Will Luther and Josh Hendrickson on the future of Bitcoin

Will Luther is an associate professor of economics at Florida Atlantic University and a fellow at the Bitcoin Policy Institute. Josh Hendrickson is a professor of economics and the chair of the economics department at the University of Mississippi. Josh is also a fellow at BPI. Will and Josh return to the show to defend the idea of a strategic Bitcoin reserve, discuss the future of Bitcoin, and contend with the problem of Bitcoiners, and much more.  

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This episode was recorded on June 25th, 2025

Note: While transcripts are lightly edited, they are not rigorously proofed for accuracy. If you notice an error, please reach out to [email protected]. 

David Beckworth: Welcome to Macro Musings, where each week we pull back the curtain and take a closer look at the most important macroeconomic issues of the past, present, and future. I am your host, David Beckworth, a senior research fellow with the Mercatus Center at George Mason University. I’m glad you decided to join us.

Our guests today are Will Luther of Florida Atlantic University and Josh Hendrickson. They are past guests of MacroMusings, and they join us today for a very special episode coming live from the Bitcoin Policy Institute’s 2025 Summit. They join us today to discuss why we should care about crypto when we think about the future of monetary policy and fiscal policy. Gentlemen, welcome back to the program.

Will Luther: Yes, great to be back.

Josh Hendrickson: Great to be here.

Beckworth: It’s great to have you on, and it’s great to see that Josh is having some bling on, some real style here for those who are listening to the audio. He’s dressed up with Vibes Capital.

Hendrickson: Yes, Vibes Capital Management. They’ve endowed my professor position with vibes.

Beckworth: Lots of vibes.

Hendrickson: No money, but lots of vibes.

Beckworth: Lots of vibes, yes.

Hendrickson: Tons of vibes.

Beckworth: A lot of fun things happening here at this institute, this event. You two had a presentation, real brief one. Everyone had a brief presentation today, and we want to talk about those issues. Also want to mention that we have some new merch for listeners out there, and for those who might see this on video, we got some new nominal GDP targeting stickers as well as our mugs. In fact, you two have your nominal GDP targeting mugs, correct?

Luther: Long-time nominal GDP mug drinker.

Strategic Bitcoin Reserve

Beckworth: That’s right. I tell you what, listeners, go back and check out Will’s initial episode where we talked about money in Somalia, a really fascinating case study of how fiat money effectively evolved into commodity money as the state collapsed. Really fun story, as well as a theory of money, whether state- or market-driven. Today, gentlemen, I want to talk about crypto. Why should we—and I say we, people who listen to this program, a lot of people at the Fed, the policy world, academics, journalists, who normally follow traditional monetary policy, fiscal policy—why should they care about crypto, in particular Bitcoin?

We’re here at the Bitcoin Policy Institute’s annual summit, and I want to motivate this question by telling a background story, and you’re going to be the end of the story. You’re going to be the closing of the story. The story starts a few months back when Matthew Pines, who’s the executive director of Bitcoin Policy Institute, he comes on the podcast, and we talk about a lot of things, but one thing he talks about is how Bitcoin’s becoming very important in the financial system, and how it could be tied to stablecoins, and just how it could be tied to the dollar. 

Okay, a few months go forward, George Selgin comes on, and he proceeds to eviscerate Matthew Pines on the podcast. He has several posts where he pushes back on that. I want you to be the end of the story. I want you to come back and clean up what George did, and tell us why there is still a case for specifically the Bitcoin strategic reserve, and again, why we should think about this issue more than just it’s a novelty investment asset. Yes, it’s large, but why it really might matter to national security, to finance. Will, let me start with you, because I know you had an interesting argument to lead off the conversation this morning in your presentation.

Luther: Why don’t I say something first about George? I know that regular listeners of Macro Musings will know George, but many Bitcoiners don’t. You may pick up some pro-Bitcoin listeners here for this episode. I think that most folks who encounter George in the Bitcoin space just see someone who’s writing negatively about, say, the strategic Bitcoin reserve, and they don’t realize his long history in this space. If you go back to the mid-’90s, George and also Larry White, they were involved in conversations with folks like Hal Finney and Nick Szabo.

They were in this cryptocurrency space before it was a cryptocurrency space. I think of them as proto-Bitcoiners. As a consequence of that, anytime I’m disagreeing with George on something, I’m very hesitant. There’s a good chance I’m wrong, because he’s been thinking about these things for so long. Respect where respect is due there for George. He has several pieces, as you mentioned, on the strategic Bitcoin reserve. In one of those, he asks whether or not this is necessary, whether we actually need a reserve asset. He takes this question in a few phases.

