Daily Balajisms – Digital gold window

With bitcoin and stable coins, America will become states again.

FDR closed the gold window, but now red states, like Florida or Texas, can reopen the digital gold window, says Balaji Srinivasan. Even purple state or cities in the US can surprise us in this respect, he says.

This would be something like Coinbase in 2013, a simple buy, sell, send and receive bitcoin orderbook.

The states should charge a meaningful fee for holding bitcoin on the exchange to motivate self-custody. And they can charge a small fee to accumulate bitcoin reserves. At the beginning, they can cooperate with exchanges like Coinbase or Kraken to work out technical details.

This way, red states can slowly build a technical muscle themselves for the eventuality of a sovereign debt crisis and a fiat system collapse.

Texas can also come up with their own Texan dollar in the form of a stable coin backed by bitcoin, that can appreciate over time as the global financial system takes a hit. This would align incentives between red states and the grey/tech tribe and help to prop up regional banks that are underwater because they have been pushed to purchase large quantities of Treasuries, that were later swiftly devalued by the Fed.  

In the US, there is a tradition of sanctuary cities and blue states that chose not to enforce federal law with respect to migration or marihuana. Red states and blue states diverge on many issues now.

Balaji asks: “Did Republicans pay for 2008?” Red and blue counties used to be equally wealthy on average. But red counties have become much poorer than the red counties in the US over the last decade, due to Cantillon effect after the Great Financial Crisis of 2008.

Republicans went from suit-wearing businessmen to trucker hat wearing proles. With accumulation of bitcoin thanks to offering the digital gold window services and state stable coins, red states can attract the tech-savvy grey tribe to their regional banks and escape the financial oppression of Blue America.

After the collapse of the USSR, the countries that left the first, like the Baltic states fared the best. Because they didn’t inherit the legacy debt of a fallen empire, and could start afresh.     

Balaji often gives dozens of examples how history is running in reverse with opposite outcomes. Some 100 years ago, Spanish flu was heavily censored, but during Covid we had 24/7 coverage, and censorship efforts weren’t ultimately successful.

Elon Musk acquired Twitter and through Twitter Files exposed previous industrial censorship regime. China was a junior partner to USSR during the Cold War, now China under Xi is a senior partner in the Sino-Russian partnership.

In the 1890s the Western frontier closed, and in 1991 the Internet frontier reopened, when online commerce became legal. Anyone could buy a domain and set up shop on a barren digital land. Before we had private banking where banks had issued their own currencies, now we have cryptocurrencies.

Balaji explains that there wasn’t a single mention of politics in the movie Social Network, when it came out in 2010. But in 2011 the Arab Spring has started and both Twitter and Google played a pivotal role in inspiring pro-democracy protests.

But it the West no one would believe you in 2011 if you told them that in 2021 the most important issue for at least couple of days will be a question if the President of the United States can tweet.

In the same way no one will believe you today if you tell them that in 2030s the most important issue for any state or country will be the question how much bitcoin does it own. We have small countries like El Salvador adopting bitcoin and other countries like Palau, Bhutan, and Central African Republic flirting with it.

With Javier Milei we got the second bitcoin president recently elected in Argentina, after Nayib Bukele of El Salvador.

Red tribe cannot survive the financial, cultural and economic repression of Blue America alone. It needs the tech-savvy counter-elites of the Grey tribe.

Blue America over-regulates and cannot build. But the tech tribe is globally competitive. China produces 10x the amount of steel and 200x more ships than the US. But SpaceX sends to orbit 8x more payload than China.