Three Scenarios of How a U.S. Fiscal Crisis Could Harm Ordinary Americans

Executive Summary

Without a major restructuring of U.S. federal spending, especially that of Medicare, Medicaid, and Social Security, the rising federal debt is likely to precipitate a catastrophic economic crisis no later than 2044. As the federal debt reaches 400% of annual economic output—or higher—the U.S. will simply run out of other people’s money. There will not be enough money in the rest of the world to lend to the United States, forcing the U.S. to accept a dramatic decline in the value of the U.S. dollar.

This paper explores what might happen during and after such a fiscal reckoning. It also contemplates the likely role of bitcoin as a haven for ordinary Americans concerned about the decline in the dollar’s value, much as the dollar is a haven today for people in countries facing high inflation in their local currencies.

If past fiscal and monetary collapses are any guide, there are three basic scenarios for how the U.S. government will respond to such a crisis.

1. The Restrictive scenario. The most probable scenario is that the U.S. attempts to suppress bitcoin through Venezuela-style capital controls, confiscatory taxation, and surveillance mechanisms, such as a central bank digital currency. Such measures would exacerbate economic decline, as people and capital flee the country, provoking social destruction.
2. The Palsied scenario. Partisan polarization and the separation of powers could lead to political paralysis, in which competing interests prevent effective action—either toward reform or repression. While paralysis can prevent the most economically restrictive outcomes, paralysis also prevents Washington from solving the debt crisis. Bitcoin adoption then grows by default rather than by design.
3. The Munificent scenario. The election of a dynamic, reformist President and Congress could lead Washington to enact the necessary structural reforms that protect America’s fiscal future, albeit at a significant short-term cost. The reformers back the U.S. dollar with bitcoin, restoring sound money principles to the U.S. economy, and along with them, American prosperity and global leadership.

A crisis is not just possible, but probable, unless major policy shifts occur. The poorest Americans will be hit hardest in a fiat currency collapse, especially if bitcoin continues to rise. The top 1 percent of Americans own 27 percent of its wealth in U.S. dollar terms. But the top 1 percent of bitcoin wealth owns approximately 87 percent of all bitcoin. A democracy is not likely to tolerate bitcoin’s current level of inequality.

If bitcoin is to survive the coming turbulence, and come out the other side as a valuable tool for lower- and middle-income Americans to protect their savings, the bitcoin community must work harder to more broadly share the gains from bitcoin’s success. In addition, bitcoin stakeholders must plan for the potential repression to come by developing decentralized exchanges in which Americans can exchange dollars for bitcoin. These exchanges can only work if developers are able to build censorship-resistant stablecoins that enable people to exchange digital dollars for bitcoin without the potential for government restriction.

A resilient and censorship-resistant ecosystem for exchanging dollars and bitcoin, in turn, could render obsolete the ability of government to restrict the use of bitcoin, thereby steering policymakers in a pro-reform direction, ensuring the future prosperity of the United States.

Introduction: Then They Fight You

Scholars dispute whether or not it was Mahatma Gandhi who first said: “First they ignore you, then they laugh at you, then they fight you, then you win.” What cannot be disputed is that advocates of bitcoin have adopted the aphorism as their own.

Bitcoiners commonly prophesize that, at some point, bitcoin will replace the U.S. dollar as the world’s predominant store of value.[1] Less frequently discussed is the essential question of exactly how such a transition might take place, and what risks may lie along the path, especially if the issuers of fiat currency choose to fight back against challenges to their monetary monopolies.

Will the U.S. government and other Western governments willingly adapt to an emerging bitcoin standard, or will they take restrictive measures to prevent the replacement of fiat currencies? If bitcoin does indeed surpass the dollar, will a transition from the dollar to bitcoin be peaceful and benign, like the evolution from Blockbuster Video to Netflix? Or will it be violent and destructive, like Weimar Germany and the Great Depression? Or somewhere in between?

These questions are not merely of theoretical interest. If bitcoin is to emerge from the potentially turbulent times ahead, the bitcoin community will need to contemplate exactly how to make it resilient to these future scenarios and how best to bring about the most peaceful and least disruptive transition toward an economy based once again upon sound money.

In particular, we must take into account the vulnerabilities of those whose incomes or wealth are below the rich-nation median: those who, at current and future bitcoin prices, may fail to save enough to protect themselves from the economic challenges to come. “Have fun staying poor,” some bitcoiners retort to their skeptics on social media. But in a real economic crisis, the poor will not be having fun. The failure of fiat-based fiscal policy will inflict the most harm on those who most depend on government spending for their economic security. In democratic societies, populists across the political spectrum will have powerful incentives to harvest the resentment of the non-bitcoin-owning majority against bitcoin-owning elites.

It is, of course, difficult to predict exactly how the U.S. government will respond to a hypothetical fiscal and monetary collapse decades into the future. But it is possible to broadly group the potential scenarios in ways that are relatively negative, neutral, or positive for society as a whole.