He says, “Well, do we need foreign currency? Is there some role for gold? Then given those traditional reserve assets, is there some scope for an asset like Bitcoin to play?” If you read his piece, at risk of oversimplifying his argument, essentially what he says is that the US doesn’t need a reserve asset because the dollar is so entrenched. It’s hard to disagree with the point that the dollar is so entrenched, but it doesn’t necessarily follow from that that the US doesn’t need a reserve asset. No one thinks that there is a risk of de-dollarization right this moment.

The concern is that at some point in the future, the dollar will stop playing that role as an international reserve currency, and it’s at that point where you might want a reserve asset to be able to protect your exchange rate or something like that. You can think of this more as an insurance policy. I have insurance on my house. My house hasn’t burned down in the past. I don’t have any real concern that my house is on fire at the moment. I think that the risk that my house burns down is very, very low, and yet I have insurance because that’s a prudent thing to do.

Beckworth: Bitcoin is the best crypto asset currently in which to insure.

Luther: Yes. If you’re thinking in terms of, say, a market-cap-weighted portfolio, Bitcoin has the largest market cap of any cryptocurrency. If you’re talking about cryptocurrencies, you’re almost exclusively talking about Bitcoin. It would make sense that that would be the asset that you’re focusing on.

Hendrickson: Yes, I would say there’s two ways to approach this question. One way is like a typical academic way, which is in the abstract, is this something that we need, is this something that we want? I think, another way to look at it is to notice that policymakers are actively talking about it, and then try to ask yourself, why? Why are they talking about it? What do they see? It’s always possible that policymakers are wrong, or it’s always possible that there’s also a cynical interpretation of what policymakers are doing. I think that as economists, we owe it to ourselves and to policymakers to try to understand where they’re coming from.

I think that if you listen to what a lot of the policymakers who are talking about Bitcoin are worried about, they’re worried about rising levels of US government debt. They’re worried about the dollar’s future status as a global reserve currency. I think to some extent, some of the support for Bitcoin, if you listen to the politicians, is driven by this idea that if people are going to diversify away from the dollar, the US government would want them to diversify toward neutral reserve assets. I don’t think it’s a coincidence, for example, that they’re talking about Bitcoin, but at the same time, they’re also talking about gold because that’s what they have in common.

These are neutral reserve assets. There’s no single issuer of gold. There’s no single issuer of Bitcoin. If you think about it that way, one of the reasons that the United States is so hesitant to give up dollar dominance, one of the reasons why it’s so protective of it, one of the reasons why they’ve undertaken policies for decades to maintain that status is they recognize that that status confers benefits, at least for the United States government, if not the United States overall.

Because of those benefits, they not only don’t want to lose those benefits, they don’t want to transfer those benefits to some other sovereign country. If people are substituting away from dollars toward some other sovereign currency, then this could represent a transfer from the US to these other places, whereas if they’re diversifying away from the dollar but toward neutral reserve assets, well, there might be some cost to the United States, but there’s not any transfer. None of those benefits are accruing to some other sovereign country.

Beckworth: You’re saying the insurance should be in Bitcoin because we would hold a lion’s share of it. If these other countries do acquire Bitcoin, we still have some control, some influence over this. It’s a neutral asset, but we have a lot of it. What’s the model here?

Hendrickson: I think there’s two aspects to this. One is if you expect that Bitcoin is going to take off and be a global reserve asset, then it’s going to be worth a lot more dollars in the future than it is today. If you were to accumulate it now, then you would accumulate all of that value over time. The other issue is that it might be about creating a permission structure for other people to adopt Bitcoin. It might be from the US perspective, the politicians might be more interested in signaling to the rest of the world that, “Hey, this has our implicit approval. You should be willing to adopt it as well,” and creating that permission structure that’s pushing people more toward these neutral reserve assets.

Luther: Another question, I guess, would be what’s the alternative? Do you want it to be the yuan? Is that what the US government should be stockpiling? That has a lot of political risk associated with it. How about the euro? We don’t have a lot of options here. Traditionally, the option has been gold. We already hold some gold. Indeed, there’s an aspect here of George’s argument, which comes close to implying that this is a strategy with a near-zero marginal cost. When he talks about why the US holds gold, he basically says, “Well, it’s just for historical reasons. There’s no good reason that the government continues to hold this stock of gold.” It does. There seems to be no appetite for getting rid of it. 

It seems pretty clear that the US government is going to hold some asset. If it can swap some of its gold holdings for an asset like Bitcoin or if it can borrow against its gold holdings to purchase Bitcoin, that seems like a relatively low-cost strategy given that just outright selling the gold stock doesn’t appear to be an option.

