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Universal Basic Income Will Drive the Next Bitcoin Bull RunShare on LinkedinDownload

Universal Basic Income Will Drive the Next Bitcoin Bull Run

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The Overton window describes the range of topics that are politically acceptable in the current environment. The window shifts over time.

For example, in the last hundred years, it’s been argued that putting seat belts in cars is a dumb idea, smoking cigarettes is not damaging to one’s health and that companies should be able to pollute rivers and streams as a matter of course.

These disservices, which were at one time accepted as commonplace, are now seen as extreme. The Overton window shifted, just as it’s shifting again now.  

In 2019, Andrew Yang sought the Democratic Party nomination for president of the United States  on a UBI (Universal Basic Income) platform. Under Yang’s plan, “Every U.S. citizen over the age of 18 would receive $1,000 a month, regardless of income or employment status.”

At the time, Yang’s was a controversial proposal. It was no surprise then that Yang was forced to drop out of the race. Perhaps America would hear about Universal Basic Income again in 2024, but that’s not what happened…

Just sixty days after Yang’s forfeiture and the Overton window has shifted so quickly that a majority of Americans now support a program which would give a large chunk of the population $2,000 a month for as long as Covid continues to wreak havoc on the economy.

In this article we’ll discuss the proposed program, its political and economic impact, and  how UBI could affect the Bitcoin markets. We’re covering it all; interest rates, Fed policy, inflation, quantitative easing, and Bitcoin’s role as hard money. Fasten your seat belt and find the best mixtape, it’s time to go deep.


The UBI Plan: How Much It Costs and How the US Will Pay for It

The plan as it stands now (expect changes) calls for a $2,000 allowance to every American making less than $130,000 per year. This allowance carefully includes everyone 16 and older as well as college students and other groups who were excluded from the $1,200 stimulus payment as a result of being claimed as dependents on their parents’ tax filings.  

Current estimates place the cost of the program at more than $4.5 trillion.

The US Federal Budget in 2019 ($4 trillion). The UBI plan would cost $4.5+ trillion a year by itself. Image credit: Congressional Budget Office

Funding a $2,000 per month payment will come at a time when America’s debt is at an all time high, and when tax revenues are down as a result of people being quarantined in their homes due to coronavirus.

Should the program be approved it will be financed by debt. Massive, massive debt. Something to the tune of $5,000,000,000,000 a year (put differently, that’s 8.7 million Lamborghini Huracans in debt per year).

Pre-Covid, there was considerable debate about whether the United States would ever pay back its debt (January 1st, 2020, the USA had $23.2 trillion in debt). That conversation is over.

Combine the Fed’s multi-trillion dollar buying with a UBI program, add in a dash of political dysfunction, mix with a still strong demand for the dollar and what you end up with is the tacit acknowledgement that the USA will simply never pay back its debts.

What are the effects of living in a country which is hopelessly in debt? What are the implications for the next generation?  

How will the government serve its citizens if it must spend hundreds of billions of dollars each year to just make interest payments on what it owes? Leaving aside the depressing implications of unpayable debt, the political implications are equally worthy of debate.


UBI’s Political Implications: It Will Never End

The astute reader will notice that I’ve treated the $2,000 program as permanent, that I’ve calculated its annual $4.8 trillion price tag and questioned such a program’s monetary effect on future generations. The reasoning is this: many people believe that once enacted the program will become permanent. Here’s why.

1. The Language of the Bill

The bill itself is remarkably (purposefully?) unspecific in specifying the duration of the payments. Turning to the news, depending on which article you read the payments will,

  1. Go on for a minimum of six months and continue until employment reaches its pre-corona levels
  2. Go on until the "economy recovers"
  3. Go on for six to twelve months, the end date presumably at the discretion of lawmakers

For example, when it comes to ending the program when employment reaches pre-corona levels, who knows how long that will take!

Unemployment in early 2020 was at a record low. Given that the recovery from this pandemic will take years it’s simply impossible to imagine the next time we’ll see record low unemployment.

Suggesting that lawmakers will propose an end date for UBI will be addressed in the next section.

2. Political Suicide

Politicians, by design, are almost prohibited from taking independent action. No matter what they believe in, how strongly they favor or loathe a position, they are beholden to the public, and often enough their own parties, to take any significant action.

As much as we Americans bemoan the current crop of representatives, at the end of the day if a majority of people in a district, state or nation are displeased with how a politician is comporting him or herself, said politician can be unelected.

This is good, in that democracy is a hell of a lot better than fascism. But it’s bad in that, even if a politician believes strongly in reform they’re unlikely to push for anything that will get them unelected.

Which politician will be willing to stand up against the "temporary" $2,000/month program and say, “My fellow Americans, I’m so happy that your government has been able to see you through this crisis. But the economy has mostly recovered, we’ve got a vaccine and we really think it’s time to stop paying you this money. That’s why I’ve drafted a bill to end UBI next month.”

Maybe you believe that a monthly $2,000 UBI program can solve inequality in America and we should have started years ago. Or perhaps you think it’s a horrible idea and must be stopped lest America go full socialist.

Whichever side you’re on, any argument for or against this program must address the fact that once enacted, there is at least a chance (even a good chance) it will never be rolled back. To deny that this program may become permanent is to abandon the lessons of history. Temporarily off the gold standard, temporary QE, temporary $2,000 payments...