In this paper, we describe three such scenarios: a restrictive scenario, in which the U.S. attempts to aggressively curtail economic liberties in an effort to suppress competition between the dollar and bitcoin; a palsied scenario, in which partisan, ideological, and special-interest conflicts paralyze the government and limit its ability to either improve America’s fiscal situation or prevent bitcoin’s rise; and a munificent scenario, in which the U.S. assimilates bitcoin into its monetary system and returns to sound fiscal policy. We base these scenarios on the highly probable emergence of a fiscal and monetary crisis in the United States by 2044.

While these scenarios may also play out in other Western nations, we focus on the U.S. here because the U.S. dollar is today the world’s reserve currency, and the U.S. government’s response to bitcoin is therefore of particular importance.

The coming fiscal and monetary crisis

We know enough about the current fiscal trajectory of the United States to conclude that a major crisis is not merely possible, but probable by 2044 if the federal government fails to change course.

In 2024, for the first time in modern history, interest on the federal debt exceeded spending on national defense. The U.S. Congressional Budget Office—the national legislature’s official, non-partisan fiscal scorekeeper—predicts that by 2044, federal debt held by the public will approximate $84 trillion, or 139% of gross domestic product. This represents an increase from $28 trillion, or 99% of GDP, in 2024.

The CBO estimate makes several optimistic assumptions about the country’s fiscal situation in 2044. In its most recent projections, at the time of publication, CBO assumes that the U.S. economy will grow at a robust 3.6% per year in perpetuity; that the U.S. government will still be able to borrow at a favorable 3.6% in 2044; and that Congress will not pass any laws to worsen the fiscal picture (as it did, for example, during the COVID-19 pandemic).

CBO understands that its projections are optimistic. In May 2024, it published an analysis of how several alternative economic scenarios would affect the debt-to-GDP ratio. One, in which interest rates increase annually by a rate of 5 basis points (0.05%) higher than the CBO’s baseline, would result in 2044 debt of $93 trillion, or 156% of GDP. Another scenario, in which federal tax revenue and spending rates as a share of GDP continue at historical levels (e.g., as a result of the continuation of “temporary” tax breaks and spending programs), yields a 2044 debt of $118 trillion, or 203% of GDP.

But combining multiple factors makes clear how truly dire the future has become. If we take the CBO’s higher interest rate scenario, in which interest rate growth is 5 basis points higher each year, and then layer onto that a gradual reduction in the GDP growth rate, such that nominal GDP growth in 2044 is 2.8% instead of 3.6%, the 2044 debt reaches $156 trillion, or 288% of GDP. By 2054, the debt would reach $441 trillion, or 635% of GDP.

In this scenario of higher interest rate payments and lower economic growth, in 2044 the U.S. government would pay $6.9 trillion in interest payments, representing nearly half of all federal tax revenue.

Just as we cannot assume that economic growth will remain high over the next two decades, we cannot assume that the demand for U.S. Government debt will remain steady. At a certain point, the U.S. will run out of other people’s money. Credit Suisse estimates that in 2022 there was $454 trillion of household wealth in the world, defined as the value of financial assets and real estate assets, net of debt. Not all of that wealth is available to lend to the United States. Indeed, the share of U.S. Treasury securities held by foreign and international investors has steadily declined since the 2008 financial crisis. At the same time that demand for Treasurys is proportionally declining, the supply of Treasurys is steadily increasing.

In an unregulated bond market, this decline in demand paired with an increase in supply should lead to lower bond prices, signifying higher interest rates. The U.S. Federal Reserve, however, has intervened in the Treasury markets to ensure that interest rates remain lower than they otherwise would. The Fed does this by printing new U.S. dollars out of thin air and using them to buy the Treasury bonds that the broader market declines to purchase. In effect, the Fed has decided that monetary inflation (i.e., rapidly increasing the quantity of U.S. dollars in circulation) is a more acceptable outcome than allowing interest rates to rise alongside the nation’s decreasing creditworthiness.

This situation is not sustainable. Economist Paul Winfree, using a methodology developed by researchers at the International Monetary Fund, estimates that “the federal government will begin running out of fiscal space, or its capacity to take on additional debt to deal with adverse events, within the next 15 years,” i.e., by 2039. He further notes that “interest rates and potential [GDP] growth are the most important factors” that would affect his projections.

For the purposes of our exercise, let us assume that the U.S. does experience a fiscal and monetary failure by 2044: that is, a major economic crisis featuring a combination of rising interest rates (brought about by the lack of market interest in buying Treasurys) and high consumer price inflation (brought about by rapid monetary inflation).

Over this 20-year period, let us also imagine that bitcoin gradually increases in value, such that the liquidity of bitcoin, measured by its total market capitalization, is competitive with that of U.S. Treasurys. Competitive liquidity is important, because it means that large institutions, like governments and multinational banks, can buy bitcoin at scale without excessively disrupting its price.

Based on the behavior of conventional financial markets, we can estimate that bitcoin will reach a state of competitive liquidity with Treasurys when its market capitalization equals roughly one-fifth of federal debt held by the public. Based on our $156 trillion estimate of federal debt in 2044, this amounts to approximately $31 trillion of bitcoin market cap, representing a price of $1.5 million per bitcoin: roughly 20 times the peak price of bitcoin reached in the first half of 2024.

