Ep. 31 - Bitcoin & altering time preferences

If we can all agree on one thing, it’s likely the fact that we all “don’t have enough time.” As the ease of transportation, communication, and accessing basic goods and services has become increasingly easy and less time-consuming, our own "free time" has diminished. Dinner is delivered to our door, as are our groceries. Some of us no longer commute. There are mobile mechanics, and basically mobile everything. But still, we have no time.

Why is this the case?

One reason is the hustle culture that is continually glorified in today’s mainstream media. The glorification of hours worked and sacrifices made to achieve one's dream or financial stature. However, I’ll argue in this article that this is actually a small percentage of people. Rather, the majority of people don’t have enough time due to necessity (i.e., they're not scaling a multi-billion dollar company, rather they're trying to put food on the table or send their kids to college). Although technology has caused deflation for many items (we literally have a supercomputer in our pockets), many basic goods continue to rise as inflation trends towards its multi-decade high. With this, ‘side hustles’ have been romanticized. But this is not by choice, rather it has become a necessity.

The graph below is a great example of the absurdity of price increases since 1998. Everything the state attempts to subsidize/control increases in price, and everything the free-market/technology disrupts decreases in price. The main issue is that the state (country) controls much of our physical world (think housing, college, healthcare, etc). And it's the physical world that impacts everyone's bank accounts the most.

Did any of our parents have side hustles? Are they actually needed? They've been glorified, but let's be honest, working five hours on your side hustle after an eight-hour shift is not fun. For some, their side hustle is a true passion. But for most, their side hustle is just for the money.

The culprit? Our monetary system, which has perpetrated decades-long inflation.

As our government continues to print money the value of our dollar diminishes, and our purchasing power lessens with every new bill that gets passed. The silent and hidden tax of inflation is crushing those without assets. They will work, work, and work, but the value of their savings is continually diminished, and the cost of basic goods is rising. You know the feeling when you’re working hard, saving every penny, but it feels like you’re getting nowhere. It sucks. And that is inflation.

With this frustration comes the ‘fuck it’ attitude. People feel like they actually can’t save enough to make a meaningful impact so they don’t save at all. This is defeating at the core. But how can we blame people? Not many people can just ‘save’ $300k for a down payment on an average $1.5m home in the burbs. Nor do they want to. And nor should they.

Fiat money & high-time preference

Fiat money (government-issued currency) and its continuous increase in supply are why individuals fall into the trap of adopting a high-time preference. A high time preference is someone who spends and lives for the moment, as they don’t see a future filled with opportunities. What then unfolds is borrowing money to keep pace with the expenses of today. However, when you borrow money for items that are not assets, you are basically borrowing from your future productivity. You’re borrowing from your future self.

Borrowing from your future self leads to the cycle of debt, a trap that is notoriously difficult to get out of. Just look at Canada… we borrow money to pay for goods and services today, and then need to borrow more money in order to pay back that previous loan, which then constitutes taking another loan, and so on.

This is the result of our current fiat system. Money is printed with ease. This money printing then falls into the hands of the wealthy first, which widens the wealth gap and adds additional angst to the individuals with no assets and high-time preferences.

Thus, with the difficulty of 'getting ahead' at an all-time high, our society has been chasing returns elsewhere ferociously.

Inflation & chasing returns

Since the onset of COVID, we’ve seen inflation run rampant. What has followed is people moving further and further out on the risk curve. People are jumping into meme stocks, investing in SPACS, flipping JPEGS (NFTs), and aping into altcoins. It’s wild, and kind of fun. But why is this?

It’s because the typical 60:40 portfolio is dead and will push people into poverty. If your investment advisor tells you to be in 60% equity and 40% fixed-income - fire them. Immediately. This will garner very little returns. Bonds are dead. ‘Safe, value investments’ are dead. The risk-taking occurring is unfathomable, but again, how can we blame people? They're just trying to protect their future and save their time through capital accumulation.

Bitcoin & low-time preference

In order to understand the link between low-time preference and Bitcoin, we must first understand sound vs. unsound money. Effectively, sound money is typically backed by a tangible asset (i.e., Gold) and is, therefore, less susceptible to inflation compared with fiat money. Sound money has its value determined through market forces rather than artificial interest rates and quantitative easing.

Bitcoin has a fixed supply of 21m and thus is not susceptible to inflationary pressures of money printing. Therefore, in order to acquire more Bitcoin, one must create value in society. Bitcoin as a monetary system would promote a low-time preference as people would be encouraged to save, increase capital accumulation, and create value. On the contrary, an inflationary system incentives consumption and lack of saving. This creates a decline in productivity and lower wages (what we're currently witnessing).

Anyone who has purchased Bitcoin understands the principle of low-time preference. Embodying a low-time preference means investing and acting in ways that will benefit your future self, as your optimism for the future is grand. For example, exercising is the most outward indicator of a low-time preference (you’re putting in the work today without immediate results, with the hope it will benefit you in the future).

Bitcoin allows individuals to embody a low-time preference. Without the fear and anxiety of having our savings inflate away, we can invest for the future. We can spend a year building a business, working on an art project, traveling, or whatever it may be because our purchasing power will remain, or improve. We won’t be losing 10% of our money annually holding cash.

This is an evolutionary technology and one that can shift us towards a more productive, efficient, and healthier society. You want to be on the right side of this.