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Among conspiracy theorist, the Great Reset was a new regime that would soon be foisted upon the masses by the elites in order to preserve the latter’s status and advantages. But more likely the Great Reset will instead occur in a different way and have a different impetus—namely bitcoin.   

Bitcoin didn’t begin with the elites.  In fact, until very recently, most elites were hostile to bitcoin both because it originated with the plebs and because they (rightfully) perceived it as a threat to the establishment.  But it may in fact accomplish a Great Reset, and (ironically) with the help of the elites who once despised it.  

Once the elites figure out (and they are) that Bitcoin’s adoption is inevitable, that it will diminish the value of dollar-denominated financial assets and that they can use it to either inflate away their own unsustainable debts or to protect themselves from those seeking to do so, and all without destroying the economy or their own wealth, they and everyone else will rush to adopt.

High inflation is the likely solution to our unsustainable debt

Present debt levels are unsustainable.  They must be either written off or inflated away.   Normally both approaches come with great pain for all, but bitcoin may offer a less painful “out” to both the elites and the masses.   

To understand how, we must first recognize that inflation reduces a debtor’s burden because (assuming his income keeps pace with inflation) he is able to repay his debts in the future with less valuable dollars.

For example, at ten percent inflation, the purchasing power of the dollar declines by half over seven years.  This means that if you’re a debtor who must retire a $1 million debt (a bond or a mortgage, say) in seven years, you’ll benefit from inflation (provided that your income keeps up with inflation in the meantime). Why?  Because at 10% inflation you’re only going to need $500,000 of real purchasing power (in today’s dollar’s) to pay off your $1 million debt.  Said another way, you borrowed $1 million of purchasing power today but will get to pay it off by relinquishing only $500,000 of purchasing power when the debt comes due, all due to the 10% annual inflation. Consequently, at ten percent inflation, your debt burden gets reduced by half every seven years (assuming your income keeps up with the rising cost of living).  

Alas, that benefit to you comes at a cost to others.  In particular, it comes as a result of screwing over the lenders and anyone whose income does not keep pace with the inflation over the period in question.  The lenders get repaid in less valuable dollars than they originally lent, and those whose incomes can’t keep up with inflation are eventually bankrupted by the rising cost of living.

The Great Reset 

But what if there was a way for debtors to be relieved of their debt burdens without destroying the wealth (that is, the purchasing power) of creditors and those whose incomes don’t keep pace with inflation? In other words, what if we could achieve the benefits of inflation for debtors without harming creditors, at many of them?

Well, we kinda can. And as soon as everyone realizes that, there will be a mad rush to make it happen. It’s essential that you be on the front end (rather than the tail end) of that rush.

How can we inflate away our debts without robbing creditors of their purchasing power? In short, by transitioning (first slowly then very rapidly) to a new, hard money as we inflate away the value of the old one.

For in that scenario, the value and purchasing power that is leaving the old money due to inflation gets transferred primarily into a new money (rather than into other physical assets such as commodities and real estate). As the purchasing power leaves the old money, it accrues to the benefit of holders of the new money. And if those holders of the new currency are at least in part the creditors, any decrease in the purchasing power of their dollar denominated asset is offset by gains in the purchasing power of the new money they also hold.

An Example

Suppose I’m a creditor who lends you $1 million by purchasing $1 million of your US dollar denominated bonds that mature in seven years. But as a smart creditor, I also realize that governments may have to inflate away everyone’s debts because debt levels have become unsustainable. If that happens, the $1 million you repay me in seven years will be worth much less (in terms of purchasing power) than when I lent it to you.  I get screwed.  

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But, being smart, I also recognize that there’s a new form of potential money called “bitcoin”, and that its superior to the old form in nearly every conceivable way, including that its supply can’t be arbitrarily inflated. It already has a ten year track record of extraordinary growth in both adoption and value, though it’s still very young and novel. And, because its supply is strictly limited, any material net increase in adoption must lead to an increase in it’s purchasing power.  In short, with sufficient continued adoption, it’s purchasing power must go up over time.

