Fed Chair Jerome Powell and Treasury Secretary Janey Yellen oversee a declining fiscal and monetary regime. And Yellen just admitted that they know it.
This week, Yellen told the House Financial Services Committee the "slow decline" in the dollar's role as global reserve currency is "something we have to accept."
Yellen quickly reassured onlookers that the dollar still reigns supreme. Other fiat currencies cannot easily replace its role in global markets, she said. Which is true. And yet, her statement is curious, given the precarious fiscal situation the United States finds itself in after decades of mismanagement.
If the U.S. cannot issue new debt because no one wants to hold it, how will the debt-soaked nation fund itself?
Yellen must raise over $1 trillion to refill the Treasury's General Account. It remains to be seen who will buy the debt. Though Powell claims the Fed won't monetize it, the Fed is in fact likely to step in to fill the gap when other (already indebted) nations and weakened banks don't buy Uncle Sam's IOUs.
The Fed might not make direct purchases, but the effect will be the same: more monetary debasement that crushes the currency to shore up a broken system.
With that, let's dive into this week's news.
SEC does battle with alt-coin casino Binance
In addition to accusing Binance and its U.S. subsidiary of improperly managing customer deposits and providing misleading information to regulators, the Securities and Exchange Commission seeks to freeze the firm's U.S. assets.
Binance argued this would compel its closure in the U.S.
During a hearing on Tuesday, U.S. District Court Judge Amy Berman Jackson refused to allow the asset freeze. She encouraged the parties to negotiate a settlement – allowing Binance.US to continue operating, for now.
This might seem like a win, but Binance's troubles are far from over. Leaked emails show Binance compliance executives flaunting U.S. law. This month, Binance's BNB token, equivalent to FTX's FTT, has suffered a 25% drawdown.
Fundamentally, Binance is an alt-coin casino. Unsuspecting consumers, beware. Recent lawsuits only confirm why smart investors avoid such businesses.
How will the Treasury restock the TGA?
The U.S. Treasury usually maintains a $500-600 billion balance in its general account (TGA) as a safety net. As of May 2022, it was $782 billion. Due to "extraordinary measures" employed to prevent surpassing the debt ceiling, the balance dropped to as low as $49 billion this year.
A newly-raised debt ceiling means the Treasury must restock its coffers with fresh debt. Additional obligations place the amount Secretary Yellen must raise between $1 and $2 trillion.
The question remains: Who will purchase this debt? The drop in foreign demand for treasuries doesn't portend support from other nations. The Fed will likely have to coordinate with the Treasury to alleviate the situation – yet another indicator that the fragile system is fracturing.
BITCOIN ADOPTION CONTINUES
Bitkey, a self-custody wallet produced by Jack Dorsey's bitcoin company Block, announced a partnership with Coinbase and Cash App for bitcoin purchases and transfers made using the beta version of the wallet. The official release is slated for this year.
HOW BITCOIN WORKS
Learn one key idea about bitcoin each week. This week:
Bitcoin is a destination
Sometimes the destination is known, but the path and length of the journey is unclear.
The current U.S. banking crisis and global reverberations might have excited some bitcoiners a little too much. Remember Balaji's prediction that the price of bitcoin would rise to $1 million in 90 days?
And yet, we know that bitcoin will eventually become the base layer of the economy. While the exact route to this destination is unknown, the direction is abundantly clear.
The combination of macroeconomic changes and bitcoin's superior monetary properties are aligned to drive the network's continued growth and adoption.
Though the Fed has not continued destabilizing the system with rate hikes, and inflation appears tamed, the debt crisis will eventually force the Fed's hand. Mouse-click money is the only option they have.
Other fiat currencies are similarly ill-fated. As Arthur Hayes put it recently,
Every major fiat monetary regime has the same problems, regardless of where they sit on the capitalism to communism economic spectrum. That is, they all are highly indebted, have a declining working age population, and feature a banking system in which the assets of the banks are low-yielding government and corporate bonds/loans. A global rise in inflation renders the global fiat banking system functionally insolvent.
The fiat system’s decay is one factor, with the other being bitcoin's strength.
Like the internet, bitcoin is a technological breakthrough that constantly draws in more users and incentivizes companies to build with it.
Just this week, the largest asset manager in the world applied to create spot bitcoin ETF, and another large company released the beta version of a promising wallet device.
And unlike in the alt-coin world, bitcoin adoption happens organically, without “crypto” foundations making grants to developers or pushing out flashy marketing.
So, while we can't predict the path to "hyperbitcoinization" or when it will happen, there is movement toward it. It is the destination. Prepare accordingly.
That’s all for this week, folks! When you signed up for this newsletter, we promised to act as your personal guide and help you understand what’s happening in the world of bitcoin. What did you think of today’s newsletter? Reply to this email and let us know what you’d like to see more of.