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Bitcoin is priced in Doge, Madam Senator

There was this cool trick the U.S. pulled in the 1970s after the gold standard for currency valuation was abandoned. Some pointed-headed guru in Washington had the idea to get the Arab world to price oil in U.S. dollars, and they did! The petrodollar was born, and immediately became a very large part of the reason why the dollar is now known as the world’s “reserve currency.” Everybody needs oil, and that means everyone needs dollars to buy that oil.

So forgive me if I spit out my coffee, rolled my eyes, slapped my knee and guffawed repeatedly when I heard Senator Cynthia Lummis of Wyoming wants to create a U.S. Bitcoin reserve to . . . wait for it . . . “firmly secure the dollar’s position as the world’s reserve currency into the 21^st  century.”

I really want to swear a lot right now but I try to keep this a family newsletter. But goddamn, Cynthia! That’s the dumbest thing I’ve ever heard. Strategic reserves for oil and gold, as the U.S. maintains, make sense because we don’t want to be over-dependent on other countries for petroleum, and if things get really crazy it’s not a bad idea to have some gold lying around. But Bitcoin? It’s purely digital form should give us pause, because again, if stuff goes sideways who’s to say the world’s computer networks are still viable? If and when nation-states get involved the possibility of bringing down a network like Bitcoin becomes more likely.

But to think the dollar could be strengthened by a Bitcoin reserve is lunacy. The digital asset can be bought or sold for hundreds of other digital assets, as well as for Euros or yen or gold or Dutch tulip bulbs. Bitcoin is priced in Doge, Madam Senator. As simply as I can understand it, the belief that Bitcoin will bolster the dollar is the belief that Bitcoin will only be bought and sold for dollars. Otherwise, the backstopping is lessened by every other means there is to buy Bitcoin. So there’s basically no connection between the two currencies.

Well, that’s not entirely true. Bitcoin tends to correlate negatively with the dollar – meaning when the greenback is down BTC is up, and vice versa. A strong dollar is indicative of a strong U.S. economy, so I’d prefer to keep our eggs in that basket.

Another avoidably gross detail here is that Sen. Lummis appears to own between $100,000 and $250,000 of Bitcoin. She disclosed the position in a 2021 financial filing and set up a blind trust to hold the Bitcoin, which she still maintains, according to her 2023 filing. (How blind is blind when she knows there’s BTC in there, it’s not like her broker is buying stocks in a blind trust without her knowledge like a blind trust is supposed operate, right?) The graft is in the bill.

It's a shame to see this, as the state of Wyoming is doing interesting things regarding decentralized autonomous organizations, or DAOs. The state has given them LLC-like status which, among other things, provides important legal protections for members of a DAO.

The petrodollar won’t last forever, and there are near-term risks to the dollar as the reserve currency that should be receiving more attention. Such as Saudi Arabia considering pricing some of its oil in Chinese yuan and India’s short-lived foray last year into paying for some of its imported Russian oil with yuan.

There are many other more pressing legislative needs as far as digital assets are concerned. How about enshrining in law that cryptocurrencies aren’t securities? How about amending the Securities Exchange Act and Commodities Exchange Act to explicitly deal with, define and regulate crypto? We don’t need political stunts like Lummis’s Bitcoin strategic reserve.

The dollar doesn’t need Bitcoin, nor should it. That’s the whole point of Bitcoin, remember? — Matthew Leising, editor in chief, Decential Media

Have you read the definitive history of Ethereum? No? Well then get your copy of Out of the Ether while you can.