Dial the clock back by thirteen years. It’s the spring of 2012. Bitcoin is trading at five dollars a coin. You ask me “what would the world look like at $100,000 a coin?” When Bitcoin is 20,000 times more valuable? It’s unimaginable. Maybe the financial systems of some small countries have failed, and been taken over completely by Bitcoin. Surely it has become a popular currency. You ask me “what would the world look like when the US Government officially starts keeping a Bitcoin reserve?” Again, it’s unimaginable. Surely there’s been a big fight? A great showdown between Bitcoin and the almighty dollar? And somehow, scrappy Bitcoiners came out on top?
This week, the President of the United States has promised to make America the “Bitcoin superpower of the world” and established a Strategic Reserve that is never to be sold. I’ve been thinking a lot about this, not just because it’s amazing news for Bitcoiners, but because the world has turned out surprisingly differently from what Bitcoiners expected ten or fifteen years ago.
In the late 2000s, American institutional power crested an all-time high. The country rallied around the flag after 9/11, the government expanded significantly, and wars in Iraq and Afghanistan made clear that America would defend its interests, no matter what. The Subprime Mortgage Crisis of 2008, resolved by a $700B+ bailout for banks, once more drove the message home: true free-market economics be damned, American institutions must survive.
But the Subprime Mortgage Crisis showed millions of Americans that the institutions had, in some way, failed. And few people were satisfied by how it resolved: on the left, people thought the banking and mortgage industries hadn’t been punished enough, and on the right, people thought that the government had failed to uphold the free market. Occupy Wall Street on one hand, and End the Fed on the other.
Bitcoin launched into this uniquely charged political zeitgeist, right around the very peak of the financial crisis. Many people felt screwed by the system. The idea of using Bitcoin for savings and financial transactions — be your own bank! — sounded like a cool way of sticking it to the banks. But Bitcoin went much further: giving people trustless, decentralized money was a great way of sticking it to the central banks. Many early Bitcoiners saw a vision, far in the distance: if you can separate money from the state, then that takes away a core power of the state.
Satoshi himself was careful to be politically neutral, though his libertarian, cypherpunk1 leanings shone through. But practically, many early adopters had very strong views on (monetary) politics: Bitcointalk in those days had a lot of discussion about Ending the Fed, anarcho-capitalism, and generally pushing back on the state in favor of individual privacy and liberty. Just by being a powerful tool for political causes, Bitcoin was necessarily political.
In the long term, weakening the monetary autonomy of states is a tremendous threat to them. Back then, I wondered if Bitcoin could survive: in those days of strong American institutions, it seemed only like a matter of time until the statists in charge would nip this little experiment in the bud.
In May 2013, the US killed Liberty Reserve, an offshore centralized digital currency service — imagine PayPal without KYC/AML.2 The CEO got 20 years in prison for money laundering. At the same time, governments everywhere seemed to be slowly cracking down on cash (that they issued!) just because it’s not traceable.
Those were ominous times. After the big MtGox crash of early 2014, the price went sideways for three years. High-profile early Bitcoiners quit. Simple legal questions, like whether a Bitcoin wallet operator was a money transmitter, were unresolved. The US financial system is so rife with opaque regulations that many early Bitcoiners were worried that they were doing something that would one day be deemed illegal.
Even years later in 2017 and 2018, I remember speaking with people who were sincerely worried about one day being persecuted for their Bitcoin evangelism. They saw the totality of what large-scale Bitcoin adoption implied, and the challenge it would pose for governments and their fiat currencies. It was a common view that there was a Big Fight ahead, that one day the regulators would wake up from their slumber and fire every weapon they had.
The Big Fight never came. Regulators slowly clarified the important questions, and the law turned out to be favorable. Cryptocurrencies became mainstream via several hype cycles of ICOs, NFTs, and memecoins. Those hype cycles got a lot of people interested, and created a “pro crypto” political constituency. Most of these people had very little in common with the Bitcoiners of 2012, but that didn’t matter — they thought the coins were cool,3 and they had the right to vote.
As crypto became a voting bloc, the Big Fight became more and more unlikely: shutting it all down would really require bipartisan consensus, but that wasn’t going to happen — if one party rejected this constituency of voters, the other party would welcome them.4 The Biden administration rejected crypto voters, pressured the industry under Operation Chokepoint 2.0, but Trump took the crypto voters as allies, and today we have a Bitcoin Strategic Reserve.
But the success of Bitcoin is not just about voting bloc dynamics. Over the last fifteen years, the formerly strong American institutions have also pulled back significantly, and created an opening of permissibility for Bitcoin to succeed. Things have changed:
Covid: the Fed pulled out all the stops, printed 3 trillion dollars, and caused significant inflation. If they’re willing to do that, then how sacred is the dollar?
Defense: the US has pulled out of its wars, and pursued isolationist foreign policy.
Government: there is widespread dissatisfaction among Americans with their leaders and institutions. Donald Trump has been elected President twice on the articulation of that dissatisfaction, and the promise to shake up the system.
Trust: the trust that Americans have in their institutions and authority figures is at an all-time low. People don’t trust their doctors or schools, let alone banks.