Quantitative easing, a fancy word that means printing money to buy debt from banks and other financial institutions so that they can make more loans to individuals and businesses - though it seems most of that money went into the stock market - was meant to be a temporary response to the 2008 financial crisis. However, this has not been the case. In the case of the Federal Reserve (US central bank), quantitative easing has helped increase the Fed’s balance sheet from $1 trillion to $7 trillion. Image credit: Federal Reserve Bank of St. Louis

2008 Didn’t Lead to Inflation but Will 2020?

As lockdowns lift and restaurants open, as the advertising industry throws fuel on the dormant coals, as people regain their employment and no longer have to spend a majority of their $2,000 on rent and utilities, prices will begin to rise in accordance to the increased demand.

$2,000 a month sounds like a lot, and it is, but if UBI continues even as the economy recovers, inflation is likely. How quickly will the dollar inflate? That’s impossible to say. What can be said, however, is that America as a country will be in a bad spot to deal with it.

The Federal Reserve has a couple of mandates and one of them is controlling inflation. Their primary tool for controlling inflation is to raise interest rates which does two things:

One, credit becomes more expensive which disincentivizes spending be it with a credit card or taking out a mortgage.

Two, savings becomes more attractive as savers can earn a healthy rate of return by keeping money in their bank account. Fewer spenders, more savers, inflation goes down.

The problem going forward is that based on the last decade, it’s not clear that the Fed will be able to raise rates when it needs to. During the last cycle, while America enjoyed an ostensibly flourishing market, the Fed couldn’t even raise rates past 3%.

There’s no reason why this time should be different. In fact, it’s likely to be worse as the Fed’s obese balance sheet will make it even trickier to raise rates as they’ll be devaluing their holdings. So when inflation accelerates, the Fed is going to be in a hell of a position to reign it in.

This leads us to the question we’ve all been waiting for: if inflation is coming and the Fed can’t control it, what will happen to Bitcoin?


Positive Impact on Bitcoin?

The short answer is that we can’t say for certain how UBI, obscene government debt and poorly controlled inflation are going to affect the Bitcoin markets. What we can say is what’s likely. We can extrapolate certain trends which suggest that Bitcoin, and Bitcoin in particular, may do well in the financial madness we’re rapidly falling into.  

In the first place, Coinbase recently saw a suspicious amount of people buying exactly $1,200 worth of Bitcoin, right when the first wave of checks and direct deposits were hitting Americans’ bank accounts.

If the $2,000 UBI program passes, presumably a small percentage of that money would flow into Bitcoin. Given that the program would be distributing some $400 billion a month, even a tiny fraction of that money flowing into Bitcoin every month could have an outsized impact on prices.

Another factor is that high inflation is not a phenomenon that can be swept under the rug by a few Tweets. No clickbait article or talking head can convince you that inflation isn’t happening if every month the price of a gallon of milk rises by $0.50. Inflation is a firsthand experience that demands action.

Under those conditions, conditions that all of America will experience first hand, people will begin to look for a way to preserve the buying power of their money.

Older generations will turn to gold, younger generations will turn to Bitcoin. Bitcoin was made for this… Bitcoin was smelted and forged in the smoky fires of central bank sorcery and voodoo economics. Chancellor on brink of second bailout for banks, says the famous line written into the genesis block of Bitcoin.

With its consistent quantitative hardening and imperviousness to central bank interference, Bitcoin will stand out all the more as an asset uncorrupted by the crony capitalist system.

As people wake up to an alternative and start to stack sats, prices will rise. It won’t take much. As of publication Bitcoin’s market cap is a little over $150 billion (gold’s market cap is ~ $9 trillion). Relatively small investments, not just from Americans but from people the world over, will push the price of Bitcoin past its old all-time high.

A new bull market will prove to the world (again) that Bitcoin is not a passing fad, that it’s hard money in a time of high spending, a wonderfully valuable currency for anyone with an internet connection and a penchant for change.

Whether the timeline for Bitcoin’s ascendence is six months or eighteen, it looks like the only way to slow it down is:

If governments start to favor citizens over corporations.

If central bankers stop binging on debt and begin instituting reforms that will lead to meaningful, long term change.

If senators and presidents remember who they are beholden to and put the farmer, accountant, clerk, bus driver, postal carrier and teacher first, rather than the hedge fund manager and airline CEO.

If the system reforms and the future looks better than the past.

To summarize,

  • If the $2,000 program is enacted, we can expect to see people using some of that money to invest in Bitcoin. If even just 0.5% of the UBI money flows into the Bitcoin market, that’s $500 million invested every month.
  • There is a strong likelihood that UBI, along with the Fed’s unprecedented open market operations, will lead to inflation. As that happens, expect Bitcoin’s role as a store of value/hard money to bring in millions of new investors.
  • The United States is not the only country printing money, it’s a near universal phenomenon. While hyper-inflation is unlikely in America, the same cannot be said for other countries. As weaker currencies hyperinflate and capital controls are put in place, expect money to flow into Bitcoin from every corner of the globe.

Information provided is for informational purposes only and should not be considered financial advice. Investing in crypto assets is speculative and carries a high degree of risk; you may lose some or all of the money that is invested. Past performance is not indicative of future results.

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