freeze on "all prices and wages throughout the United States." [16] Nixon, like Diocletian and many other rulers in between, did not blame fiscal or monetary responses to the dilemma, but rather "international currency speculators" who "had been waging an all-out war against the dollar." [17]

Even mainstream economists have convincingly shown that price controls on goods and services do not work. [18] This is because if producers are forced to sell goods and services at a loss, production will cease, resulting in shortages. But price controls remain a continuing temptation for households because many consumers believe that price controls will protect them from the effects of inflation (at least in the short term). Since 2008, the Fed has imposed increasingly tight controls on what economic historian James Grant calls "the most important price in capital markets": the price of money reflected in interest rates. [19] As mentioned above, the Federal Reserve can effectively control Treasury interest rates by acting as the primary buyer and seller of Treasury securities in the open market. (When a bond's price rises due to more buying than selling, the interest rate implied by its price falls, and vice versa.) In turn, the interest rates used by financial institutions and consumers are largely influenced by the interest rates on Treasury bonds. Impact, notes and notes. Before the 2008 financial crisis, the Fed used this authority on only a small subset of short-term Treasury securities. But then, under Chairman Ben Bernanke, the Fed began to use its powersThe government has become more aggressive in controlling interest rates across the economy. [20]

Capital controls

Price controls are only one of the tools to control currency crises. Another is capital controls, which prevent the local currency from being convertible into another currency or reserve assets.

In 1933, during the Great Depression, President Franklin Delano Roosevelt (commonly known as FDR) deployed a World War I-era regulation that prohibited Americans from fleeing the dollar to purchase gold. His Executive Order 6102 banned Americans from owning gold coins, bars and certificates and required people to surrender their gold to the United States in exchange for $20.67 per troy ounce. [21] Nine months later, Congress devalued the U.S. dollar by changing the price per troy ounce to $35.00, effectively forcing Americans to accept an immediate 41% devaluation of their savings while preventing them from using higher stores of value. to escape depreciation. [22]

Capital controls are far from a historical relic. Argentina has historically banned its citizens from converting more than $200 worth of Argentine pesos into U.S. dollars each month, ostensibly to slow the decline in the peso's value. [23]

Mainstream economists increasingly view these modern examples of capital controls as successful. The IMF, born out of the 1944 Bretton Woods Agreement, has long voiced its opposition to capital controls, largely at the behest of the United States, which benefits from the global use of the dollar. But in 2022, the IMF revised its “institutional view” on capital controls, declaring them an “appropriate tool for the management of…” . . Address risks in a manner that maintains macroeconomic and financial stability. ”[25]

In my restrictive 2044 scenario, the United States uses capital controls to prevent Americans from fleeing the dollar to buy Bitcoin. The federation can achieve this goal in a number of ways:

Announced a temporary but eventually permanent suspension of USD-Bitcoin exchanges and forced conversion of all Bitcoin assets held on cryptocurrency exchanges to USD at a fixed exchange rate (according to my prediction Bitcoin liquidity is the same as Treasuries). Competitive market price of approximately 150 per Bitcoin million, but there is no guarantee of forced conversion at market rates)

Businesses in U.S. jurisdictions are prohibited from holding Bitcoin on their balance sheets and accepting Bitcoin as payment.

Liquidating Bitcoin by forcing Bitcoin exchange-traded funds (ETFs) to convert their holdings into U.S. dollars at a fixed exchange rate

Requiring Bitcoin custodians to transfer funds to the United States at a fixed exchange rate. Sell ​​Bitcoin.

Require those who self-custody their Bitcoin to sell it at a fixed exchange rate.

Introduce a central bank digital currency to fully monitor all USD transactions and ensure that none are traded. Being used to buy Bitcoin

The United States is unlikely to successfully execute all of these strategies.. In particular, the United States will not be able to force everyone who self-custody Bitcoin to hand over their private keys. But many law-abiding citizens would likely comply with such a directive. However, this would be a Pyrrhic victory for the pair: imposing capital controls would lead to a further decline in confidence in the U.S. dollar, and the cost to the U.S. of purchasing all Bitcoin held in custody by U.S. citizens and residents could exceed $10 trillion, further weakening the U.S. fiscal position. Nonetheless, under restricted circumstances it can be concluded that these are the least bad options.