The last decade has been a time of relatively weaker institutions. Donald Trump’s promise in his first term was to drain the swamp and shake up Washington. Biden’s term didn’t change American institutions much one way or another, and Trump’s second term so far has been characterized by mass firings and dissolution of certain government agencies.
Today, there isn’t as much willpower to defend the institutions as there once was. If Bitcoin had gone mainstream in 2003, the Bush administration would’ve probably tried to nuke it just like Liberty Reserve. But Bush-era conservatives would be surprised by politics today in general. Imagine a cabinet official in 2004 openly talking about the dollar losing reserve currency status and hedging against it!5
Early on, there was a common belief that Bitcoin would be viewed as a threat, and banned in many countries. It would be a slow grind for expansion over time, working its way up from overtaking the weakest financial systems. But in reality, almost no country has truly banned it.6 To the surprise of many early Bitcoiners, governments mostly didn’t care.
What had happened was that all the speculators came in, and changed the tone. They made it much easier for governments to get comfortable with it. Early Bitcoiners were talking about buying groceries with Bitcoin, using Bitcoin ATMs, etc., framing it as an immediate fiat replacement.7 But people buying memecoins, or even saving Bitcoin as “digital gold” aren’t threatening the dollar in the same way.
If the vibe of crypto had stayed like the early days — people talking about being their own bank and separating money and state — it might have faced more scrutiny.8 But instead, the crypto community was overrun by people saying things like “my dentist bought a Lambo after making 100x on Dentist Coin”. This apolitical appearance of harmless get-rich-quick-schemes is much easier for governments to ignore.9 Ironically, this made it easier for Bitcoin to succeed as a political project long-term.
Looking back, probably the most important thing for Bitcoin was that Donald Trump won in 2016, and Hillary Clinton lost. Clinton was a serious statist who would’ve taken a hard-line pro-American-institution position on every issue. Donald Trump, by contrast, was tapping into an electorate that wanted to shake up the institutions.
While Trump made some disparaging comments about crypto during his 2016-2020 term, his administration mostly left crypto alone. By contrast, Clinton’s views on crypto remind me more of Elizabeth Warren’s views, who has been one of crypto’s fiercest critics, always pushing legislation to hobble the crypto markets.
2016 was probably the last time that it was really possible to kill Bitcoin. It ended the year at ~$800 a coin, a $15B market cap. It was small, hadn’t run through a public hype cycle, and didn’t have many investors who would stand up for it. A serious attack from Clinton-Warren-Gensler types, something on the order of Operation Chokepoint 2.0, could’ve killed Bitcoin adoption in the US, and maybe even pushed some international consensus among G8 Countries.10
Bitcoin’s position finally seems secure. At long last, its market cap dominance has been steadily growing. There’s no longer the risk of getting “flippened” by higher-tech alternatives; the positive feedback loop of confidence in Bitcoin is winning. Regulatory uncertainties have been blown away, and Bitcoin is now positioned favorably to and distinct from all other cryptocurrencies.
It’s probably too big to fail now. It has institutional support at the highest levels, and will grow into an even stronger position by the end of the Trump presidency. Four years from now, it will be too deeply intertwined with the financial system and political interests to undo. The possibility of the eventual Big Fight now seems remote.
In some ways, it looks like an easy trade. Bitcoin is “expensive” today relative to the past, but it’s far more de-risked than it has ever been before. For once, the future is somewhat predictable. It seems like all the obstacles have been cleared, and it’s a straight shot for digital gold to overtake physical gold — that’s a 12x from here.11
When I was looking at Bitcoin early on, I was 19 or 20. I viewed the positions of American institutions as fixed, because they were all I had ever seen. It turned out these positions weren’t fixed at all. Over the course of ten years, things can actually really change. If I had been a little older and seen more change, maybe I would have understood this at the time. This is my biggest lesson.12
Early Bitcoiners viewed the state as a bipartisan, self-interested monolith, that they would eventually conflict with. It turned out that the state is not monolithic, and that a controversial idea can succeed when it becomes a wedge issue, with different parts of the state on either side of it.13 Technologists stereotypically have little patience for the political process, but it turned out to work fine.
Bitcoin never had to go underground. Bitcoin’s decentralization never really got tested in practice — most activity is still via exchanges. Perhaps just having a credible defense is good enough to never see it get stressed? People say “you can’t ban bitcoin, it’s decentralized” and so nobody really ever tries.
Speculators not only brought massive amounts of capital to the ecosystem, but also took the political edge off its appearance, without compromising the long-term vision. Early Bitcoiners worried about many obstacles to adoption: is it not private enough? Will it be illegal? What if people don’t want to be their own banks? But almost everyone underestimated how easily Bitcoin could go mainstream: give people a way to get rich, and they will move mountains for you.
To a meaningful extent, Bitcoiners have won. And it all happened without a fight. The chance of getting to this point seemed so small thirteen years ago. But connecting the dots looking backwards, the simple market dynamics at work did not leave much up to chance. Perhaps the odds were always very good. The power and elegance of a system bootstrapping its own value just from provable scarcity seems to have been, and perhaps still is, undervalued and misunderstood.