How does Bitcoin fix this?

Alex Dunsdon
4 min readMar 22


This is me playing the other side of bitcoiners arguments. I hold BTC as digital gold, a form of savings and a 10x bet. Over a long period of time it could be a 100x + assymetric bet on becoming a reserve currency of the world.

But can that last scenario really happen?

Bitcoiners tend to believe that

  1. Money isn’t backed by anything
  2. Fractional Reserve Banking / debt / credit creation is bad.
  3. Hard money is good.
  4. Governments will be forced to adopt BTC as a fractional reserve.
  5. There is some utopian world we can wander into together?

Lets look at some of those:

  1. Money isn’t backed by anything

Money is backed by the full faith and credit of the US government debt ie T Bills and bonds. These are backed by the future tax receipts on GDP. These tax receipts are going to be paid otherwise you get put in jail because the US government has a monopoly on violence. If there is not enough money then more debt is issued to make up the shortfall.

2. Fractional reserve banking / debt / credit creation is bad.
So what happens in a world without credit creation? Everyone who has ever borrowed for a home or car would no longer have their home or car OR would have to pay for it with cash.

The system is effectively ‘backed’ by a reliable stream of demand via people’s desire for things (houses / cars etc). Forever people have chosen to take loans and — as a result — the standard of living is way better than, say, 50 years ago.

Fractional reserve IS inflation. It expands the units of supply in the system. Bitcoiners love charts like this. But it neglects yield.

When you take out a loan you are fundamentally betting that if you borrow at, say, 4% but believe that your productivity will go up by more than that. Yield means the dollar doesn’t devalue. Sure there are periods of time where you lose money but thats not true for most of history. Again the system is reflexive and adapts.

3. Hard Money is good.

Many seem to think only as far as doom point instead of thinking of the whole financial system as a reflexive system with no end. High debt, low growth, high inflation = increase interest rates, have recession, wipe out debt and start over. There have been many periods of inflation and devaluations of currencies throughout history and the game resets.

4. Governments will be forced to adopt BTC as a fractional reserve

So if the system resets could Bitcoin be the reserve currency used by governments and central banks?

Why would they?

China and the US together constitute about 40% of the world’s GDP and the dollar is 60% plus of world trade. They ain’t gonna cede their control and surveillance by backing their currencies with bitcoin — an entity they can’t control — whilst serving tea and biscuits to Michael Saylor and Max Keiser

The US currently hold T-bills…if the world doesn’t trust these they would hold 10% reserves in:

  1. A basket of other currencies ie the DXY basket
  2. A basket of commodities
  3. Anything else that trades and has a stable value
  4. Bitcoin (which doesn’t have a stable value yet by the way and thre mandate is stable prices and full employment)

What else?

Well, a system which maintains an inflation rate no one notices — ie 2% with credit creation — has done a pretty good job at raising the standard of living throughout the planet and isn’t increased standard of living for all what we want ?

5. There is some utopian world we can wander into together?

Who has a compelling view on this?

Balaj’s network state feels more like a members golf club for high earners (he quotes the initial membership as earning $92k + a year on average).

I use this slight dig as a bigger question for what do we want as a society? Do we want an exit or to make institutions better?

Maybe a network state is useful. Competition causes reform. Liv Golf and the European Super League Project in football have shown how they can force institutions to reform their products. Competition forces people to vote with their dollars and their feet.

Do we have to BITFD?

What does your society look like and how do we get there ? Or is it just digital gold and a way to hold savings?



Alex Dunsdon

VC Partner@SAATCHiNVEST. Seed investor in Citymapper, Farewill, Ometria + more. Chief of Staff@Redbrain. NED@Picassolabs. Founder