No Taxes

The United States can also use taxes to limit the use of Bitcoin and thus limit its adoption.

In a world where Bitcoin is equivalent to $1.5 million, many of America's wealthiest people will be early adopters of Bitcoin. Tech entrepreneur Balaji Srinivasan estimates that at a price of $1 million per Bitcoin, the number of Bitcoin billionaires will begin to exceed the number of fiat billionaires. [26] However, this does not mean that the distribution of wealth among Bitcoin owners will be more equal than the distribution of wealth among owners of fiat currencies today.

Less than 2% of all Bitcoin addresses contain more than 1 Bitcoin, and less than 0.3% contain more than 10 Bitcoin. The top 0.3% of addresses own over 82% of all Bitcoins in existence. [27] (See Figure 4.) Given that many people control multiple wallets, and even considering that some of the largest Bitcoin addresses belong to cryptocurrency exchanges, these numbers likely underestimate Bitcoin wealth concentration. They perform poorly compared to the distribution of fiat wealth in the United States; in 2019, the top 1% held only 34% of all fiat wealth in the United States. [28]

If Bitcoin ownership remains similarly distributed in 2044, those left behind by this monetary revolution—including the disenfranchised elites of the previous era—will not go quietly disappear. Many will decry Bitcoin wealth inequality driven by anti-American speculators and seek to enact regulations that limit the economic power of Bitcoin owners.

Figure 4. Bitcoin ownership distribution

In 2021, there are rumors that Treasury Secretary Janet. Yellen proposed to President Joe Biden an 80% tax on cryptocurrency capital gains, which would be a significant increase from the current top long-term capital gains tax rate of 23.8%. [29] In 2022, President Biden proposed taxing unrealized capital gains, which are increases in the book value of assets that the holder has not sold, following a proposal from Massachusetts Senator Elizabeth Warren. [30] This would be an unprecedented move because it would require people to pay taxes on their unearned income.

For a long time, people have believed that theCurrent capital gains taxation violates the U.S. Constitution because unrealized capital gains do not meet the legal definition of income, and Article I of the Constitution requires that non-income taxes must be levied in proportion to each state's population. [31] A recent case before the Supreme Court is Moore v. The United States gave the court an opportunity to state its position on the issue; it declined to do so. [32] Therefore, it is highly likely that a future Congress, with the support of a future Supreme Court, will agree to tax unrealized capital gains, especially cryptocurrency gains.

Furthermore, a president who dislikes the existing Supreme Court's interpretation of the Constitution could simply pack the court to secure a more favorable ruling. Roosevelt threatened to do so in the 1930s. The conservative Supreme Court of the time generally ruled that Roosevelt's economic interventions were unconstitutional. In 1937, Roosevelt responded by threatening to appoint six new justices to the existing nine Supreme Court justices. Although he was eventually forced to withdraw his court-filling proposals, the Supreme Court was sufficiently intimidated and began rapidly approving New Deal legislation. [33]

One unique aspect of U.S. taxation is that U.S. citizens living abroad are still subject to U.S. income and capital gains taxes, as well as the taxes they pay in their country of residence. (In all other advanced economies, expats pay tax only once, depending on where they live. For example, a Frenchman living and working in Belgium pays Belgian rates, not French rates, while an American in Belgium pays both Belgian and U.S. rate tax.) This creates perverse incentives for Americans living abroad to renounce their U.S. citizenship. Thousands of Americans do this every year. However, they must first obtain approval from a U.S. embassy abroad and pay taxes on any unrealized capital gains. In the context of the U.S. Treasury's lack of revenue constraints, it's easy to imagine suspending Americans' ability to renounce citizenship to ensure that an expatriate's income remains taxable regardless of where they live.