Beckworth: I can see this argument. It’s insurance against future rival reserve currencies. Get ahead of the game before it gets costly to engage in this alternative. How much should we do this? I believe the number is 5% right now, a million dollars-worth of Bitcoin. Is that the number that’s being proposed?

Luther: There’s a range.

Beckworth: It’s not a big number, right? What’s the total amount of Bitcoin possible?

Luther: There are 21 million coins.

Beckworth: 21 million. We’re talking about $1 million or so, or is it larger than $1 million?

Luther: The dollar value, of course, is going to fluctuate. That’s what ultimately matters for a reserve currency for the US.

Beckworth: I guess, again, my question is, how much Bitcoin should we be purchasing, loading up on now, if these are legitimate concerns to think about in the future?

Hendrickson: It depends on what your objective is. If your objective is to try to capture the potential capital gains on that Bitcoin—I think this is the thing that makes it challenging, is I think that there’s not only competing proposals about how much to buy. There’s also competing arguments about what they’re trying to achieve. The way that some people frame this is they frame it as, “Well, this could potentially allow us to pay down some debt in the future.” If we expect Bitcoin to actually take off and compete with things like gold as a reserve asset throughout the world, well, then that means Bitcoin is going to be worth 20 times what it’s worth right now.

If that’s the case, well, then potentially you could use it to pay down some debt later on if you bought it now, and that scenario does play out. Then you can sell some later to pay down the debt if the debt continues on its unsustainable trajectory. I think the people who are thinking about using this as a tool to potentially pay off some of the debt, they’re the ones who are advocating much larger purchases, because in order to make a meaningful dent, you would have to buy a large amount and then hope that that scenario plays out where Bitcoin is worth 20 times what it’s worth now.

Other people, I think, are more focused on this permission structure thing where it’s more like, “Hey, we just want to signal to people and to the rest of the world that we like this technology, that we like this asset, that we like people using it.” There, how much you would buy just depends on what you think provides an adequate signal. Obviously, if you bought an arbitrarily low amount, people, they would look at that very cynically as just a very politically motivated action, and it wasn’t really serious.

The idea is that if you’re not trying to use it to pay down the debt, then you clearly wouldn’t buy as much in that scenario because you’re just trying to buy enough to signal to the rest of the world like, “Hey, it’s okay to hold this stuff. We think it provides some value for us. You can go ahead and do it as well.” I think that it depends on your objective.

If you see this as a way to potentially pay down future debt because Bitcoin just becomes worth much more over time, then yes, you would want to buy a lot because the objective is to earn as much of a capital gain as you possibly can to pay down future amounts of debt. If you’re just trying to signal to the rest of the world, well, then maybe you need to make some meaningful purchase, but it doesn’t have to be nearly as large.

Beckworth: Let me throw out a third strategy or reason for doing this, and that is for America to maintain control over the payment systems in the world. We use dollars. We use dollar sanctions. We can do primary, secondary sanctions the Treasury imposes. What does Bitcoin do to that framework if it becomes a very prominent asset, maybe even a money? Does it make it impossible for the Treasury to do that kind of work? Because again, what I’m hearing from you is, one, it could help pay off the debt. Two, it’s a signaling device. When I think of the insurance, I’m thinking of insurance preserving our hegemony over the world, our superpower status. Is Bitcoin inconsistent with that vision of its usage?

Luther: One thing we should recognize is that every time the Treasury uses this power to seize another country’s assets or freeze them, it signals to the rest of the world that this is the kind of thing that it’s happy to do or willing to do, and that puts your dollar dominance at risk. Now, one very reasonable response would be that if you care so much about dollar dominance, you just shouldn’t use those sorts of policies.

You shouldn’t freeze another country’s account because that will risk your dollar dominance. If you’re not willing to tie your hands in that regard, then you need to do something else to protect your dollar dominance in order to be able to engage in those sorts of activities. You may see the accumulation of Bitcoin by the US government as one possible way of enabling it to engage in these censoring activities without reducing its dollar dominance as an offset.

Beckworth: That would be a third reason then for going down this Bitcoin path.

Hendrickson: This is a good segue to talk about a paper that I’m working on with Craig Warmke who’s another fellow at BPI. We’re working on this paper that’s essentially about how would sanctions work on a currency that claims to be sanction resistant. A former official in the Biden administration actually suggested two possible things, which was that maybe the US could implement the same sort of OFAC standards on the Bitcoin network.

What they could do is if you identify a Bitcoin address that’s tied to an adversary or somebody who’s on the sanctions list, that you could just blacklist that address. You could tell miners, “Hey, you can’t include any transaction that is sending or receiving from this address.” That would be a way of enforcing those things. Then the second proposal, which would be much harder to accomplish, is to tell miners that not only can you not include these in an actual block of transactions, but you can’t build on another block of transactions that includes those sanctions.

