A government can run a “permanent primary deficit” if it bans or taxes Bitcoin (BTC), according to researchers at the Federal Reserve Bank of Minneapolis.

The Fed researchers ask their readers to imagine an economy “in which the government issues stock and pays a flow of non-negative dividends.”

“If a unit of government stock is used as the numeraire, then the price level in this economy is the price of consumption in units of government stock. And the nominal interest rate is the dividend yield on government stock. Agents in this economy who hold government stock are, in effect, holding a nominal bank account at the Treasury that pays a certain nominal interest rate.”

The researchers note that they use Bitcoin as a metaphor for a private sector security that has a fixed supply and doesn’t offer a claim to any real resources.

“Given a need to finance government purchases equal to a certain fraction of aggregate consumption, the policy that maximizes utility in our economy (and also its growth rate) is for the government to charge very large consumption taxes. This implies very large permanent primary surpluses and a unique equilibrium, and it turns government stock into a very large Lucas tree that eliminates almost all idiosyncratic risk. But large consumption taxes may not be feasible, and then a permanent primary deficit may be the best the government can do, provided the equilibrium does indeed deliver the targeted steady state. To achieve this, the government could simply make Bitcoin illegal.

Our final result says that, short of full prohibition, the government could use a continuous Markov policy and combine it with a tax on Bitcoin.”

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In his recent podcast, Anthony Pompliano, a founder and partner at Morgan Creek Digital, shared his insights on Bitcoin’s rise toward the $70,000 mark.

He made one such argument, stating that even if some hostile candidate gets elected and attempts to legislate punishment for cryptocurrency, that may be the catalyst for increased Bitcoin adoption.

He also alluded to examples from countries like Pakistan, Nigeria, and China. The tougher the government crackdown on Bitcoin, the more interest and adoption of the currency took place. Pomp said it’s because people realized that, at the end of the day, the government couldn’t do much.

Anthony Pompliano: Bitcoin Bans Fuel Adoption, Not Suppression

In his podcast with Polina Marinova, Anthony Pompliano discussed how bans and prohibitions will never lead to results. He also discussed how everybody is wrong to think Kamala Harris is more anti-Bitcoin than Donald Trump.

He explained:

“You know, people are expecting Trump to be much friendlier to Bitcoin. In the crypto environment, I think Harris is, too. I think people have said that she’s looking to create a regulatory structure, but let’s say that there was a political candidate who got into office and suddenly was like: absolutely not. We’re not going to be friendly. We’re going to be more punitive than supportive.

How is that not going to impact the price? That would be more bullish for Bitcoin, I think. Why?

Because in countries where they have banned it, Pakistan, Nigeria, and China, adoption goes up faster because the people understand that the government is full of shit. And so if the government says you can’t have something, people are interested.”

Anthony Pompliano compared this to other industries like the drug trade and nicotine. There, attempts to prohibit or regulate them pushed demand into different, often more creative, avenues.

I sat down with @polina_marinova to discuss why bitcoin is ready for the bull market, how Goldman Sachs has lost their minds, and why bureaucrats are attacking Elon Musk.

Enjoy 🙂

0:00 – Intro
1:00 – Bitcoin is poised to go higher
11:14 – Bonds & stocks will outperform Goldman… pic.twitter.com/lCx2aAZVjI

— Anthony Pompliano 🌪 (@APompliano) October 23, 2024

It’s important to mention that Kamala Harris has support from both crypto and anti-crypto community members. Even though being totally anti-crypto, JPMorgan CEO Jamie Dimon backed Harris up. On the other hand, Ripple co-founder Chris Larsen has donated $10 million to Harris.

Anthony Pompliano went on to state that Bitcoin is decentralized, and no government or president, for that matter, even the US, could hurt it.

He said that the attempted banning of Bitcoin in the US would hurt its people but not affect Bitcoin itself. Bitcoin’s resilience came from its programmatic and decentralized structural framework, wherein no single entity controlled it. In this sense, despite various governments trying to “shut down” Bitcoin, the highly resilient global network preserves it and performs transactions.

Challenging Goldman Sachs: Bitcoin to Outperform S&P 500

Anthony Pompliano went on to explain how Bitcoin’s volatility relates to mass adoption. He said that the more mainstream Bitcoin was, the fewer price fluctuations it would experience. Its returns may be smaller, but they will also be more stable.

However, he said the broad-based adoption caused more spread-out asset ownership, lowering its risk profile. Buying Bitcoin, therefore, was less risky than it had been in the earlier days, which turned into smaller expected returns. However, it will still outperform traditional assets like the S&P 500.

In contrast, Pompliano attacked Goldman Sachs’s prognosis that the S&P 500 would return only 3% annually over the next decade. He made light of the suggestion that bonds were a better alternative.

Pomp viewed bonds as a lousy investment, especially in inflationary environments, where they returned negative in real terms. He stated that whoever speaks highly of bonds as a superior asset should reassess their portfolio strategy.

Most conventional wisdom has blamed regulatory optimism and inflows into ETFs for the price rise, but Pompliano made it clear that Bitcoin’s upside was more periodical. According to him, the Bitcoin price defied all outside narratives on the US election, ETF flows, or broader economic cycles.

Anthony Pompliano drew parallels with Bitcoin’s price action in the 2020-2021 period. He noted how the market had seen a “sideways summer” prior to a big price breakout. Pomp said Bitcoin is due for another big upward move. He mentioned the natural consequences of the supply shock that occurred with Bitcoin’s halving event.

Pompliano did, however, caution investors about just how sizeable future growth could be. He advised that this may continue upwards for Bitcoin but that they should tamp down expectations of exponential gains seen in prior years. Bitcoin is maturing, and with its market cap growing, its volatility naturally decreases due to more modest, though still substantial, returns.

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Teuta

Teuta is a seasoned writer and editor with over 15 years of experience in macroeconomics, technology, and the cryptocurrency and blockchain industries. Starting her career in 2005 as a lifestyle writer for Cosmopolitan in Croatia, she expanded into covering business and economy for several esteemed publications like Forbes and Bloomberg. Influenced by figures like Don Tapscott and Bruce Dickinson, Teuta embraced the blockchain revolution, believing crypto to be one of humanity’s most crucial inventions. Her fintech involvement began in 2014, focusing on crypto, blockchain, NFTs, and Web3. Known for her excellent teamwork and communication skills, Teuta holds a double MA in Political Science and Law, enjoys punk rock, chablis, and has a passion for shoes.

Disclaimer: The presented content may include the personal opinion of the author and is subject to market condition. Do your market research before investing in cryptocurrencies. The author or the publication does not hold any responsibility for your personal financial loss.