This is far from an unrealistic scenario. Bitcoin appreciated by a comparable multiple from August 2017 to April 2021: a period of less than four years. Bitcoin has appreciated by similar multiples on many other occasions previously. And if anything, our projections of the growth in U.S. federal debt are conservative.

Let us, then, further imagine that by 2044, bitcoin is a well-understood, mainstream asset. A young man who turned 18 in 2008 will celebrate his 54th birthday in 2044. By 2044, more than half of the U.S. population will have coexisted with bitcoin for their entire adult lives. A robust ecosystem of financial products, including lending and borrowing, will by then likely have been well-established atop the bitcoin base layer.

Finally, let us speculate that, in this scenario, inflation has reached 50% per annum. (This is somewhere between the over-100% inflation rates of Argentina and Turkey in 2023 and the nearly 15% inflation experienced by the U.S. in 1980.)

In 2044, under these conditions, the U.S. government will be in crisis. The rapid depreciation in the value of the dollar will have led to a sudden drop in demand for Treasury bonds, and there will not be an obvious way out.

If Congress engages in extreme fiscal austerity, for example, by cutting spending on welfare and entitlement programs, its members will likely be thrown out of office. If the Federal Reserve raises interest rates enough to retain investor demand—say, above 30%—financial markets will crash, along with the credit-fueled economy, much as they did in 1929. But if the Fed allows inflation to rise even further, it will only accelerate the exit from Treasurys and the U.S. dollar altogether.

Under these circumstances, how might the U.S. government respond? And how might it treat bitcoin?

In what follows, we will consider three scenarios. First, we contemplate a restrictive scenario, in which the U.S. attempts to use coercive measures to prevent the use of bitcoin as a competitor to the dollar. Second, we discuss a palsied scenario, in which political divisions and economic weakness paralyze the U.S. government, preventing it from taking meaningful steps for or against bitcoin. Finally, we consider a munificent scenario, in which the U.S. eventually ties the value of the dollar to bitcoin, restoring the nation’s fiscal and monetary soundness.

1. The Restrictive scenario

Throughout history, the most common governmental response to a weakening currency is to force its citizens to use and hold that currency instead of sounder alternatives: a phenomenon often called financial repression. Governments also commonly deploy other economic restrictions, such as price controls, capital controls, and confiscatory taxation, to maintain unsound fiscal and monetary policies. It is possible—even probable—that the United States responds similarly to the crisis to come.

Price controls

In 301 A.D., the Roman emperor Diocletian issued his Edictum de Pretiis Rerum Venalium—literally, the “Edict Concerning the Sale Price of Goods”—which sought to address inflation caused by the long-running debasement of the Roman currency, the denarius, over a 500-year period. Diocletian’s edict imposed price caps on over 1,200 goods and services.[2] These included wages, food, clothing, and shipping rates. Diocletian blamed rising prices not on the Roman Empire’s extravagant spending, but on “unprincipled and licentious persons [who] think greed has a certain sort of obligation . . . in ripping up the fortunes of all.”

Actions of this sort echo throughout history until the modern day. In 1971, U.S. President Richard Nixon responded to the imminent collapse of U.S. gold reserves by unilaterally destroying the dollar’s peg to 1/35th of an ounce of gold and by ordering a 90-day freeze on “all prices and wages throughout the United States.” Nixon, like Diocletian and so many other rulers in between, did not blame his government’s fiscal or monetary policies for his country’s predicament, but rather the “international money speculators” who “have been waging an all-out war on the American dollar.”

Even mainstream economists have convincingly shown that price controls on goods and services do not work. This is because producers cease production if they are forced to sell their goods and services at a loss, which leads to shortages. But price controls remain a constant temptation for politicians, since many consumers believe that price controls will protect them from inflation (at least in the short term). Since 2008, the U.S. Federal Reserve has imposed an increasingly aggressive set of controls on what economic historian James Grant calls “the most important price in capital markets,” that is, the price of money as reflected by interest rates.

As explained above, the Federal Reserve can effectively control interest rates on Treasury securities by acting as the dominant buyer and seller of those securities on the open market. (When bond prices rise, due to more buying than selling, the interest rates implied by their prices decline, and vice versa.) The interest rates used by financial institutions and consumers, in turn, are heavily influenced by the interest rates on Treasury bonds, bills, and notes. Prior to the 2008 financial crisis, the Fed used this power narrowly, on a subset of short-term Treasury securities. But afterwards, under Chair Ben Bernanke, the Fed became far more aggressive in using its power to control interest rates throughout the economy.

Capital controls

Price controls are only one tool used by governments to control monetary crises; another is capital controls: hampering the exchange of a local currency for another currency or reserve asset.

In 1933, during the Great Depression, President Franklin D. Roosevelt (popularly known as FDR) deployed a World War I-era statute to prohibit Americans from fleeing the dollar for gold. His Executive Order 6102 prohibited Americans from holding gold coin, gold bullion and gold certificates and required people to surrender their gold to the U.S. government in exchange for $20.67 per troy ounce. Nine months later, Congress devalued the dollar by changing the price of a troy ounce to $35.00, effectively forcing Americans to accept an immediate 41% devaluation of their savings while preventing them from escaping that devaluation by using a superior store of value.