If somebody actually mines a block, you would write on the prior block rather than that. You would essentially create an orphaned block of transactions where the block chain moves off in this other direction. The first part of that proposal is just completely unworkable, because as long as there’s some fraction of miners in the world who are willing to include these addresses in a block, then they’re going to get added.

There are many people throughout the world that don’t care about the United States’ sanctions. Especially because if you’re one of these sanctioned addresses, you might be willing to offer miners much higher transaction fees to process your transaction, knowing that people in the US might not be willing to do it or might not legally be allowed to do it. Then that just helps speed up getting your transaction included in a block much sooner because the miners outside the US or even miners in the US who are just purely motivated by profit, they’re going to put your transaction in the block, and it’s going to process.

What we do show in the paper is that it’s potentially possible that the second scenario where you only allow people to mine on top of compliant blocks, it’s possible that you could actually create a scenario where it becomes unprofitable for people to mine non-compliant blocks just because they’re expending all of this energy on blocks that include addresses that aren’t supposed to be allowed to process transactions. Then if there are enough people who are building on the other chain, that becomes an orphan block. You spent all of this energy mining this block, and then you got nothing for it in the end.

Also, if you’re within US jurisdiction or the jurisdiction of US allies, then potentially these governments could levy penalties on people who are caught doing this. If you’re a large publicly traded miner, it would be very hard for you to include those kinds of blocks and to not comply, even if you’re not in the United States, if you’re just in a country that’s one of the United States’ allies. The argument that we make is the problem is that what this is likely to do is, in the short run, you might have some success doing this. What it’s likely to do is it’s likely to force miners into jurisdictions where they’re not going to be subject to these kinds of rules or where it’s going to be very hard for the US to punish them.

What our argument is we flip this on its head because we say, “Look, the thing about Bitcoin that’s different from the dollar system is in the dollar system, the United States gets to decide how to sanction transactions, and conceivably, the Chinese could also implement their own sanctions on the Bitcoin network consistent with what this official from the Biden administration had outlined.” In that sort of scenario, you don’t have to just worry about whether you could implement your own sanctions, but you have to worry about what other countries, what kind of transactions they’re going to try to sanction.

The argument that we make is that actually this is another reason why you might want to have US support for something like Bitcoin, because number one, Bitcoin provides a tool to the people who are actively working against your adversaries. People in authoritarian countries frequently use Bitcoin to avoid engaging in transactions that might get them in trouble or to fundraise or what have you. We saw this in the early days of the invasion of Ukraine, where people were posting Bitcoin addresses and saying, “Hey, if you want to help the Ukrainians, send Bitcoin.”

If you’re actively trying to support Ukraine against Russia, allowing those Ukrainians to engage in those Bitcoin transactions is actually going to be a much more effective tool than trying to sanction the transactions of the Russians who are using Bitcoin. We flip it on its head and say, “Well, you have to think about what these other countries would do.” It might actually be better to use Bitcoin as a defensive tool against other countries’ abuse.

Because if you look at Bitcoin mining, if you just identify the mining pools, and then you classify them by their geographic location, there’s a plurality that’s in China right now. It’s not a majority of the mining, but China is ahead of the United States in terms of mining. We have to think about, well, what if the Chinese tried to implement some kind of sanctions on this thing? I think you just have to think of it very differently. It’s a completely different tool than what the United States uses now.

Future of Bitcoin

Beckworth: A lot of this conversation we’ve been having so far is premised on the notion that Bitcoin will continue to grow in dollar size, it will continue to be important, become more important. What do you think of that? What is the outlook for Bitcoin? I raise that question because oftentimes critics will say it’s so volatile, no one will ever use it as a medium of exchange. Is it just another speculative asset? Will people want to use it in the context we just described? How should we think about the future of Bitcoin, where it’s going to grow, and will it ever get to the place where it would be used as a medium of exchange?

Luther: We’re all monetary economists here. We know that when you have an asset like Bitcoin or the dollar, that there is an equilibrium where the value goes to zero. We shouldn’t ignore that. Some countries have ignored that in the past and found out that that’s a very real possibility. We can all recognize that. That said, you have a fixed supply asset. Generally, demand has been increasing for this asset over time. At this point, you have governments that are interested in this asset.

That’s relatively new. You have relatively large companies that are interested in acquiring Bitcoin treasuries. That’s relatively new. All of that suggests that there will be some demand growth. Now, how much demand growth? Are we talking about Bitcoin looking more like the market capitalization of dollars, or is it a niche role? I think there’s a lot of scope there, but it doesn’t seem crazy to project positive demand growth for Bitcoin, given all of the conversations and actions that we’re observing in this space. That seems like a very reasonable thing to predict.

