Frustrated with the Federal Reserve’s degree of political independence and influence over of the economy, President Donald Trump has recently taken to publicly criticizing the man he chose to run the country’s central bank, Jerome Powell. “If we had a Fed that would lower interest rates, we’d be like a rocket ship,” Trump proclaimed last week, “but we don’t have a Fed that knows what they’re doing.”
Trump's Flawed View of Bitcoin
As a result of Trump’s complaints, Powell recently engaged in two days of congressional testimony on Capitol Hill this past Wednesday and Thursday. During his testimonies, in which he discussed a variety of economic issues, Powell took the time to address Bitcoin. “Almost no one uses Bitcoin for payments, they use it more as an alternative to gold,” according to Powell, who continued to refer to the cryptocurrency king as “a speculative store of value.” This did not, however, sit well with the disgruntled president.
I am not a fan of Bitcoin and other Cryptocurrencies, which are not money, and whose value is highly volatile and based on thin air. Unregulated Crypto Assets can facilitate unlawful behavior, including drug trade and other illegal activity....— Donald J. Trump (@realDonaldTrump) July 12, 2019
Following the final day of Powell’s testimonies, Trump used his notorious presence on Twitter to denounce Bitcoin, Facebook’s Libra coin, and other cryptocurrencies. “I’m not a fan of Bitcoin and other Cryptocurrencies, which are not money, and whose value is highly volatile and based on thin air,” according to the president, who linked their uses to the drug trade and other illegal activity.
Trump then went on to remind his followers that the “only real currency in the USA,” referring to the US dollar, “is stronger than ever.” Trump’s negative remarks about Bitcoin either reveal just how little he comprehends the sound economic properties of the new technology or shows just how desperate he is to spread fear, uncertainty, and doubt.
Bitcoin Is “Not Money”
Given that money is nothing more than a good, which individuals accept as a medium of exchange to avoid the complexities and inconveniences of operating in a barter system, Bitcoin is definitely a form of money. Over the course of history, different forms of money have appeared and disappeared from the market based on their economic properties. Because all economic value is subjective to the individual, as the great Austrian Economist Carl Menger explained to the world in his seminal work Principles of Economics, a money’s value is contingent on the trust of its users to maintain purchasing power and salability across time.
“Bitcoin is the hardest money ever invented,” according to Austrian economist Saifedean Ammous, because “growth in its value cannot possibly increase its supply; it can only make the network more secure and immune to attack.”The ability to inflate—and thus destroy—the value of the dollar rests solely with the Federal Reserve’s printing presses. (For a better and more in-depth understanding of Bitcoin’s economics properties and how it fits into the history of money, one should read Ammous’ The Bitcoin Standard: The Decentralized Alternative to Central Banking.)
As for the United States dollar, its value isn’t derived intrinsically or because the dollar meets the criterium of hard money as the president seems to suggest. It is what is referred to as a government-issued fiat currency. The value of the US dollar is backed by the government’s monopoly on violence and the fact that until now, you’ve lacked any significant alternative. You risk the possibility of violence and jail time every time you refuse to pay your taxes (which must be paid in dollars) or attempt to artificially increase the supply of money on the market. The ability to inflate—and thus destroy—the value of the dollar rests solely with the Federal Reserve’s printing presses. Bitcoin’s total supply, in contrast, is fixed at 21 million Bitcoins and cannot be tampered with by any centralized planning committee.
Bitcoin Is “Highly Volatile”
President Trump is not necessarily wrong when he suggests that the price of Bitcoin is highly volatile. What he fails to understand, however, is that Bitcoin’s volatility really only affects its use as a short-term medium of exchange, as Andreas Antonopoulos discussed in a Q&A he uploaded to YouTube last year. Saifedean Ammous also notes that “Bitcoin’s volatility derives from the fact that its supply is utterly inflexible and not responsive to demand changes” and that it is ultimately an attribute of the program rather than failure in its design.
In The Bitcoin Standard, Ammous also goes on to predict that this “volatility will likely decline” as the market continues to grow and the technological innovations built on top of blockchain network begin to mature. Despite Bitcoin’s volatility, it is still “the best performing asset over the last ten years,” as Anthony Pompliano rightfully pointed out on CNBC last year. Put plainly, Bitcoin’s volatility is a day trader’s paradise and should be of no concern to long-term investors.
“Bitcoin Can Facilitate Unlawful Behavior and Other Illegal Activity”
Because Bitcoin gained a great deal of popularity as the main method for performing transactions the infamous online black market the Silk Road, it still maintains the negative reputation of being drug dealers’ currency of choice. Despite this stigma, this is probably Trump’s weakest criticism against Bitcoin. Even though Bitcoin was initially pitched as an anonymous form of transaction protected by cryptography, Bitcoin transactions are hardly untraceable.
Every transaction made in on the Bitcoin blockchain is recorded on a public ledger for the entire world to see. Just this last year, Edward Snowden leaked information that suggested that the National Security Agency is capable of tracking Bitcoin users and their transactions. If you want to perform illegal behaviors, a public ledger is hardly the place you want to conduct transactions. US dollars coming out of the ATM machines at your local bank are more likely than Bitcoin to be used for money laundering and illegal drug exchange.
So Why Is President Trump so Opposed to Bitcoin?
As previously mentioned, it’s hard to determine whether or not Trump recognizes Bitcoin as a threat to the current economic system or if he just fails to comprehend the economic and political philosophy behind this revolutionary technology. President Trump is unquestionably a proponent of economic nationalism—Ludwig von Mises would designate his trade wars with China as such—so there is reason to believe that he is afraid of the US dollar losing its hegemonic dominance as a world reserve currency.
It’s never too late to start reading the great Austrian thinkers, though, Mr. President!A recent report released by the American Foundation for Defense of Democracies (FDD) suggests that many of the United States’s world adversaries are currently exploring the use of blockchain technology as a means to topple the country’s global financial power. Perhaps President Trump has received notice of these efforts and that is why he chose to publicly denounce Bitcoin and other cryptocurrencies this past week.
It is also fair to presume that the president is just the product of the age-old Keynesian-dominated economic school of thought, which has plagued modern academia since long before he received his bachelor’s degree in economics from the University of Pennsylvania’s Wharton School. Like most economic degree-wielding individuals from the American university system, President Trump probably wasn’t fortunate enough to get the chance to read Menger or Mises. It’s never too late to start reading the great Austrian thinkers, though, Mr. President!