Fiscal Constraints on the Right

While many of the above restrictions were proposed by politicians affiliated with the Democratic Party, Republican officials and representatives may be equally willing to fuel populist dissatisfaction with the Bitcoin elite by 2044. The United States has become the home of a powerful movement by American and European intellectuals who are building a new ideology widely known as conservatism, in which the suppression of individual rights in the name of profit is acceptable. [34] For example, some conservatives advocate currency and taxation to protect the U.S. dollar from Bitcoin, even at the expense of personal property rights. [35]

A few weeks after the terrorist attacks of September 11, 2001, the USA PATRIOT Act passed overwhelmingly in both chambers. The bill, signed into law by Republican President George W. Bush, includes numerous provisions aimed at combating the financing of international terrorism and crime. In particular, tightened anti-money laundering and know-your-customer rules, as well as for foreign bank account holdersReporting requirements. [36]

The Patriot Act may help reduce the risk of terrorism against the United States, but it does so at a huge cost of economic freedom, especially for American expatriates and others with personal or business interests. Reasons for people using non-US bank accounts. Just as Roosevelt used World War I laws to confiscate gold held by Americans, by 2044 any party with restrictions will find many of the Patriot Act’s tools useful for suppressing Bitcoin ownership and use.

The End of Excessive Privilege in the United States

Bitcoin is designed to be very resilient; its decentralized network is likely to continue to function well despite countries imposing restrictions on its use.

If we assume that half of the world’s Bitcoins are owned by Americans, and further assume that 80% of US Bitcoins are held by early adopters and other large holders, then the majority of this 80% Most likely already protected from forfeiture and offshore contingency plans through self-hosting. Capital controls and restrictions may cause U.S. institutional Bitcoin trading volumes to collapse, but much of the volume will likely shift to decentralized exchanges or less restrictive jurisdictions outside the United States.

The fiscal failure of the United States in 2044 will inevitably be accompanied by the weakening of U.S. military power, because this power is based on defense spending funded by huge deficits. Therefore, by 2044, the United States will not be able to impose its economic will on other countries as it does today. Smaller ones such as Singapore and El Salvador could choose to welcome Bitcoin-based capital that the United States rejects. [38] Of course, the massive departure of Bitcoin-based wealth from the United States will make the United States poorer and further reduce the United States’ ability to fund its spending obligations.

Furthermore, U.S. restrictions on the utility of Bitcoin are not enough to convince foreign investors that U.S. Treasuries are worth holding. United States The main way to increase the attractiveness of investing in U.S. bonds is for the Federal Reserve to significantly raise interest rates, since higher interest rates equate to higher Treasury yields. But this, in turn, will increase the cost of financing federal debt and accelerate the U.S. fiscal crisis.

Eventually, foreign investors may require the United States to denominated its bonds in Bitcoin or in a Bitcoin-backed foreign currency as a prerequisite for further investment. The major change would end what former French Finance Minister and President Valery Giscard d'Estaing called an exorbitant U.S. prerogative: the longstanding ability of the U.S. to borrow in its own currency, which has allowed the U.S. to reduce debt by reducing the value of its debt. [39]

If U.S. bonds were denominated in Bitcoin, the United States would be forced to borrow money like no other: in currency not made in the country. By Bitcoin standards, future dollar depreciation will increase, not decrease, the value of the U.S. debt to its creditors. U.S. creditors - the holders of U.S. bonds - will be able to demand a variety of austerity measures, such as requiring the U.S. to eliminate its budget deficit through significant tax increases and spending cuts in areas such as Medicare, Social Security, and defense.

A significant reduction in the United States' ability to fund its military will have far-reaching geopolitical consequences. A century ago, when the United States replaced Britain as the world's leading power, the shift was relatively modest. We cannot guarantee that future transitions will proceed in the same manner. Historically, the multipolar environment of great power competition has often been the source of world wars. [40]

2. Paralysis scene

In medicine, paralysis is a form of paralysis accompanied by involuntary tremors. This term accurately describes my second scenario, in which the macroeconomic shock accompanying Bitcoin’s rise in the United States combines with partisan polarization, bureaucratic conflict, and the erosion of American power. In this paralyzed situation, the United States is unable to take positive action against Bitcoin, but it is also unable to get its finances in order.