Hendrickson: Another thing is like any good economist, the question you should ask when people ask about volatility is, relative to what? In the United States, Bitcoin seems really, really volatile. If I’m in a developing country, it might not appear as volatile to me.

Beckworth: Venezuela, Ukraine you just mentioned.

Hendrickson: Yes. In some of these places, the volatility might not be as bad as bad as we think it is. The other issue is it’s actually hard to judge what the volatility we would expect in a world where Bitcoin did become this universally recognized global asset that people are using in transactions because one way to interpret the volatility is to say, “Well, there’s a fixed supply.” The fluctuations in demand, you can’t adjust the supply. All of the adjustment has to take place in the price. Fluctuations in demand are going to naturally lead to more volatility than an asset whose supply can change.

The other issue—though, is it’s hard to judge how much of this volatility is driven by that fixed supply and how much of the volatility is driven by the adoption of Bitcoin—in a world where Bitcoin grew to be this asset that people use regularly in transactions, in that world, you would expect there to be these waves of adoption, where people come in, and there’s a huge run up in the price. Then something happens, and a bunch of people who really don’t understand what they’ve purchased, they all decide to sell, so the price goes back down.

We’ve had those events in Bitcoin. What happens is it looks actually like waves of adoption. The reason I say that is that, yes, Bitcoin, its price explodes, and then it crashes down, but it’s making higher lows as it’s crashing down, which seems to suggest that there are more and more people who are adopting it over time. The thing is that when there’s very, very few people who have adopted it or who are using it or holding it for long periods of time, then you should expect there to be lots and lots of volatility just because the market is so small.

As you experience waves of adoption, then it’s possible that once a critical mass of the world’s population holds some, that that volatility dies down because you’re not experiencing these adoption phases anymore. There are still going to be fluctuations in demand that influence the price, but how big are those relative to the kind of volatility that we see? In other words, when the market’s small, you get a lot of volatility. As the market gets bigger, you wouldn’t see as much volatility.

Beckworth: Your forecast is as time goes on, and Bitcoin goes up in value, relative to the absolute size will be smaller, changes, volatility— 

Hendrickson: Assuming that Bitcoin succeeds, we would expect the volatility to be lower in the future than it is now, just because part of the reason you’re getting this volatility now is, part of the reason that some people are coming into Bitcoin over the last decade is they see these dramatic runs up in the price, and they think, “I want to buy some of this,” but they really don’t know what they’re doing. They just see it as, “Hey, this is an asset I can buy, and I can double my money,” or whatever.

Those people are also going to be the quickest people to sell when the price starts to come down because they want to preserve their capital. If you have people who are actually adopting it, holding some percentage of their wealth in this asset, if Bitcoin becomes a successful global asset, then as more and more people are actually holding it in their portfolio, then you would expect that volatility to fall just because the market is getting bigger.

Luther: Another factor here is that there’s a volatility-mitigating role that close substitutes play. Certainly, in the earliest days of Bitcoin, there were no close substitutes. As that market grows, you start to see things develop assets that are redeemable for Bitcoin. Although the supply of Bitcoin is fixed, if folks are moving into and out of those close substitutes rather than into and out of the actual underlying asset, then your demand fluctuations for Bitcoin itself are smaller. 

The analogy here is in, if you think about the US banking system where it was very difficult for banks to issue close substitutes for gold, they were restricted in some ways with respect to the redeemable bank notes that they could issue. What happened? If a farmer couldn’t go get bank notes from the bank to pay his farm hands, he would have to withdraw gold, right? You got these big swings in the demand for gold because they couldn’t rely on close substitutes. As this Bitcoin market develops, and those close substitutes become more widely available, we should expect that to reduce the demand fluctuation as well.

Beckworth: What are some examples of these substitutes, like an ETF or checking accounts tied to Bitcoin? What exactly would you hope to see?

Luther: Yes, I think there are a lot of options here. Many of the options we’re seeing at the moment, like second-layer solutions, don’t actually fit the bill in this regard because they’re assets that are backed 100% by Bitcoin. If you had assets that were fractionally backed, then that would potentially mitigate some of that demand-driven volatility.

Hendrickson: I think it’s important to note, Will talked about George’s work. He talked about George talking with Hal Finney. If you go back on the Bitcoin mailing lists, the old forum days, Hal Finney actually has this long post where somebody says, “Bitcoin can’t scale. How would the whole world use 21 million Bitcoin?” Hal Finney actually references George Selgin’s work on free banking. He says, “Look, George Selgin already explained how this works.” You just have a free banking system built on top of Bitcoin, and that will solve the problem.

