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Is Bitcoin a currency that can magically increase overall purchasing power? It’s not that simple.
Purchasing Power = Productivity
Purchasing power depends on our productivity. That is, the amount of things produced per person. This productivity can only come from machines since we only have two arms and two legs. A sewing machine, a truck, a backhoe, a pickaxe, etc.
However, these machines need energy. Over 95% of global transport runs on fossil energy, which is oil. A pickaxe doesn’t consume energy, but it requires energy for its manufacturing. Iron ore needs to be transported to its melting point (1,538 °C), a very energy-intensive process.
All this to say that it is not enough for the amount of currency in circulation to be fixed for us to magically improve our standard of living. Productivity isn’t a monetary trick. It’s energy!
The problem, we surpassed the peak of conventional oil (the cheap-to-extract one) in 2007.
Second problem, more than half of the world’s GDP is “contained” in international trade. The global economy is now entirely interconnected. Not a single everyday item, whether it’s a chair, a coffee machine, a t-shirt, a sports accessory, or a bottle of dishwashing liquid, escapes globalization. Part or all of these things required a foreign raw material or manufacturing step.
In other words, the energy decline will be accompanied by deglobalization and a physical reduction in trade. This will result in inflation, a lot of inflation. We are there. It’s time to exchange bank savings (whose value is being eroded by inflation) for a safe haven asset.
This is where Bitcoin can help. But first, let’s talk about the peak.
Oil Peak? Excuse me?
What peak? We’ve never produced so much oil, some will say. True, but it all depends on what type of oil we’re talking about.
Global oil production figures are skewed by the inclusion of oil types that are not used to produce the fuels essential for ships, cars, and trucks, without which the economy would collapse.
Jean-Marc Jancovici points out on his Linkedin page that “real oil” consists of molecules with at least five carbon atoms.
« But here’s the thing: the IEA has the habit of including ‘gas liquids’ like ethane, propane, and butane, which come from gas fields, and are not the basis of fuels but of plastic. There are about 13 million barrels/day, not a trifle! Not to mention biofuels », he argues.
For the polytechnic, crude oil production (82 million barrels/day) will continue to stagnate for a few more years before starting to decline from 2030.
The direct consequence will be a reduction in the physical flows underpinning the economy. The law of supply and demand being what it is, this decline will manifest itself as inflation.
Granted, oil production hasn’t declined yet. However, the profitability of conventional oil is $30 per barrel, compared to $65 for new shale oil wells. And $200 in Antarctica. The last bits of oil are more expensive to extract. Hence the rise in pump prices.
This rise in naphtha prices translates into a general rise in inflation since everything produced must be transported, often from the other side of the world…
Productivity = Machines = Energy = (Cheap) Oil.
Less energy and/or more expensive energy means less purchasing power per person.
« No worries, let’s go all-in on nuclear »
Unfortunately, nuclear represents only a tenth of the world’s electricity and barely 4% of total energy. The fission of the atom cannot replace fossil energies (82% of final energy in 2023) within a few decades.
The world currently has 440 nuclear reactors. Moving from 4% to 100% of energy would require building about 11,000!
We won’t get there since only 61 reactors are currently under construction and it takes eight years to build one. At this rate, it would take the world 1,400 years to fully run on nuclear power…
-61 nuclear power plants are currently under construction worldwide, and about 90 more are in the planning phase.
-The price of uranium has increased by 233% over the past five years, more than triple the price of gold or copper.”
Another problem, we have a constraint on copper and lithium. These essential elements of all-electricity are limiting factors.
What about the ITER project? Doesn’t nuclear fusion promise infinite and carbon-free energy? First, we need to know how to generate plasma at several million degrees continuously, compared to just six minutes currently… And be able to “recover” this energy in the form of electricity.
Moreover, the problem of delays remains, as does the constraint on the copper/lithium tango. According to JM Jancovici, a potential prototype of a fusion reactor won’t arrive before 2100…
Bitcoin
The physical limits of our exhausted planet will impose themselves on our wallets, no matter what we vote for… This is already the case. Blaming politicians or central banks won’t change geological reality.
Austrian school economists who repeat endlessly: « abundance through scarcity » are in denial. Fixing the money supply isn’t enough to bring oil to life. There’s no lithium, no gas, no nuclear power plant on the blockchain…
[Don’t miss our article: Austrian Economists Slow Bitcoin Adoption.]
Energy is a limiting factor for globalization. The reduction of trade (which will come, “sooner or later”) will be accompanied by a drop in productivity. In France, the peak in the number of square meters built and tons loaded onto trucks dates back to 2007, the year of the cheap oil peak…
In summary, inflation will worsen and benefit the rich who own desirable assets. These assets include prestigious real estate, great masters’ paintings, collectible items, etc. Things that are not within reach of small savings which, on the contrary, suffer from inflation.
The only asset appreciating faster than inflation while being available to the average person is the stock market. But who can claim to pick the right horse?
This is why Bitcoin is perfectly suitable for the masses. It’s magical in that sense. It’s not hard to understand that Bitcoin is the only thing in the world existing in an absolutely finite quantity and accessible to everyone.
Bitcoin is divisible into 100 million satoshis, not the Mona Lisa. Everyone can buy 10, 100, or 1000 euros worth of Bitcoin. Bitcoin is the poor man’s Mona Lisa. It is a bulwark against the widening of inequalities.
If you liked this article, you will surely enjoy this one: Bitcoin and Endless Inflation.
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Bitcoin, geopolitical, economic and energy journalist.