Today, partisan polarization in the United States is at its modern heights. [41] Republicans and Democrats are increasingly classified according to cultural factors: Republicans are more likely to be rural, high school educated, and white; Democrats are more likely to be urban, college educated, and nonwhite. Independents, who now make up the majority of the electorate, are forced to choose between general election candidates selected by Republican and Democratic base voters in partisan primaries. [42]

While we can hope that these trends will reverse over time, there is reason to believe that they will not. Among other factors, the accelerated development of software capabilities to manipulate behavior at scale, including artificial intelligence, (despite their promise) poses significant risks to the field. The potential for deepfakes and other forms of mass deception could reduce trust in political parties, elections, and institutions while further fragmenting the American environment into smaller subcultural communities. The cumulative effect of this fragmentation is likely to be an inability to reach consensus on most issues, let alone contentious issues such as reducing federal welfare spending.

Under this paralysis, the United States will be unable to implement most of the restrictions described in the previous section in 2044. For example, paralysis could prevent Congress and the Federal Reserve from developing a central bank digital currency due to staunch opposition from activists, especially depository banking institutions, who rightly see such currencies as a mortal threat to their business models. (Retail central bank digital currencies eliminate the need for individuals and businesses to deposit money in banks because they can hold accounts directly with the Federal Reserve.)[43]

Again, amid this paralysis, Congress There will be no confiscation tax on Bitcoin holders and the wealthy more broadly in 2044. Congress has failed to enact these for the same reasons it has failed to implement so far: concerns about the constitutionality of such taxes; opposition from powerful economic interests; and a recognition that a direct attack on Bitcoin-based capital would flow overseas, thereby harming the United States.

This paralyzing scenario is not a liberal utopia, however. In this case, the federation would retain the ability to regulate centralized exchanges, ETFs, and other financial services that facilitate the exchange of U.S. dollars for Bitcoin. If the United States holdsThe majority of Bitcoin is owned through ETFs, and federal regulators will maintain restrictions on the ability of Bitcoin ETF securities to be converted into actual Bitcoin, severely limiting capital outflows from U.S.-controlled products.

Most importantly, however, partisan paralysis means Congress will be unable to solve America’s fiscal crisis. Congress will lack the votes for welfare reform or other spending cuts. Federal spending will continue to grow so rapidly through 2044 that no tax revenue will be able to keep up.

Under a paralyzing scenario, Americans holding Bitcoin would be better protected from intervention than under a restrictive scenario. For example, they don’t have to flee the country to own Bitcoin. This suggests that a large portion of the Bitcoin community, including individuals and entrepreneurs, will remain in the United States and may become an economically powerful constituency. But the institutional environment in which they live and work will become dysfunctional. Anti-Bitcoin framers and pro-Bitcoin donors may end up in a deadlock.

As in the restrictive scenario, in the paralysis scenario, the failure of the dollar-denominated Treasury market could force the United States to eventually restore its fiscal order. In both cases, creditors are likely to require the Treasury to issue debt securities backed by hard assets. By 2044, Bitcoin will have been proven for more than three decades as a superior store of value, and the U.S. Bitcoin community will be well-positioned to help the United States adapt to the new environment.

3. The Generosity Scenario

The Generosity Scenario is both the least intuitive and the most optimistic scenario for the United States in 2044. In the generous scenario, U.S. framers respond to fiscal and monetary crises in 2044 by acting aggressively to stay ahead of the curve, rather than being forced to react to forces ostensibly outside their control.

A generous scenario would be for the United States to do something similar in 2044 to what El Salvador did in 2019 or Argentina in 2023, when these elected Nayib Bukele and Javier Mire respectively serve as president. Although Bukele and Milei are different leaders with different philosophies, they both clearly expressed their support for Bitcoin. Bukele established Bitcoin as El Salvador’s legal tender[44], while Milei promised to replace Argentina with the US dollar while legalizing it. Peso [45] Bitcoin. [46] Milley also used presidential powers to drastically cut Argentina's inflation-adjusted public spending, thereby achieving a primary budget surplus. [47]

Imagine that in November 2044, the United States elected a dynamic, pro-Bitcoin president who pledged to adopt Bitcoin as a legal tender alongside the U.S. dollar (per Blakely way), and working with Treasury holders to reduce America’s debt burden (in the Milley way). One could imagine a grand fiscal deal: U.S. Treasury bond holders accept a one-time partial default in exchange for Medicare and Social Security reforms, and agree to future payments in Bitcoin.Holding USD, it is pegged to the U.S. dollar at 67 satoshis (i.e. $1.5 million per Bitcoin). Bondholders may be willing to accept a partial default in exchange for significant U.S. reforms that put a sustainable fiscal and monetary footing for the future.