He even pointed out George’s proposal of how you could implement free banking without necessarily going back to the gold standard was like, well, you could freeze the monetary base and then banks could issue their own notes, which were claims to the old monetary base. Hal Finney draws that connection by saying, “Look, there’s a fixed supply of Bitcoin. That’s the same as George’s proposal. You could have something like that.” I also think, too, the issue is what you’re seeing now is I don’t think people fundamentally recognize a lot of what’s going on with these Bitcoin treasury companies.

When I hear people talk about companies like MicroStrategy, or I guess now it’s Strategy, the way that they frame it is like, “Well, this is a software company that buys a bunch of Bitcoin.” I think this is a completely wrong way to think about what MicroStrategy is. I think that what it is, is it’s actually a company that just offers financial products that give you access to Bitcoin’s price. What I mean by that is that if you look at what Michael Saylor has done with that company is he has basically used the tools that he has available to him as a publicly traded company to essentially allow people to get around financial regulation.

It’s one huge exercise in financial market arbitrage. What’s going on is you have all of these people who they have to buy debt instruments, but they would like to get some kind of exposure to Bitcoin. How in the world are you going to do that? Because then Michael Saylor comes out with convertible bonds. Now, you can buy these convertible bonds, and then they give you exposure to Bitcoin. Even the early days of MicroStrategy, just buying Bitcoin came before ETFs were available. The joke that I used to make when he started making these large purchases of Bitcoin is that we already have an ETF, the ETF just also comes with an option on this software company.

If you actually talk to institutional investors, some of the largest institutional investors were buying MicroStrategy precisely because they wanted exposure to Bitcoin, but they had no legal way of doing it. If you bought MicroStrategy, you were allowed to buy that as a publicly traded stock. Now, what you’re seeing is that he has used those tools to accumulate more and more Bitcoin to provide people with more and more access to those things initially by issuing more and more stock. Now in a time where ETFs exist and things like that, he’s offering a much wider variety of financial products.

There’s now preferred stock that pays dividends. There’s preferred stock that has the option to pay a dividend. There are theses convertible bonds. All of those different tools are essentially allowing all these different aspects of the financial industry to gain access and exposure to Bitcoin’s price through these other products. Really what the company has become is they provide financial products that give you exposure to Bitcoin when you otherwise not allowed to do so. This is just financial arbitrage.

I think that the reason that you see so many of these Bitcoin treasury companies being started is they see that there’s an arbitrage opportunity here, and so they’re trying to capitalize on that arbitrage opportunity by going out and doing similar sorts of things because they figure, “Hey, as a publicly traded company, we have all of these tools at our disposal, and we can do the same things that he’s been doing.” Also, if you look at MicroStrategy, and you look at what the stock is worth and what the company is worth relative to the amount of Bitcoin that they own, one of the reasons he’s been able to accumulate so much Bitcoin over time is that the company is worth way more than the Bitcoin.

He can sell a dollar’s worth of stock and buy essentially $2 worth of Bitcoin. When you can do that, you can accumulate this rapidly, but then that allows you to offer more and more of these products. I think the fundamental point here, what this points to is that when you look at it to the outsider, if you’re just looking at this from a value investor perspective, you would say, “Hey, this company is way overvalued.” I think that if you look at it carefully, what you realize is it’s not so much that it’s overvalued; it’s one of the only people who are providing this financial arbitrage. It’s one of the only companies that’s providing this opportunity. 

That’s why you’re starting to now see competitors come in, because they’ve realized there’s arbitrage here. We should get in, and we should capitalize on this regulatory arbitrage. Because we can offer these products that people want. I think the larger point that this speaks to is just how large the market is for people who want exposure to Bitcoin. The fact that that strategy trades at a premium suggests that there’s excess demand out there for these kinds of products.

Beckworth: Yes, that’s a fair point. There’s all this untapped demand that’s just waiting to find a way to get access to Bitcoin. What you’re speaking to is the beautiful thing about markets and innovation. Let them do their magic. That’s why the good old US of A is wonderful in that we allow fintech firms to thrive. One positive thing about this administration is it’s really embracing the growth of that.

Now, going back to George Selgin, I know he’s been very critical of BPI and its push for the strategic Bitcoin reserves. I think you guys need to make him an honorary fellow of BPI because it’s crazy to think his ideas are the foundation. In the limit, the world may end up in a place like he outlined. Just to flesh this out, his free banking vision, and we’ll provide a link to his book, The Theory of Free Banking, which was his dissertation, right? If I recall correctly.

Luther: Yes.

