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Bitcoin as a Hedge for Boredom

People do not buy Bitcoin as an inflation hedge; they do so because it’s exciting.

Steve Hanke, Matt Sekerke
National Review, Capital Matters, January 27, 2022

From its debut in 2009 until late last year, the price of Bitcoin increased by several orders of magnitude, while inflation was even lower than the Federal Reserve had intended. By the end of 2021, Fed chairman Jerome Powell finally threw in the towel and acknowledged that the recent uptick in inflation would not be transitory. Bitcoin has since proceeded to lose half of its value. Perhaps it’s an egregious case of “buy the rumor, sell the news,” but to the naïve observer, Bitcoin is a lousy hedge for inflation.

Crypto fans will tell us that most people simply do not understand it. Forget about the official inflation numbers, they say. Everybody knows that fiat money is quickly becoming worthless, while 1 Bitcoin = 1 Bitcoin. So why not use the BTC–USD exchange rate as a better metric? Some easy math shows that goods and services in the United States have become . . . a million times more expensive since the introduction of Bitcoin. That sounds about right. Just the other day we paid $5 million for two cups of coffee.

Let’s admit that no one buys Bitcoin as an inflation hedge. People buy Bitcoin because it’s exciting.

Bitcoin is an excellent hedge for boredom. Not long ago, we were locked down, working long days from home, isolated from friends and family. Stimulus checks showed up, but what entertainment could be bought with them? The answer was Bitcoin, as it turned out, which then obligingly appreciated against the boring USD. It was exciting. Money was made, and people felt smart. Join us, crypto evangelicals said, or have fun staying poor in the boring, regulated, dollar-based financial system.

They are right. The dollar is boring. It just goes on being equal to a dollar, mindlessly settling trillions of dollars in payments year after year in the boring dinosaur financial system. Yawn.

Finance is boring. In German, the international language of excitement, something that is boring has the quality of taking “a long while.” And “a long while” is precisely what good finance can give us — time to build something that’s more productive than what we have now. Snore. Bitcoin can’t wait for a long while. Bitcoin is happening now.

Accounting, finance’s little brother, is even more boring. Luca Pacioli, the father of modern accounting, described his system as a method devised by Venetian merchants that allowed them to sleep at night, despite the large sums and stresses involved in their commerce. It was invented to put you to sleep. Now we have the blockchain, which is used by millions of application-specific integrated circuits to keep businesspeople up at night.

When we utter the words “prudent financial-services regulation,” you will enter a state of deep sleep.

Bitcoin hedges against all this boredom inherent in modern finance and will soon cancel it! Bitcoin is taking over the world, while making it more inclusive! Bitcoin is liberating man from tyranny! Bitcoin is a fast car in a world of horses, Wingdings in a world of Times New Roman, a meteor among dinosaurs!

And no one understands how entertaining Bitcoin can be quite like Nayib Bukele, CEO of El Salvador, Bond villain understudy, and the “world’s coolest dictator.” Modern finance has a lot of skyscrapers, but does it have a city on a volcano? Does it let heads of state to trade away their country’s foreign reserves from their phone? Does it create sovereign-debt crises out of nothing? For all of this, you need Bitcoin, the world’s greatest boredom hedge. And indeed, Mr. Bukele has the world’s bond investors on the edges of their boring seats.

It pays to be long boredom sometimes. Aircraft landings and pharmaceutical trials are best when they are boring. When finance gets too exciting, fortunes get lost and crises happen. Being boring has worked out well for modern finance.

Thumbing one’s nose at the institutions of capitalism has some entertainment value — and apparently it sometimes has market value, too. But is that reason enough to replace its heart with a bug-ridden minimum viable product?



Steve H. Hanke is a professor of applied economics at the Johns Hopkins University in Baltimore. He is a senior fellow and the director of the Troubled Currencies Project at the Cato Institute in Washington, D.C. Matt Sekerke is a fellow at the Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise.

National Review