Capital controls are far from a historical relic. Argentina has historically prohibited its citizens from exchanging more than $200 per month of Argentine pesos for dollars, ostensibly in order to slow the decline of the value of the peso. China imposes strict capital controls on its citizens—essentially requiring government approval for any exchange of foreign currency—in order to prevent capital from leaving China for other jurisdictions.

Increasingly, mainstream economists see these modern examples of capital controls as a success. The International Monetary Fund, borne out of the 1944 Bretton Woods Agreement, had long expressed opposition to capital controls, largely at the behest of the United States, which benefits from global use of the U.S. dollar. But in 2022, the IMF revised its “institutional view” of capital controls, declaring them an appropriate tool for “managing . . . risks in a way that preserves macroeconomic and financial stability.”

In our 2044 restrictive scenario, the U.S. uses capital controls to prevent Americans from fleeing the dollar for bitcoin. The federal government could achieve this in several ways:

• Announcing a “temporary,” but ultimately permanent, suspension of the exchange of dollars for bitcoin and forcing the conversion of all bitcoin assets held on cryptocurrency exchanges into dollars at a fixed exchange rate. (Based on our predicted market price at which bitcoin’s liquidity is competitive with Treasurys, that would be approximately $1.5 million per bitcoin).
• Barring businesses under U.S. jurisdiction from holding bitcoin on their balance sheets, or from accepting bitcoin as payment.
• Liquidating bitcoin exchange-traded funds (ETFs) by forcing them to convert their holdings to U.S. dollars at the fixed exchange rate.
• Requiring bitcoin custodians to sell their bitcoin to the U.S. government at the fixed exchange rate.
• Requiring those who self-custody their bitcoin to sell it to the government at the fixed exchange rate.
• Introducing a central bank digital currency (CBDC) in order to fully surveil all U.S. dollar transactions and ensure that none are used to purchase bitcoin.

The U.S. government would be unlikely to execute all of these strategies successfully. In particular, the U.S. will be unable to force all those who self-custody bitcoin to surrender their private keys. But many law-abiding citizens would likely comply with such a directive. This would be a pyrrhic victory for the government, however: the imposition of capital controls would lead to a further decline in confidence in the U.S. dollar, and the cost to the U.S. government of purchasing all bitcoin custodied by American citizens and residents could exceed $10 trillion, further weakening the U.S. fiscal situation. Nonetheless, the government in the restrictive scenario will have concluded that these are the least bad options.

Confiscatory taxation

The U.S. government could also utilize tax policy to restrict the utility of bitcoin and thereby curtail its adoption.

In a world where one bitcoin equals $1.5 million, many of the wealthiest people in the United States will be early bitcoin adopters. Technology entrepreneur Balaji Srinivasan has estimated that at a price of $1 million per bitcoin, the number of bitcoin billionaires will begin to exceed the number of fiat billionaires. This does not imply, however, that the distribution of wealth among bitcoin owners would be more equal than the distribution of wealth among owners of fiat currency today.

According to the Congressional Budget Office, the top 1 percent of U.S. households control 27 percent of U.S. wealth. But the top 1 percent of bitcoin wealth controls 87 percent of all bitcoin in the world.

Fewer than 2% of all bitcoin addresses contain more than 1 bitcoin, and fewer than 0.3% contain more than 10 bitcoin. Addresses within that top 0.3% own more than 82% of all the bitcoin in existence. Given that many individuals control multiple wallets, and even allowing for the fact that some of the largest bitcoin addresses belong to cryptocurrency exchanges, these figures likely underestimate the amount of bitcoin wealth concentration. They compare unfavorably to U.S. fiat wealth distribution; in 2022, the top 1% held merely 27% of all fiat-denominated wealth in the United States.

If bitcoin ownership remains similarly distributed in 2044, those left behind by this monetary revolution—including disenfranchised elites from the previous era—will not go down quietly. Many will decry bitcoin wealth inequality as driven by anti-American “speculators” and seek to enact policies that restrict the economic power of bitcoin owners.

In 2021, rumors circulated that Treasury Secretary Janet Yellen had proposed to President Biden the institution of an 80% tax on cryptocurrency capital gains, a steep increase from the current top long-term capital gains tax rate of 23.8%. In 2022, President Joe Biden, building on a proposal by Massachusetts Sen. Elizabeth Warren, suggested taxing unrealized capital gains–that is, on-paper increases in the value of assets that the holder has not yet sold. This would have been an unprecedented move, since it would require people to pay taxes on earnings they have not yet realized.

It has long been argued that taxing unrealized capital gains would violate the U.S. Constitution because unrealized gains do not meet the legal definition of income, and Article I of the Constitution requires that non-income taxes must be levied in proportion to states’ respective populations.[3] A recent case before the U.S. Supreme Court, Moore v. United States, gave the Court the opportunity to make clear its position on the question; it declined to do so. As a result, it remains eminently possible that a future Congress, supported by a future Supreme Court, assents to the taxing of unrealized capital gains, and/or cryptocurrency gains specifically.

