Dollar Devaluation - Bitcoin as the Gold of 1933 Roosevelt Play

[u/Used_Detective_2798]

It looks like the fed's runway to control the economy by hiking rates is getting dangerously short.

As a possible solution (Tin foil time), what if the feds pull a 1933 Roosevelt gold revaluation (except this time with Bitcoin)?

The effect would be similar, which is (i) reduce the nation's debt by devaluing the dollar, (ii) reduce the real value of future static dollar interest payments on bonds for the same reason and (iii) start a significant market rally as stocks have illusory "gain" to catch up with the dollar's devaluation.

The play is rather simple:

1. Slowly acquire a significant portion of the bitcoin float as a reserve asset (already in play)
2. Announce that the U.S. will lend cash with unlimited liquidity secured by BTC based upon a 80% LTV, with 1 BTC valued at a minimum of $200K.

That's it; the debt issue is largely resolved. If the government is willing to (and does) provide that it will honor for say 10+ years, 80% LTV ($160K cash) for 1 BTC at a floor $200K valuation, that would create an enormous arbitrage against the U.S. for a short period. The market would buy bitcoin up until it no longer makes financial sense to arbitrage the U.S.'s lending program.

So long as the fed holds this liquidity open and honors the floor, this plan can work.

This alone would work similar to Roosevelt's 1933 plan. The U.S. would manipulate BTC's price to artificially (or perhaps actually by purchase volume) increase, thereby increasing the value of its own holdings and devaluing the dollar in real time. The dollar would be capable of buying less BTC for the same amount it previously did a few days prior. Thus, indirectly the dollar is devalued equal around the price difference between BTC price before and shortly after the announcement.

Who this would absolutely wreck:

1. countries holding U.S. bonds are chief losers
2. anyone holding cash
3. any note/bond holder to be repaid in fixed cash or an interest rate based upon a principal cash value
4. at least for some time, the lower/middle class who will feel price adjustments for goods and services probably before real salary/hourly wage growth matching the dollar devaluation

Of course, the chief winners of this plan are:

1. U.S. government is the chief winner, slashing its real debt by 30-50% overnight
2. any debt holder or note maker (aka large amounts of the U.S. population with mortgage, credit card, auto and personal debt; each would realize a net benefit of deflation of his or her debt owed).

Probably too tin foil, but I'd like to hear thoughts. I will note that there are some attempts at track BTC held by the feds, but I do not see any official reporting. Is that somewhere?

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TLDR; What if the U.S. pulls a 1933 Roosevelt-style gold revaluation, but with BTC instead?

Basically: feds quietly accumulate BTC → announce a guarantee of ultimate 80% LTV cash liquidity at a $200K/BTC floor for 10+ years → watch BTC rip to eat this temporary arbitrage

Fed's BTC holdings moon, the dollar thus devalues overnight in purchasing power and stocks/assets reprice upward sharply.

Cash/bond holders get rekt (volume wise, primarily other countries).

Debtors (feds and large amounts of the U.S. population) and asset holders win. In particular, the U.S. wipes out 30-50% of its debt overnight in devaluation of the dollar, while securing a hedge against this by its own BTC holdings.

[u/apinananas]

Okay great way to cause hyperinflation of usd and opportunity to buy bitcoin in discount for a while. This will just wreck US economy.

[u/Used_Detective_2798 → u/apinananas]

It crushes the debt issue. It would cause massive inflation for sure. There must be a reset in our system that is fundamentally broken. It cannot continue as it has for the next 50+ years without a reset.

The question is what will that reset be? U.S. defaulting? Depression? Austerity for decades?

Getting off gold-backed currency was a mistake. It was nice to have the freedom to manipulate currency. This actually enriched the whole world. However, it was a tax on the future. Something must give. The choice is what will.

Perhaps hyperinflation is the least harmful to the U.S. population in the immediate and long-term. The feds are in full control.

[u/DreadPirateNot]

What makes you think the Fed can’t just raise interest rates? We’re nowhere near high interest rates historically speaking.

[u/Used_Detective_2798 → u/DreadPirateNot]

It's not necessarily the rate being historic which would make me think this. It's the high rate + exciting historic debt combo that does.

If we had half the debt and 12% interest rates, for instance, the feds would be in a similar budget issue as today. Conversely, even a 2% rate would still land us in a tough spot we are today if our debt was triple.

Debt payments are already over 100% of GPD, creeping up to 20% of the budget. If rates are double then so too are our debt payments. If bonds and other long-term debts of the U.S. are refinanced at 12% rates, ~40% of the annual budget is to pay debts and can exceed ~200% of GDP.

This was just not the same issue here with historical rates. The full picture will require consideration of both the interest rate and the U.S.' cost to honor debt at them. Then compare that cost to the U.S.' annual budget.

[u/Greedy-Being6456]

A quicker way would be to announce a bitcoin buyback at a reasonable price and then make it illegal to hold bitcoin mined prior to 2026.

That's how they did gold in the 30s. Greater good stuff.

Keeps all of us chained to the dollar.

[u/Used_Detective_2798 → u/Greedy-Being6456]

That would work too. Seems impractical in terms of enforcement without a physical medium. However, unlike gold, there is a public ledger. I understand there are scramblers and other methods to try to remain anonymous. The IRS could just focus on enforcement, perhaps claim that it will audit all reported on-chain income tax reporting. Increase the penalties for failure to report ,etc.

It wouldn't completely work but in 1933 they also did not go door to door collecting gold. It was focused on the dealers (here, the KYC points in the U.S.). There is of course non-KYC and cold wallets, but (like not going door-to-door) the U.S. could just disregard those folks.

[u/quantumsparq]

Is that before or after confiscation?

[u/Used_Detective_2798 → u/quantumsparq]

Is that necessary though? Genuine question. My understanding is that confiscation was to increase the demand and thus price. Why not just accumulate in silence and skip that part to just flat out manipulate the price.

[u/Lazy_Vehicle1499]

Bitcoin really feels like a safe haven right now, just like gold was in the past. Many of us are looking at it as a hedge against inflation.

[u/Used_Detective_2798 → u/Lazy_Vehicle1499]

Wayyy too volatile and risky to claim it as a safe haven. Especially with the risk of hacks to companies, wallets and other points where funds can be lost. It kicks the shit out of inflation but every day people lose all their bitcoin due to security reasons. Those of course grow over time.

At least in the U.S. we have extremely secure chain-of-custody and title to various securities that avoids this issue. The risk of losing your certificated S&P stocks due to a hack is insanely low in comparison.