Such reforms do not need to punish the elderly and other vulnerable groups. A growing body of research shows that fiscal solvency does not necessarily conflict with social welfare. For example, the Equal Opportunity Research Foundation released a health care reform plan introduced in 2020 by Arkansas Rep. Bruce Westerman and Indiana Sen. Mike Braun, called Equitable Care bill". The plan would reduce the deficit by more than $10 trillion over 30 years and make the health care system fiscally solvent while achieving universal coverage. The bill accomplishes this goal primarily in two ways: First, it Subsidies are means-tested so that taxpayers only fund the health care costs of the poor and middle class, not the rich. Second, it reduces the cost of health care subsidies by stimulating competition and innovation. In these ways, the proposal increases the economic security of low-income Americans while also increasing the federal fiscal sustainability.

Similarly, the United States could reform Social Security by switching the Social Security Trust Fund from Treasury bonds to Bitcoin (or Treasury bonds denominated in Bitcoin). [49] This idea was less practical during the high-volatility era of Bitcoin’s early history, but by 2044 Bitcoin may be more stable against the US dollar. Bitcoin trading has matured post-ETF as large financial institutions have introduced traditional hedging practices to the asset, significantly reducing Bitcoin’s price volatility in U.S. dollars. Soon, Bitcoin’s price fluctuations may resemble those of stable assets like gold. By mortgaging Social Security with Bitcoin, the United States can ensure that Social Security lives up to its name and provides American retirees with real financial security during their golden years.

The generous scene has additional benefits. The United States can help the twenty-first century become another American century by aligning directly with Bitcoin’s monetary principles. America's entrepreneurial culture combined with a sound currency could lead to an unprecedented era of economic growth and prosperity for the United States. But this will require U.S. leaders to put their long-term interests ahead of short-term temptations.

References:

[1] Views generally held by academic economists Yes, to be considered money, it must function as a store of value, a medium of exchange, and a unit of account. These characteristics of money are not binary but exist on a continuum. Some forms of money are better stores of value, while other forms of money may be more widely used in trade and commerce. The emergence of Bitcoin as the primary store of value is the most important development because this is where fiat currencies do the worst. See FriedrichFriedrich Hayek, Demonetization, 2nd ed. (London: Archive Books, 1977), 56-57.

[2] Congressional Budget Office, "Long-term Budget Outlook: 2024 to 2054," March 20, 2024, https://www.cbo .gov/publication/59711.

[3] Congressional Budget Office, "Long-term Economic Forecasts," March 2024, https://www.cbo.gov/system/files/2024 -03/57054-2024-03-LTBO-econ.xlsx.

[4] Congressional Budget Office, "Long-term Budget Outlook Under Economic and Budgetary Alternatives," May 21, 2024, https://www. cbo.gov/publication/60169.

[5] Credit Suisse AG, “Credit Suisse Global Wealth Report 2023,” accessed June 16, 2024, https://www.credit -suisse.com/about-us/en/reports-research/global-wealth-report. html.

[6] Avik Roy, "Bitcoin and U.S. Fiscal Accounting," Affairs, Fall 2021. https://nationalaffairs.com/publications/detail /bitcoin-and-the-us-fiscal-ackoning.

[7] Federal Reserve Bank of St. Louis, "Federal Debt Holdings by the Federal Reserve Banks." , June 2024 Accessed 16, https://fred.stlouisfed.org/graph/?g=jwFo.

[8] Lowell R. Ricketts, “Quantitative Easing Explained. ”, Federal Reserve Bank of St. Louis, vol. St. Louis, accessed June 16, 2024, https://files.stlouisfed.org/files/htdocs/pageone-economics/uploads/newsletter/2011/201104.pdf.

[9] Atish R. Ghosh et al., "Fiscal Fatigue, Fiscal Space, and Debt Sustainability in Advanced Economies," Economic Journal 123, No. 1 Expect. 566 (February 2013): F4–F30, https://onlinelibrary.wiley.com/doi/full/10.1111/ecoj.12010.