Beckworth: It’s a book. It’s a great accessible read. The idea is with a fixed underlying base asset, and then you have a changing demand, the firm provides the ability to meet that. MicroStrategy, they’re finding ways to do this effectively. You’re saying that at some point, other firms will provide it as well. Is that where we’re headed?

Luther: I know that George very much hates labels, but I’ll say it again. George is a proto-Bitcoiner. He should embrace that, and Bitcoiners should embrace George. There’s a lot to love all around there. 

Beckworth: We’ll bridge the gap between the two. 

Hendrickson: In fairness to George, I don’t know, maybe he would not like me to say this, but I don’t think George’s problem is so much with Bitcoin. I think George’s problem is predominantly with Bitcoiners.

Beckworth: Fair enough.

Hendrickson: I think that it’s important to recognize that George, he was on these early Cypherpunks mailing lists. A lot of what the those Cypherpunks mailing lists were about is creating some kind of private money, some private electronic version of cash. That’s the real innovation of Bitcoin is that if you think about it, an electronic version of cash is really, really difficult in a technical sense. It’s really difficult in a technical sense because anything electronic exists on some kind of ledger somewhere. If there’s a ledger that exists, somebody has to maintain the ledger. Prior to Bitcoin, there was no decentralized way to manage a ledger. It always had to be managed top down. 

That’s the culture that Bitcoin came out of. This was the problem that people were trying to solve is it was fundamentally about, “Hey, as the world becomes more and more digital, we’re going to lose a lot of our privacy because in a world with cash, we can engage in transactions where there’s no third party observing that I’m paying you or that you’re paying me or what I’m buying from you or what you’re buying from me. We want to preserve that privacy. We need some electronic version of physical cash in order to facilitate those transactions and to make those things.”

I think very much George is supportive of that idea. Really where George gets frustrated is I think George gets frustrated because there are a lot of Bitcoiners who say crazy things and say them directly to George, and also who have no idea who George is. They have no idea that this guy was actually inspiring some of the people who were trying to develop these kinds of alternatives. I also think that George sees a lot of the state’s involvement in Bitcoin as antithetical to the development of Bitcoin. The whole purpose was to have this private solution.

The whole purpose was to have this form of electronic cash that was independent of the state. I think that he’s averse to that. I think the approach where I’ve differed from George is not so much in the sort of normative conclusion, that like, “Hey, maybe we don’t want the state involved.” I’ve actually talked about this in both sort of scenarios. I’ve written about why the United States might want a strategic Bitcoin reserve. I’ve also written about why Bitcoiners should be very skeptical of states who want to get involved in Bitcoin, because there are a lot of lessons from history about how states have manipulated monetary systems.

People would say, like, “Hey, the gold standard provided a constraint on states to make war.” That’s simply not true. We had an entire podcast about this, and the ways that they manipulate the system to provide those tools. Where I’ve differed is, I think a lot of times, the place that George is coming from is he’s coming from a perspective of like this isn’t the vision of what Bitcoin is supposed to be. Where I’m looking at this to the extent that I ever come down on a different side of George or to the extent that I ever write something about these other things is what I’m really trying to think about is not so much like what should we want out of Bitcoin or what should be the end goal?

What I’m trying to do is I’m just trying to understand why is the state behaving this way, what are they trying to accomplish, what is it that they see that’s a problem that they’re trying to fix to explain why they’re doing the things that they’re doing. I do think that George is very much right on this point of we need to be very skeptical about states getting involved just because everybody needs to be well aware of all the kinds of things states have done in the past to money.

Beckworth: Just to go to this broader point about volatility, you’ve told me two things. One, as more and more buyers get a hold of Bitcoin, and we tap that unmet demand, it will become more stable. Everyone has access to it in their portfolios now. There’s not these mad dashes for it. That’s number one. Point number two is as this market matures, they’re going to be financial firms, and if there are changes in demand to that fixed supply, like free banking would operate, those two forces might lead us to a place where we don’t even think about volatility in Bitcoin, and therefore it could be used as a transaction asset more easily, more widely.

Luther: I would just say we don’t want to overstate this. When we’re making transactions in the US, we don’t think about the volatility at all. That’s really a luxury that we have. I tell my students that the Argentines are currently celebrating because they got the inflation rate down to 20%, whereas here in the US we get 4%, 5%, 6%. Folks are ready to riot.

Beckworth: Change presidents.

Luther: It’s just a very different situation. When we’re saying that we should expect that volatility to decline, that does not imply that it’s going to decline to the level of volatility we have here in the US. That’s also not the relevant comparison for most people in the world. There are many people in the world that suffer under much more volatile currencies than we do. It doesn’t seem inconceivable that Bitcoin’s volatility could decline to a level below that.