Even better, because it’s so early in the adoption cycle, I can presently acquire a small position in bitcoin for peanuts.  With that in mind, let’s assume that I buy $20,000.00 worth today, or only 2% of the value of the $1 million bond that I just purchased. At 2% of the value of the bond, I’m risking very little.    

If over the seven year maturity of the bond others do the same thing (buy bitcoin) for the same or different reasons, the purchasing power of the new money must go up. Ideally it (rather than others assets like real estate and commodities) absorbs much of this fleeing dollar value, and thus the prices of other assets deflate (cheapen) in bitcoin terms, which reduces the cost of living for everyone holding bitcoin.

An Extreme Example

As an extreme example, let’s assume that over the seven year period of the bond the purchasing power of bitcoin increases 100 times (in real terms) as value moves from the old money to the new, while the purchasing power of the dollar declines in this example to zero over that same period. (Again, this is an extreme example to illustrate a point, but the same idea plays out to a lessor degree even in the much more likely scenario that the dollar’s purchasing power never reaches zero).

Under these assumptions, what does my financial position look like in seven years when the bond I’m owed comes due? Well, I get repaid the $1 million I’m owed on the bond, but that $1 million now has no purchasing power because dollars are now worthless (in those example). So, I lost $1 million of purchasing power (measured in the value of dollars seven years ago) by purchasing the bond. Not a good deal for me, right?

Actually, it was, but only because I was smart.  I hedged the risk of inflation by putting 2% of the value of the bond in bitcoin from day one, So, I’m not actually screwed at all. The $20,000 of bitcoin I purchased seven years ago has (in this example) experienced a 100X increase in purchasing power, more than making up for the fact that the money that repaid my bond was worthless.  

But no only was it his a good deal for me, it was also a great deal for the debtor since they were able to pay off their million dollar debt to me using worthless (and therefore very easy to obtain) dollars.  The debtor’s debt was entirely inflated away! The debtor is now debt free thanks to hyperinflation.

Note that both parties to the $1 million bond transaction won in this scenario. The debtor won because his debts were inflated away (he was able to retire them with essentially no loss in purchasing power) and, assuming that he too acquired some of the new money several years ago, his cost of living also stabilized or even declined (as measured in the new money, not the old). The creditor also won because the purchasing power I lost on the bond was more than made up for by increases in the purchasing power of the new money I held.

So who loses?

The only people who lose in a scenario like this are those who delay too long in acquiring some of the new money. They, unfortunately, are wiped out by The Great Reset. Losses sustained by lenders who fail to acquire a sufficient stake in the new money before they are repaid in the old, devalued money are real and usually not sufficiently offset by increases in purchasing power elsewhere. Likewise, debtors without a sufficient amount of the new money benefit by paying back their debts with worthless dollars, but that benefit is offset by the fact that their cost of living (measured using the old money, which is increasingly worthless) is skyrocketing with the high inflation. 

Conclusion

I’m not implying that the dollar is going to zero.  I simply use that as an extreme example to illustrate the new/old money dynamic at play.  What I am suggesting is that when a new hard money comes on the scene, high inflation can be used to achieve a Great Reset.  Those who obtain a sufficient amount of the new money early enough will not just survive the Great Reset but may actually prosper.  Everyone else gets slayed.   

Thus the game theory of bitcoin appears to be essentially perfect for our present overly indebted environment. Everyone must eventually adopt (creditors, debtors, banks, nation states, consumers, etc.) if only as a hedge, and those adopting the soonest benefit the most while those adopting the last get left holding the bad for everyone with more foresight.

It’s essential to recognize that, because there’s a limited supply of bitcoin and it can’t be arbitrarily inflated, the race to acquire a sufficient stake to hedge one’s risk is mostly a zero sum game. Early mover advantage is everything.

Right now anyone can still take a substantial position in bitcoin for relative peanuts. Putting only a couple percent of one’s net worth in the asset could be enough to protect you if high inflation continues. Yes, you might lose that 2% if I’m wrong. But a small risk of losing 2% of your present wealth is much better than a small risk of losing your entire future standard of living.