Ross Steven's Bitcoin section in his annual Stone Ridge investor letter is too good not to share in full.👇
A BLACK BELT IS SOMEONE WHO GETS HIT AND DOESN’T CARE
“If I was the government, I’d close it down.” — F̶D̶R̶ Jamie Dimon on g̶o̶l̶d̶ Bitcoin, A̶p̶r̶i̶l̶ ̶1̶9̶3̶3̶ December 2023
In April 1933, FDR gave Americans less than thirty days to “turn in” their gold or face up to 10 years in prison. The price of gold is ~100x higher today. And legal. Governments are persistently incompetent capital allocators and always impotent, eventually, against the will of their people.
In 1933, what caused the leader of the greatest country in the world to fear a yellow, inanimate object? Perhaps the same thing that 90 years later causes the greatest banker of his generation to fear digital, inanimate “blocks” created every 10 minutes.
The power to create money – via printing (central banks) or credit creation (commercial banks) – is simply too intoxicating to relinquish for anyone not named Milei. To bitcoiners, the hysterical wails “ban it!” or “close it down” are as boringly predictable as they are, Conute-like, irrelevant. It’s hard to point a gun at an idea, or at a passphrase in my mind, especially one I may have forgotten.
The “close it down”-crowd should know better. We do not get our rights from the government. The Constitution limits what government can do, not what the People can do. We fought a Revolution and founded a new country based on decentralization, free markets, property rights, and individual liberty. Quasi-anarchistic, the Revolution was, most of all, against strong central government, the exact kind that would seek to ban something worth far less than 1% of the national wealth and chosen freely by the People.
In contrast to bitcoin, fiat represents government-sanctioned counterfeiting. Printing little pieces of unbacked paper and trying to pass them off as money? Fiat is an economic paradigm premised on the plunder of time from the unfavored many not directly downstream of the State’s monetary spigot. No wonder those in charge love it.
Counterfeiting should be illegal regardless of whether the Xerox machine is government or privately owned. The only monetary difference is the size of the confiscatory audacity. The US Treasury estimates $70 million in counterfeit bills are in circulation. Since 2020, the Federal Reserve has Xeroxed a fresh, crisp $6 trillion.
“If I buy bitcoin…are you buying air? No underlying asset backs it up, it’s simply a matter of belief.” — Elizabeth Warren, 2023
Bitcoin’s security is enforced by far more power than most entire countries produce. That’s not a matter of belief. Buying bitcoin is buying what bitcoin is backed by: an almost incomprehensibly vast amount of stored energy in its blockchain, more than a decade of 24/7, decentralized, Proof of B̵e̵l̵i̵e̵f̵ Work. Not air.
The free market only buys power for what it finds valuable. Right now, that’s about $811B of bitcoin. Like an innocently naïve six-year-old on Christmas morning, our nation’s first federal crypto law – from FinCEN in 2013 – called bitcoin virtual and S̵a̵n̵t̵a̵ fiat real. Reality doesn’t care if you believe in it. Fiat is credit. Bitcoin is money. When FinCEN gets older, they’ll figure it out.
In a battle between the claws of the State and the invisible hand of the market, we can forgive the confused who believe they’re in power. The State excels at being certain. Certainty is different than truth. Once, the State said the sun revolved around the earth. Today, bitcoin is air. I wonder if wet streets cause rain?
“E̵v̵e̵r̵y̵t̵h̵i̵n̵g̵ ̵t̵h̵a̵t̵ ̵c̵a̵n̵ ̵b̵e̵ ̵i̵n̵v̵e̵n̵t̵e̵d̵ ̵h̵a̵s̵ ̵b̵e̵e̵n̵ ̵i̵n̵v̵e̵n̵t̵e̵d̵.̵ We don’t need more digital currency.” — C̵h̵a̵r̵l̵e̵s̵ ̵D̵u̵e̵l̵l̵ Gary Gensler, Chairman of the U̵S̵ ̵P̵a̵t̵e̵n̵t̵ ̵O̵f̵f̵i̵c̵e̵ SEC, 1̵8̵9̵9̵
2023, questioning why the US needs a̵ ̵p̵a̵t̵e̵n̵t̵ ̵o̵f̵f̵i̵c̵e̵ bitcoin
Government officials wield tremendous power. They should be respectful and restrained. The ethics of the job demand personal “we don’t need”-like opinions be kept to themselves, and never infl uence their official actions.
The propulsive tentacles of the SEC Chairman’s extralegal agenda – yes bitcoin, but also share buybacks, corporate disclosure, private markets, securitization, security lending, predictive data analytics, much more – have ceaselessly sought expansion beyond legitimate boundaries. Taken together, in the public words of a heroic fellow Commissioner, his agenda reflects a “loss of faith that investors can think for themselves.” We can.
Fortunately, we live in a Constitutional democracy with an ingenious system of checks and balances on government power. They are working beautifully. In the past year, Courts have repeatedly defeated the Chairman’s agenda:
“Unlike regulatory treatment of like products is unlawful.” “Treating similarly situated parties differently is at the core of unfair discrimination.” “You cannot have it both ways…it is illogical for the rule simultaneously to accept and to reject the reasoning underlying the… benefi t.” “Your actions are contrary to Constitutional right, arbitrary and capricious, and without observance of procedure required by law.” (Note: “arbitrary and capricious”, legally, means “without consideration or in disregard of facts or law” (Black’s Law Dictionary).)
The Chairman’s personal opinions regarding what the entire country needs, or does not need – including bitcoin – do not matter. More SEC defeats are likely. All will be ok. In the meantime, black belts, and bitcoin, don’t care.
Bitcoin is not risky. Fiat is risky.
Over the last one, three, five, and ten years, long-term fiat savings (20Y+ US Treasuries Index) has cumulatively returned 2%, -33%, -8 %, and 24%, respectively. Over the same time-periods, long-term non-fiat savings, bitcoin, has cumulatively returned 156%, 46%, 1,052%, and 5569%, respectively. Which one is risky? Which one is “backed by air”? Which one should we “close it down”? Which is the one “we don’t need”?
Since 2017, bitcoin has been Stone Ridge’s treasury reserve asset because of my extreme aversion to risk. We run net short USD – which is fancy way of saying we net borrow fiat – to pay bills and make investments. We save in bitcoin.
It would be impossible to overstate the corporate advantages of being on the Bitcoin Standard. Since 2017, we’ve doubled our franchises to ten, more than 10x’d our trading profi ts, and delivered 25% annualized ROE for our shareholders. Our firm compensation, rent, and total expenses are up 89%, 119%, and 69%, respectively, in fiat, and down 36%, 26%, and 43%, respectively, in bitcoin.
The more fiat we make, the more bitcoin I buy. You cannot print bitcoin.
“The first rule of Fight Club bitcoin is you do not talk about Fight Club price.” — Tyler Durden, Fight Club, instructing new bitcoiners that we do not talk about bitcoin price
In a world of State money increasingly debased, censored, and surveilled, bitcoin represents optimism, fairness, justice, truth, and beauty. As the People’s money, bitcoin is unstoppable by borders, devaluation, censorship, or mass surveillance. “Privacy is necessary for an open society in the electronic age,” once wrote a very wise man. Please re-read that sentence a few times. Better yet, read the whole essay, increase your resolution on why Church Money and State must be separate, and the reason for the first rule of bitcoin then becomes obvious. I don’t mind if you come to bitcoin for the price. I just hope you stay for the principles.