Beckworth: Let me go back to my big hang-up with Bitcoin and this grand future we’ve painted here. That is, again, what I alluded to earlier, its size. How big will it get? I bring this up because I look at the dollar’s reach, the global dollar system, not just Treasuries, but private assets. Several times I’ve gone out and estimated this. If you look at dollar-denominated assets in the US and those issued overseas, liquid assets, not equities, but liquid assets, some form of a debt security that’s highly liquid, somewhat liquid and something in between, we’re getting close to the order of $40 trillion globally. 

Scaling Bitcoin

My question would be, in order to compete with that, you’d have to really scale up where Bitcoin goes. Is the story, it’s never going to fully scale up that high, but it’s going to be something on the margin, you go into when you have some questions about the US, or maybe you’re diversifying your portfolio? How do you think about that?

Luther: I often warn against what I call the all-or-nothing fallacy. This gets to what Josh was saying earlier about Bitcoiners who make bad arguments. On the one hand, you have the naysayers. This is a worthless asset. It’s going to zero. We know it’s going to zero. Zero is the outcome. On the other hand, you have Bitcoiners who are absolutely convinced that this is going to replace the dollar and all national currencies and maybe also the banking system and everything else that you can imagine.

Whereas there’s a very reasonable position in between those two extremes. I don’t know how big Bitcoin will get. I feel relatively comfortable saying that it will serve a niche role. How big that niche role is, I think, remains to be seen. We don’t need to expect that it’s going to be as big as the dollar in order to think it’s something worth paying attention to.

Hendrickson: I think, too, when Will and I started writing about Bitcoin, all of our writing focused on how are states going to try to prevent people from using this technology. You fast forward a little over a decade since we started writing about Bitcoin. Now, we have states talking about buying Bitcoin.

Luther: We’ve come a long way.

Hendrickson: We have the current president saying, “We want American-made Bitcoin.” We want all the miners in the US making money from mining and things like that. I think people are maybe missing the forest for the trees on a lot of this stuff, which is that I still remember how I found out about Bitcoin. I found out about Bitcoin in 2011. I was listening to Russ Roberts interview somebody on Econ Talk about this new this new money called Bitcoin and how it worked and that sort of thing. I remember thinking about it back then and thinking, “This will be something that’s interesting to write about.”

My interest was purely academic, like, “Okay, here’s this money somebody’s going to try to get off the ground. Let’s see how this is going to work and how long will it last? Will this actually succeed, or will this be like a little fad, or maybe it’ll never take off at all?” Back then, I think the price of Bitcoin was $1, and that was a huge deal that it had reached parity with the dollar. To me, the perspective that I have, I think from following this since that time is that, first of all, it’s evolved in a way that I never could have predicted.

In fact, even some of the people who did predict some of this stuff along the way never predicted that the sorts of things we’re observing now would have been observed by this point. They were making projections like, “Well, eventually, the United States government’s going to want to buy Bitcoin,” and things like that. They weren’t saying in 2025. They were saying in like, I don’t know, 2050, 2100. In 100 years, the United States government’s going to own Bitcoin or something. I think that what we have observed should just convince you that this is something serious.

It’s something that you should pay attention to. It’s something that you should try to better understand, regardless of what your own opinion is about how useful it is or how successful you personally think it’s going to be. To me, I imagine lots of your listeners are academics. As an academic, watching something like this play out is fascinating.

If you look at it from an academic perspective, instead of trying to put on your forecasting glasses or trying to guess what the price is going to be or that sort of thing, I don’t know how you can’t find this whole thing fascinating because from listening to that podcast in 2011 until today, I never would have imagined that in 2025, I would be on a podcast talking about a strategic Bitcoin reserve. It’s impossible to predict what the next 10, 15 years are going to bring and what’s going to happen with this technology.

Luther: The growth has been extraordinary, and the amount of time hasn’t. Bitcoin, it can’t buy cigarettes yet. It can’t rent a hotel room without an adult to cosign. It can’t buy alcohol. Still very, very young. Yet it’s huge today, much more than Josh expected, much more than I would have expected as well. Certainly something worth paying attention to.

Beckworth: On that high Bitcoin note, our time is up. Our guests today have been Josh Hendrickson and Will Luther. Gentlemen, thank you for coming back on the program.

Luther: Always a pleasure.

Hendrickson: It was great to be here. 

Beckworth: Macro Musings is produced by the Mercatus Center at George Mason University. Dive deeper into our research at mercatus.org/monetarypolicy. You can subscribe to the show on Apple Podcasts, Spotify, or your favorite podcast app. If you like this podcast, please consider giving us a rating and leaving a review. This helps other thoughtful people like you find the show. Find me on Twitter @DavidBeckworth and follow the show @Macro_Musings.