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In this episode of the “Fed Watch” podcast, CK and I had the privilege of chatting with Matthew Pines. Bitcoin Policy Institute.. He recently wrote a wonderful and comprehensive Bitcoin essay for policy makers and the general public, “Bitcoin and US National Security: Assessing Bitcoin as a Strategic Opportunity in the United States.” Our conversation was a summary of the essay, digging deeper into quality and quantity adoption, stablecoin, and how countries see the Central Bank Digital Currency (CBDC) differently. Finally, we’ll talk about the Fed and its plight over rate hikes with reverse yield curves.
“FedWatch” is a podcast about how Bitcoin integrates or replaces aspects of the traditional financial system with people interested in the current events of the central bank. To understand how Bitcoin becomes global money, we first need to understand what is happening now.
We started by discussing who the Pines target audience was and how it affected the structure of the treatise. I was interested because this treatise is very comprehensive and covers the technical mechanics of Bitcoin, its recent financial history, and how Bitcoin can be used for strategic advantages in the United States.
Pines replied that he fixed the structure of the paper around him. Biden’s recent presidential directive.. As people dig into these topics and write their own reports in that order, Pines is an introductory book on analysis and how Bitcoin can address certain government concerns about national security. I wanted to provide a summary about.
Adoption of Bitcoin
Next, I’ll explain some details from the report. He states that 16% of adults in the United States own Bitcoin and other cryptocurrencies. However, this is an overall number and does not indicate the quality of its adoption. For example, you could be a gambler buying tokens at Coinbase. He wondered if he had insights into politically strong, namely business leaders, government officials, influential people, millionaires, adoptions by millionaires. In essence, I asked Pines to guess based on his unique set of knowledge.
Pines has a great line when he says, “You can’t exaggerate the power of selective and valuable orange pilling.” He says it’s the kind of thing we all want, but it can have terrible consequences. He also warns not to focus too much on politicians. In other words, let the Bitcoin incentive do the work.
For another question, stay at the forefront of policy and ask if adoption is closing the window for potentially devastating policy decisions. If 16% of the general public now owns Bitcoin, how much would it cost in a year or two? If 50% of people own Bitcoin and more people in a politically influential class own Bitcoin, does it make it nearly impossible to get bad policies? Once again, I’m asking him to guess about this question.
Matsu’s answer is very constructive. He points out that the policy window is moving in a positive direction, Senator Lumis’ recent work.. He distinguishes between the legislature and the government, and says that each has a different relationship to policy. Although lawmakers are unaware, the average government employee is in a hurry to write a brief description or complete a report, which can perpetuate the misunderstanding.
Stablecoin and Europe
Now let’s get into the CBDC discussion, first focusing on Europe. Pines argues that the European Union is essentially under threat from US dollar stablecoin and Bitcoin. This is because it is the currency union that underpins the political union. Therefore, the EU is naturally attracted to CBDC solutions.
Pines also agrees that the Federal Reserve differs from the European Central Bank in its pursuit of the CBDC. Basically, the Fed has a good understanding of the problems and powers of the CBDC. You may not know all the strategic benefits that Pines outlined in his report, but they are already much more friendly to the US dollar stablecoin than the CBDC.
One of the big points from the Pines report is that the Fed can regulate Stablecoin in the US dollar and force it to become a buyer of US Treasuries. This will increase demand for the Treasury and may even provide the Fed with new policy tools.
Fed is trapped
In the final part of the interview, we have time to quickly cover the Fed’s predicament. They are making a big move to the hawks, and after just one hike, the yield curve has already reversed, showing signs of recession. I asked Pines what he thought of this development, and what his view of the Fed’s options was at this point.
Pines further professionally describes the situation in which the Fed is aware that it is an “irreducibly complex system.” The Fed makes this complex system more difficult every time and has to wait for what breaks. Pines said Japan is five to ten years ahead of the rest of the world in financial experiments such as quantitative easing and yield curve control, so if you want to see where we are heading, look at Japan. Say you should turn.