Moreover, a Presidential Administration that does not like the Constitutional interpretations of an existing Supreme Court could simply “pack” the Court to ensure more favorable rulings. The Franklin Delano Roosevelt (FDR) Administration threatened to do precisely that during the 1930’s. The conservative Supreme Court of that era had routinely ruled that FDR’s economically interventionist policies violated the Constitution. In 1937, Roosevelt responded by threatening to appoint six new justices to the Supreme Court in addition to the existing nine. While he was ultimately forced to withdraw his “court-packing” proposal, the Supreme Court was sufficiently intimidated and began approving New Deal legislation at a rapid pace thereafter.

A unique feature of U.S. tax policy is that U.S. citizens who live abroad are still required to pay U.S. income and capital gains taxes, along with the taxes they pay in the country of their residence. (In all other advanced economies, expatriates only pay taxes once, based on where they live. For example, a French national living and working in Belgium pays Belgian tax rates, not French tax rates; whereas an American in Belgium pays both Belgian and U.S. taxes.) This creates a perverse incentive for Americans living abroad to renounce their U.S. citizenship. Every year, a few thousand Americans do so. However, they must first seek approval from a U.S. embassy on foreign soil and pay taxes on all unrealized capital gains. In a restrictive scenario, in which the U.S. Treasury is starved for revenue, it is easy to imagine the government suspending the ability of Americans to renounce their citizenship, ensuring that expatriates’ income remains taxable regardless of where they live.

Right-wing financial restrictions

While many of the restrictive policies described above have been proposed by politicians affiliated with the Democratic Party, Republican Party officials and representatives in 2044 may be just as willing to amplify populist resentment of the bitcoin elite. The United States is already home to a vocal movement of both American and European intellectuals building a new ideology broadly known as “national conservatism,” in which the suppression of individual rights is acceptable in the name of the national interest. For example, some national conservatives advocate for monetary and tax policies that protect the U.S. dollar against bitcoin, even at the expense of individual property rights.

The USA PATRIOT Act was passed by overwhelming bipartisan Congressional majorities weeks after the terrorist attacks of September 11, 2001. It was signed into law by Republican President George W. Bush and included numerous provisions designed to combat the financing of international terrorism and criminal activity, especially by strengthening anti-money-laundering (AML) and know-your-customer (KYC) rules, as well as reporting requirements for foreign bank account holders.

The PATRIOT Act may have helped reduce the risk of terrorism against the U.S., but it has achieved this at a significant cost to economic freedom, especially for American expatriates and others who use non-U.S. bank accounts for personal or business reasons. Just as FDR used a law from World War I to confiscate Americans’ gold holdings, in 2044 a restrictive government of either party will find many of the PATRIOT Act’s tools useful to clamp down on bitcoin ownership and usage.

The end of America’s exorbitant privilege

Bitcoin is remarkably resilient in its design; its decentralized network will likely continue to function well despite restrictive measures adopted by governments against its use. Today, for instance, a considerable amount of bitcoin trading volume and mining activity occurs in China, despite that country’s prohibition of the same, due to the use of virtual private networks (VPNs) and other tools that disguise a user’s geographic location.

If we assume that half of the world’s bitcoin is owned by Americans, and further assume that 80% of American bitcoin is held by early adopters and other large holders, it is likely that most of that 80% is already protected against confiscation through self-custody and offshore contingency planning. Capital controls and restrictions could collapse institutional bitcoin trading volume in the U.S., but most of this volume will likely move to decentralized exchanges or to jurisdictions outside of the U.S. with less restrictive policies.

A fiscal failure of the U.S. in 2044 will be necessarily accompanied by a reduction in U.S. military power because such power is predicated on enormous levels of deficit-financed defense spending. Hence, the U.S. government will not be as capable in 2044 as it is today of imposing its economic will on other countries. Smaller nations, like Singapore and El Salvador, could choose to welcome the bitcoin-based capital that the U.S. turns away.[4] The mass departure of bitcoin-based wealth from the U.S. would, of course, make America poorer and further reduce the ability of the U.S. government to fund its spending obligations.

Furthermore, U.S. restriction of bitcoin’s utility will not be enough to convince foreign investors that U.S. Treasurys are worth holding. The main way the U.S. government could make investing in U.S. bonds more attractive would be for the Federal Reserve to dramatically raise interest rates, because higher interest rates equate to higher yields on Treasury securities. But this would in turn raise the cost of financing the federal debt, accelerating the U.S. fiscal crisis.

Eventually, foreign investors may require the U.S. to denominate its bonds in bitcoin, or in a foreign currency backed by bitcoin, as a precondition for further investment. This momentous change would end what former French finance minister and president Valéry Giscard d’Estaing famously called America’s privilège exorbitant: its long-standing ability to borrow in its own currency, which has enabled the U.S. to decrease the value of its debts by decreasing the value of the dollar.

If and when U.S. bonds are denominated in bitcoin, the United States will be forced to borrow money the way other countries do: in a currency not of its own making. Under a bitcoin standard, future devaluations of the U.S. dollar would increase, rather than decrease, the value of America’s obligations to its creditors. America’s creditors—holders of U.S. government bonds—would then be in the position to demand various austerity measures, such as requiring that the U.S. close its budget deficits through a combination of large tax increases and spending cuts to Medicare, Social Security, national defense, and other federal programs.

