Fracturing Bitcoin

Obviously, there is lots of coverage around the FTX catastrophic failure. What about its influence on bitcoin in coming years?

Initially published on Bitcoin Magazine with another title.

FTX is the greatest excuse, whether planned or not, to further control bitcoin on-ramps and take away the possibility of self-custody and true ownership.

I don’t care about shitcoin casinos, as most will probably be regulated as securities exchanges or shut down due to outright fraud or insolvencies. This is almost a done deal. But what about bitcoin?

Let’s play a game and speculate on the effect of FTX on bitcoin.

Bitcoin usage is going to, gradually then suddenly, split. It’s been in the works since the genesis block produced on January 3rd 2009. There will be two ways to use bitcoin. It’s almost always been true but the distinction will be more clear cut soon enough. What do I mean by that?

Regulators are going to regulate

That’s what they do. But bitcoin cannot be regulated. So? Custodial ramps such as exchanges, brokers and lenders will be attacked. Self-custody is most likely going to be regulated out of the market for most buyers. It will become very hard to buy bitcoin and take full custody of it on these venues. Close to impossible. This date is coming soon.

Quick anon, you still have time. But how much? 3 years or 6 months? Unclear. Soon enough, it will be close to impossible to buy bitcoin and hold your own keys. Most custodial entities, which are trusted third parties, will be prevented from allowing users to withdraw. Yes, under the disguise of regulatory compliance and consumer protection. You will buy paper bitcoin. Lots of it. Call it fake bitcoin. These are IOUs to get artificial exposure to the price of bitcoin. You will not be able to claim that IOU and redeem it. Hold it on keys that you have created and control with your own hardware devices? Forget it. It will be very hard. Few businesses will allow that, and fewer will fight for that right to financial sovereignty. It will be about selling paper bitcoin or stopping operations for most companies. Most will probably comply by selling fake bitcoin.

On one end, you will buy bitcoin IOUs on custodial entities with full KYC, automated tax reporting, and zero privacy. Bitcoin is going to be used as the underlying global financial surveillance network, the likes of which we have not seen yet. Regulated companies will form a network of compliance on top of bitcoin, and prevent you, anon, from holding what could have been yours truly. Perhaps even wrap it into a CBDC to protect you against the volatility of bitcoin down the line. You will buy paper bitcoin and be happy. Only way out is to sell paper bitcoin for fiat. Not glorious.

Bitcoin is black market money

On the other end, bitcoin will flourish as the tool that it always ought to be: black market money. This will be the beginning of a new era for bitcoiners on zero fiat. Bitcoiners running full nodes, paying for stuff with hard earned sats, peer to peer, with full privacy and open source software.

Coinjoins will be the norm for most bitcoiners to protect their financial transactions from being surveilled by chain analysis companies, and only share what they want with who they want. Some call it a circular economy, others would call it the black market. It will operate 100% on webs of trust outside the realm of state regulations.

Bitcoin will be bought without KYC between peers, using cash or bank wires when possible. The best way to get sats will be to earn them via useful work, or mining by directly processing unconfirmed bitcoin transactions. It’ll be a salvation for liberty and a small breath of fresh air in the era of digital surveillance. The rest of the fake bitcoin network that is choked by regulation will ultimately collapse under its own weight due to massive amounts of fractional reserves.

How many paper bitcoins are out there even today? A reasonable guess is that it’s more than 21 million. Probably much more than that. Once the regulated house of cards of bitcoin paper traders collapses entirely and bitcoin pumps to infinite amounts of fiat per sats, bitcoin will have succeeded in freeing itself from any state intervention and parasites. That road will be long and sinuous. It will get worse before it gets better.

Until then, the bitcoin fiat exchange rate could be severely suppressed, for many years. It already is as most custodial exchanges sell paper bitcoin that rarely gets redeemed to settle real bitcoin UTXOs to self-custodial wallets. Self-custody will be demonized with hefty fines and government sponsored intimidation as with the infamous 6102 executive order.

Are you ready, anon?

Don’t miss out. It’s time to take back what’s yours. Be a sovereign individual. Hold your own keys. Run your full node. Take full responsibility for your freedom. It’s simple but not easy. This is your chance to redeem yourself and choose what’s right for you and your family. Nobody’s coming to save you. Are you going to? Until then, tick tock, next block.

Subscribe to Thibaud Marechal

Don’t miss out on the latest issues. Sign up now to get access to the library of members-only issues.