Bitcoin and the American middle class
American entrepreneurs should take a second look at bitcoin investment and mining.
When inflation is at 7% and wages grow at 5%, the average American experiences what is called negative real wage growth. Sure, the salary might be increasing, but cost of living is advancing at a faster pace. Consumer prices are not the only outlay of the American family—owning a home, considered part of the American dream, has become unaffordable for many because prices are climbing by 18%. Does bitcoin have any role to play in negative real wage growth?
Where’s the optimism?
This week I read a pair of articles with depressing titles.
The first one is from NYT about Spokane, Washington:
This piece tells the tale of how only a few thousand net new residents per year resulted in a doubling of housing prices, outstretching affordability for some Spokane millennials looking for a first home. Spokane is experiencing an echo boom—as prices in large cities continue to rise and work-from-home/gigging becomes a fixture in the labor market, people have more mobility than ever. They are flocking to beautiful, underpriced American cities, such as Spokane.
My prediction off the back of this article is that the trend of rising real estate prices in previously sleepier towns will certainly continue. The United States has hundreds of small but vibrant cities around the country where real estate is still somewhat affordable. Soon enough, price discrepancies will arbitrage themselves away, as the online economy allows more people and companies to relocate.
The second depressing headline was this from the WSJ:
This one goes deeper into some of the frustrations of today’s American middle class. Mom and pop business owners are struggling with the supply chain, political polarization, and crime which all contribute to their woes, but the overarching teeth-grinder comes back to how living expense increases are far outstripping any wage growth.
The article from WSJ is well written and captures American sentiment as we storm into an inflation-infested 2022. But both articles’ lack of enthusiasm doesn’t sit right with me.
Bitcoin is not a silver bullet
Bitcoin enthusiasts love the phrase “bitcoin fixes this.” I’m one of them. I believe that over a long enough time horizon, bitcoin remedies the overbearingly burdensome moral hazard embedded in our financial system. That will take many years, likely decades to fully unfold. But I’m here for the ride.
I’m more hesitant to exclaim that bitcoin fixes the middle class’ negative real wage growth as a silver bullet, but I can demonstrate a few ways that I know from personal experience how bitcoin has helped American families over the past few years—practices that come with risk but also reward.
Owning bitcoin as a long-term inflation hedge
In 2017, bitcoin was experiencing a “bubble.” I put the term in quotes, because as I explain in my book Layered Money, bubbles don’t constantly burst and come back stronger each time. During 2017, friends and colleagues of mine bought bitcoin simply because of the hype, many without understanding what they had purchased. Most of them made buys in the $10,000 to $14,000 range. I’m marking the average “bubble buy” of 2017 at $12k.
During 2021, the pandemic narrative played out well for bitcoin as a global online currency free of discretionary monetary policy. The price traded through the $48,000 area for 20 weeks, sporadically, throughout the year. This gave even the 2017 “bubble buyer” the opportunity to comfortably lock in a 4x return. Some of that windfall was sold to offset cost-of-living increases. Hindsight is crystal clear, but there are thousands of Americans, some who are loyal subscribers to this publication, that can confirm such a scenario was possible and indeed captured.
The takeaway is education matters. By reading about bitcoin (there are dozens of high quality books in circulation), it’s possible to see bitcoin’s role in our economy and more likely for the reader to have bitcoin occupy a place in one’s portfolio.
Mining bitcoin can be a powerful real estate arbitrage force
I recently met a married couple who own a bitcoin mining business, operating in Maine. They found modestly priced electricity and ideal climate to operate a small setup of miners and generate positive cashflow. Frustrated with expensive housing in a major city? Consider what some have done and move to a city with cheaper housing, affordable electricity, and mine bitcoin. I’m far from a mining expert, but I suggest starting with Riot Blockchain’s website if you want to see how made-in-America bitcoin mining is achieved at the publicly traded level. Mom and pop mining, with the correct planning, is one way that American entrepreneurs can explore real estate and energy price arbitrage.
The American middle class should take a second look at bitcoin
Isn’t it too difficult to have known to invest in bitcoin in 2017? Isn’t it too hard to figure out how to mine bitcoin? No, because this the American dream for real people now. The current generation sees the internet and bitcoin economies as worthwhile pursuits, giving participants an outlet for their creativity, ambition, and desire to change the world for the better. Just today, I was looking at elementary school brochures in which coding begins in 1st grade. Bitcoin deserves the positive attention of everyday Americans, even if their chosen media outlet fails to deliver it.