A substantial decline in America’s ability to fund its military will have profound geopolitical implications. A century ago, when the United States eclipsed the United Kingdom as the world’s leading power, the transition was relatively benign. We have no assurances that a future transition will work the same way. Historically, multipolar environments with competing great powers are frequently recipes for world wars.

2. The Palsied scenario

In medicine, a palsy is a form of paralysis accompanied by involuntary tremors. This term accurately describes our second scenario, one in which the macroeconomic tremors accompanying bitcoin’s rise are paired in the U.S. with partisan polarization, bureaucratic conflict, and diminishing American power. In the palsied scenario, the U.S. is unable to act aggressively against bitcoin, but neither is it able to get its fiscal house in order.

Today, partisan polarization in the U.S. is at a modern high. Republicans and Democrats are increasingly sorted by cultural factors: Republicans are disproportionately rural, high school-educated, and white; Democrats are more urban, college-educated, and non-white. Independents, who now make up a plurality of the electorate, are forced to choose among the candidates selected for general elections by Republican and Democratic base voters in partisan primaries.

While we can hope that these trends reverse over time, there are reasons to believe they will not. Among other factors, the accelerating development of software capabilities that manipulate behavior at scale, including artificial intelligence—for all of their promise—brings substantial risks in the political sphere. The potential for deepfakes and other forms of mass deception could reduce trust in political parties, elections, and government institutions while further fragmenting the U.S. political environment into smaller subcultural communities. The cumulative effect of this fragmentation may be the inability to achieve consensus on most issues, let alone controversial ones like reducing federal entitlement spending.

In the palsied scenario, the U.S. government is unable in 2044 to enact most of the restrictive measures described in the previous section. For example, paralysis could prevent Congress and the Federal Reserve from developing a central bank digital currency (CBDC) due to adamant opposition from activists but especially from depository banking institutions, who correctly view a CBDC as a mortal threat to their business models. (A retail CBDC obviates the need for individuals and businesses to deposit their money at banks, because they could instead hold accounts directly at the Federal Reserve.)

Similarly, in the palsied scenario, Congress would be unable in 2044 to enact confiscatory taxes against bitcoin holders and the wealthy more broadly. Congress would fail to enact these policies for the same reasons it has failed to date: concerns about such taxes’ constitutionality; opposition from powerful economic interests; and recognition that direct attacks on bitcoin-based capital will drive that capital offshore to the detriment of the United States.

The palsied scenario is no libertarian utopia, however. In such a scenario, the federal government would retain the ability to regulate centralized exchanges, exchange-traded funds (ETFs), and other financial services that facilitate the conversion of U.S. dollars to bitcoin. If a majority of U.S.-held bitcoin becomes owned through ETFs, the federal regulatory agencies would maintain the ability to limit the conversion of bitcoin ETF securities into actual bitcoin, heavily restricting the movement of capital out of U.S.-controlled products.

Most importantly, however, partisan paralysis means that Congress will be unable to solve America’s fiscal crisis. Congress will lack the votes for entitlement reform or other spending cuts. And, by 2044, federal spending will continue to increase at such a rapid clip that no amount of tax revenue will be able to keep pace.

Under the palsied scenario, Americans who hold bitcoin will be better able to protect their savings from government intrusion than under the restrictive scenario. They will not have to flee the country to own bitcoin, for example. This suggests that a significant proportion of the bitcoin community—both individuals and entrepreneurs—will remain in the United States and likely emerge as an economically powerful constituency. But the institutional environment in which they live and work will be frozen in dysfunction. Anti-bitcoin policymakers and pro-bitcoin political donors may end up in a stalemate.

As in the restrictive scenario, in the palsied scenario the failure of the dollar-denominated Treasury bond market could force the United States to eventually get its fiscal house in order. In both cases, creditors may very well demand that the Treasury Department issue debt securities that are collateralized by hard assets. By 2044, bitcoin will have over three decades of validation as a preeminent store of value, and the American bitcoin community will be well positioned to help the U.S. adapt to its new circumstances.

3. The Munificent scenario

The munificent scenario is both the least intuitive and the most optimistic scenario for America in 2044. In the munificent scenario, U.S. policymakers respond to the fiscal and monetary crisis of 2044 by actively moving to remain ahead of events, instead of being compelled to react to forces ostensibly outside of their control.

The munificent scenario involves the U.S. doing in 2044 something similar to what El Salvador did in 2019 or Argentina did in 2023 when those countries elected Nayib Bukele and Javier Milei to their presidencies, respectively. Though Bukele and Milei are different leaders with somewhat differing philosophies, they have both explicitly expressed support for bitcoin, with Bukele establishing bitcoin as legal tender in El Salvador and Milei pledging to replace the Argentine peso with the dollar while legalizing bitcoin. Milei has also used his presidential authority to significantly reduce Argentine public expenditures in inflation-adjusted terms, thereby achieving a primary budget surplus.