[10] Paul Winfree, "The Looming Debt Spiral: Analyzing the Erosion of U.S. Debt." Fiscal Space,” March 5, 2024, https://epicforamerica.org/wp-content/uploads/2024/03/Fiscal-Space-March-2024.pdf.

[11] Coinmarketcap.com, "Bitcoin Price Today," June 16, 2024 Accessed daily, https://coinmarketcap.com/currencies/bitcoin/

[12] Coinmarketcap.com, "Bitcoin Price Today"

[13] Ray Dalio, Principles for Coping with the Great Debt Crisis (Westport, CT: Bridgewater, 2018)

[14] About B.C. When the dinar was introduced in 211 AD, it contained approximately 4.5 grams of silver. In AD 64, the Roman emperor Nero reduced the amount of silver to 3.5 grams. By the time of Diocletian's reign, there was almost no silver in the dinar. Silver was eliminated and currency was abolished. For further reading on ancient Roman hyperinflation, see H. J. Haskell, The New Deal in Old Rome: How the Ancient World Dealed with Modern Problems (New York: Alfred A. Knopf, 1947).

[15] Antony Kropff, "Maximum Price Decree in English"Translation, also known as Diocletian’s Price Edict,” 27 April 2016, https://kark.uib.no/antikk/dias/priceedict.pdf.

[16] Richard M. Nixon, "Speech Outlining the New Economy", August 15, 1971 Day, https://www.presidency.ucsb.edu/documents/address-the-nation-outlined-new-economic - -Challenge-Peace

[17] Richard M. Nixon, "Remarks to the Public"

[18] Vernon Smith and Arlington. Williams, "On Nonbinding Price Controls in Competitive Markets," American Economic Review 71: 467-74

[19] Swen Lorenz, " 3 Lessons I Learned from Wall Street’s Cult Hero Jim Grant,” accessed July 5, 2024, https://www.undervalued-shares.com/weekly-dispatches/3-lessons-i-to-Wall Street Hero Jim Grant Learning/.

[20] Avik Roy, "Bitcoin and U.S. Fiscal Accounting," Affairs, Fall 2021.

[21] United States Congress, "Gold Standard Act of 1900," accessed June 16, 2024, https://www2.econ.iastate.edu /classes/econ355/choi/1900mar14.html.

[22] Gary Richardson, Alejandro Komai, and Michael Gou, "Gold Reserve Act 1934," accessed June 16, 2024, https://www .federalreservehistory.org/essays/gold-reserve-act.

[23] Fitch Ratings, "Overview of Argentina's Capital Controls (Historical and Recent Impact on Businesses)", April 6, 2021, https:/ /www.fitch ratings.com/research/corporate-finance/overview-of-argentine-capital - The recent impact of control history on the business - June 4, 2021.

[24] Robert Kahn, "The Case for Capital Controls," Council on Foreign Relations, February 2016, https://www.cfr.org/ sites/default/files/pdf/2016/02/February%202016%20GEM.pdf.

[25] International Monetary Fund, “Executive Board concludes review of liberalization of capital flows and regulatory agency perspectives”, press release, March 30, 2022 day. https://www.imf.org/en/News/Articles/2022/03/30/pr2297-executive-board-concludes-the-review-of-the-institutional-view-on-capital-flows.

[26] Balaji Srinivasan, “The Billionaire Flip,” February 5, 2021, https://balajis.com/p/the-billionaire -flippening.

[27] "Bitcoin Richest List", accessed July 7, 2024, https://bitinfocharts.com/top-100-richest-bitcoin -addresses.html.

[28] Congressional Budget Office, "Trends in Household Wealth Distribution, 1989 to 2019", September 27, 2022, https://www.cbo .gov/publication/57598.

[29]William White, "80% Cryptocurrency Capital Gains Tax? 15 Things We Know About the Rumor," Yahoo! Finance, 23 April 2021, https://finance.yahoo.com/news/80-crypto-capital-gains-tax-153027836.html#.