Imagine that in November 2044, the U.S. elects a dynamic, pro-bitcoin President, who pledges to adopt bitcoin as legal tender alongside the dollar (à la Bukele) and works with Treasury bondholders to reduce the U.S. debt burden (à la Milei). One could imagine a grand fiscal bargain in which Treasury bondholders accept a one-time, partial default in exchange for Medicare and Social Security reform and an agreement to back the U.S. dollar with bitcoin going forward, at a peg of 67 Satoshis to the dollar (i.e. $1.5 million per bitcoin). Bondholders will likely be glad to accept a partial default in exchange for significant reforms that put the U.S. on a sustainable fiscal and monetary footing for the future.

Such reforms need not punish the elderly and other vulnerable populations. A growing body of research suggests that fiscal solvency need not be at odds with social welfare. For example, the Foundation for Research on Equal Opportunity (FREOPP) published a health care reform plan that was introduced by Arkansas Rep. Bruce Westerman and Indiana Sen. Mike Braun in 2020 as the Fair Care Act. The plan would reduce the deficit by over $10 trillion in a 30-year period and make the health care system fiscally solvent while achieving universal coverage. The bill achieves this in two primary ways: First, it means-tests health care subsidies so that taxpayers are only funding the cost of care for the poor and the middle class, not the wealthy. Second, it reduces the cost of health care by incentivizing competition and innovation, in turn reducing the cost of subsidizing health care. In these ways, the proposal increases the economic security of lower-income Americans while also increasing the fiscal sustainability of the federal government.

Similarly, the U.S. could reform Social Security by transitioning the Social Security trust fund from Treasury bonds to bitcoin (and/or bitcoin-denominated Treasury bonds).[5] Such an idea is less practical in the era of high volatility which has characterized bitcoin’s early history, but by 2044 the bitcoin-dollar exchange rate is likely to be more stable. The post-ETF maturation of bitcoin trading, as large financial institutions introduce traditional hedging practices to the asset, has significantly reduced bitcoin’s dollar-denominated price volatility. Soon, bitcoin’s price volatility may resemble that of a stable asset like gold. By collateralizing Social Security with bitcoin, the U.S. could ensure that Social Security lives up to its name, providing actual economic security to American retirees in their golden years.

The munificent scenario has additional benefits. The U.S. government, by directly aligning itself with bitcoin’s monetary principles, could help make the 21st century another American one. It is highly unlikely that America’s primary geopolitical rival, China, would legalize a currency like bitcoin that it cannot control. America’s culture of entrepreneurship, married with sound money, could lead to an unprecedented era of economic growth and prosperity for the United States. But this would require U.S. leaders to place the nation’s long-term interests ahead of short-term political temptations.

Maximizing the probability of the Munificent scenario

The three scenarios we have described—restrictive, palsied, and munificent—differ in their probabilities and outcomes.

Because a version of the restrictive scenario has played out in the vast majority of countries facing fiscal and monetary failures, and given the United States’ own history of behaving similarly, especially during the 1930s, we must assign the greatest probability to restriction. By contrast, visionary leaders and sound economic reforms are relatively unusual throughout history, so we must assign the lowest probability to the munificent scenario. The palsied scenario falls in between.

Which path will the United States choose? The stakes are high. The outcome of the restrictive scenario—for all Americans, whether wealthy or poor—is easily the worst, whereas the outcome of the munificent scenario could lead to a far more prosperous America than the one we now inhabit. The palsied scenario, while not as damaging as the restrictive one, will nevertheless lead to a collapse of the American economy, an exacerbation of inequality, and increased instability around the world.

The important question then becomes: what can Americans do to maximize the probability of the munificent scenario, while minimizing the probabilities of the palsied and restrictive ones?

One important strategic goal for American proponents of bitcoin must be to strengthen their presence in Washington. It is well known that lobbying is extremely influential upon policymakers. There are today a number of lobbying organizations in Washington that represent cryptocurrencies more broadly. But the emergence of thousands of cryptocurrency tokens with very different monetary and political philosophies since 2017 has made it difficult for these organizations to clearly advocate for bitcoin’s monetary principles.

Emerging organizations may grow to fill the need for bitcoin-specific advocacy in Washington and state capitals. Non-partisan, pro-sound-money think tanks like the Bitcoin Policy Institute, the American Institute for Economic Research, and the Foundation for Research on Equal Opportunity will also play an important role. But the bitcoin ecosystem needs a much larger number of organizations, representing different aspects of the bitcoin economy and explicitly empowered to lobby members of Congress and the executive branch on bitcoin’s behalf.

In order to support a wider and deeper effort at education and advocacy, it is also essential to grow the bitcoin ecosystem: in particular, by advancing a broad financial infrastructure built on top of bitcoin. Pro-bitcoin businesses with billions of dollars in revenue—and, ideally, tens of thousands of employees—will have the most potential to persuade Congress of bitcoin’s public benefits. Policymakers care not only about a lobbyist’s ability to support their electoral campaigns, but also about how businesses impact employment opportunities for their constituents.

Some purists within the bitcoin community argue that the ecosystem should focus purely on using the bitcoin base layer as a store of value and a medium of exchange. But in a free market characterized by a wide variety of financial services, this kind of limitation is profoundly unwise and difficult to enforce. As the introduction of bitcoin ETFs has shown, there is enormous value in expanding bitcoin’s utility beyond its own blockchain. Thanks to ETFs, some of the most powerful financial institutions in America, including BlackRock and Fidelity, now have a strong economic interest in bitcoin’s success. This raises the probability of an eventual munificent scenario.

ETFs can be seen as the first examples of widely adopted bitcoin layer 2 (L2) applications. ETFs are, in effect, an application programmable interface (API) that connects bitcoin’s blockchain to the traditional financial system. Thanks to the activation of the Taproot upgrade to Bitcoin in 2021, layer 2 applications can now attach themselves to bitcoin’s proof-of-work consensus model by inscribing data directly onto the Bitcoin blockchain. As a result, advanced financial applications can be run independently of Bitcoin’s base layer while still taking advantage of the base layer’s secure and decentralized method of recording transactions. Layer 2 applications (L2s)—especially those that enable a wide range of smart contracts—may enable the full stack of financial use cases to emerge on top of Bitcoin, such as borrowing, lending, and tokenized securities.

These L2s not only enhance the liquidity and utility of bitcoin as a form of money; they increase the transaction fees that miners earn from securing the Bitcoin blockchain. Fees, in turn, encourage more people to participate in bitcoin mining, increasing the Bitcoin network’s resilience and furthering its decentralization. Importantly, L2s also expand the number of businesses that have an economic stake in the regulatory and legal success of bitcoin.

Aside from expanding the ecosystem of bitcoin-based enterprises, raising the probability of a munificent scenario requires us to also dramatically increase the number of Americans who have a meaningful stake in the success of bitcoin. More than 90% of Americans today own less than 0.1 bitcoin, and 78% of Americans live paycheck-to-paycheck. The Bitcoin community needs to come up with creative ways to engage those who have less opportunity to save. U.S. policymakers have intentionally devalued the dollar in order to reward consumption and punish saving. Bitcoin has exactly the opposite effect. Bitcoin advocates would do well to highlight examples of ordinary, industrious people who have increased their economic security by saving in bitcoin.

Bitcoin advocates should also invest in the development of decentralized, peer-to-peer exchanges which allow users to convert fiat currencies into bitcoin. Decentralized exchanges, while not invulnerable to government interference, are by their nature more resilient to shifting policy environments. Civkit, one promising approach, builds on the Lightning and Nostr protocols to achieve such resilience. THORChain is another. Several others are in development as of this writing.

Decentralized exchanges will not work unless developers can build a censorship-resistant way to exchange U.S. dollars and other fiat currencies for bitcoin. This, in turn, makes it essential that bitcoiners assist in the development of stablecoins—blockchain-based U.S. dollars in particular—that are easily tradeable into and out of conventional cash and bitcoin in a way that is resistant to capital controls. In 2025, the U.S. Congress is actively considering stablecoin legislation which may or may not serve this purpose.

Finally, bitcoiners must dedicate themselves to developing concrete, workable, politically viable solutions to America’s fiscal crisis. It is tempting—and intellectually easier—to ignore the hard problems and simply “stack sats” (i.e. to gradually accumulate fractions of a bitcoin called satoshis). But as our scenario analysis shows, ignoring the hard problems carries significant risks. The American economy is hurtling toward fiscal and monetary collapse, and it is far from guaranteed that bitcoiners will have somewhere else to go.

On the other hand, if bitcoiners put their creativity and intellect to work in solving America’s most challenging fiscal problems, and in making bitcoin valuable to Americans in all income brackets, the economic benefits of bitcoin for the United States will be far greater than we can today imagine.

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Endnotes

[1] A widely held view among academic economists is that in order for something to be considered money, it must serve as a store of value, a medium of exchange, and a unit of account. These features of money are not binary, but rather reside on a continuum; some forms of money are better stores of value, and others might be more widely used in trade and commerce. Bitcoin’s emergence as the premier store of value is the most significant development, because this is what fiat currencies do most poorly. See Friedrich Hayek, Denationalisation of Money, 2nd ed. (London: Profile Books, 1977), 56-57.

[2] When the denarius was introduced circa 211 B.C., it contained around 4.5 grams of silver. In A.D. 64, the Roman emperor Nero reduced the amount of silver to 3.5 grams. By the time of Diocletian’s reign, there was almost no silver left in the denarius, and the currency was abolished. For further reading on hyperinflation in ancient Rome, see H.J. Haskell, The New Deal in Old Rome: How Government in the Ancient World Tried to Deal With Modern Problems (New York: Alfred A. Knopf, 1947).

[3] Franklin D. Roosevelt enacted a 7 to 27 percent “undistributed profits tax” on corporations in 1935. It was repealed in 1939, after evidence piled up that the tax was causing heavy damage to the economic recovery.

[4] Some bitcoin-based wealth may be denominated in fiat currencies, such as equity stakes in digital asset exchanges like Coinbase and bitcoin mining companies like Marathon Digital Holdings.

[5] Under 2024 forecasts, the Social Security Trust Fund will be fully depleted by 2033. We assume, for the purposes of our scenario analysis, that Congress finds a short-term solution before then that postpones Social Security’s reckoning past 2044.