[30] Garrett Watson and Erica York, "Proposed minimum tax on capital gains for billionaires takes tax law in the wrong direction," Tax Foundation, 2022 3 March 30, https://taxfoundation.org/blog/biden-billionaire-tax-unrealized-capital-gains/.

[31] Steven Calabresi, "Taxing wealth and unrealized capital gains is unconstitutional," Reason, October 11, 2023, https:/ /reason.com/volokh/2023/10/11/taxes-on-wealth-and-on the unconstitutionality of unrealized capital gains/.

[32] Wall Street Journal Editorial Board, "Supreme Court Wrong on Wealth Tax," Wall Street Journal, June 20, 2024, https://www.wsj.com/articles/moore-v-u-s-supreme-court-mandatory-repatriation-tax-brett-kavanaugh-amy-coney-barrett-23d99510.

[33] Charles Lipson, "Court Crowding Then and Now", Discourse, April 21, 2021, https ://www.discoursemagazine.com/p/packing-the-court-then-and-now.

[34] Avik Roy, "Liberal conservatism is different, and that matters", Commentary, July 18, 2023, https: //www.nationalreview.com/2023/07/freedom-conservatism-is-different-and-that-matter/.

[35] Peter Ryan, "Is Bitcoin 'America First'?" American Conservative, February 13, 2024, https://www .theamericanconservative.com/is-bitcoin-america-first/.

[36] USA Patriot Act of 2001, Congress.gov, accessed June 16, 2024, https://www.congress.gov/107 /plaws/publ56/PLAW-107publ56.htm.

[37] Ryan Browne, CNBC.com, May 18, 2022, https://www.cnbc.com/2022/05/18/ china-is-second-biggest-bitcoin-mining-hub-as-miners-go-underground.html.

[38] Some Bitcoin-based wealth may be denominated in fiat currency, such as that of digital asset exchanges such as Coinbase and Bitcoin mining companies such as Marathon Digital Holdings equity.

[39] Barry Eichengreen, Exorbitant Privilege: The Rise and Fall of the Dollar and the Future of the International Monetary System (Oxford: Oxford University Press, 2011) .

[40] Donald Kagan, The Origins of War: and the Maintenance of Peace (New York: Anchor, 1996).

[41] Ezra Klein, Why We Are Polarized (New York: Simon & Schuster, 2020).

[42] Nick Troiano, Primary Solutions: Saving Our Democracy from the Brink (New York: Simon& Schuster, 2024).

[43] Avik Roy, "There is no such thing as a 'U.S.-style' central bank digital currency," Forbes, April 12, 2023, https:/ /www.forbes.com/sites/theapothecary/2023/04/12/theres-no-such-thing-as-an-american-style-central-bank-digital-currency/.

[44] Avik Roy, “El Salvador enacts Bitcoin law, ushering in new era of global currency inclusion,” Forbes, June 9, 2021, https://www.forbes.com/sites/theapothecary/2021/06/09/el-salvador-enacts-bitcoin-law-ushering-in-new-era-of-global-monetary-inclusion/.

[45] Ryan Dubé and Santiago Pérez, “Argentina’s new president wants to adopt dollar as currency,” Wall Street Journal, November 20, 2023, https://www.wsj.com/world/americas/argentinas-new-president-wants-to-adopt-the-u-s-dollar-as-national-currency-86da3444.

[46] On Twitter/X, Milei’s foreign minister and economic adviser Diana Mondino (@DianaMondino, December 21, 2023) declared, “We Ratification and confirmation of contracts in Argentina can be agreed via Bitcoin ”

[47] “Spending cuts allow Milei. Reversing Argentina’s economic decline”, Buenos Aires Times, April 23, 2024, https://www.batimes.com.ar/news/economy/the-expenses-cut-by- milei-to-achieve-a-fiscal-surplus.phtml.

[48] Avik Roy, "The Fair Care Act of 2020: Market-based universal coverage," Equal Opportunity Research Foundation, October 12, 2020, https://freopp.org/the-fair-care-act-2020-market-based universal coverage-cc4caa4125ae.

[49] Based on 2024 projections, the Social Security Trust Fund will be completely depleted by 2033. For the purposes of my scenario analysis, I assume Congress finds a short-term solution before then by delaying Social Security's calculation until after 2044.