This article is a direct response to our earlier piece: Does Fiat Really Erode Wealth? A Bitcoin Debate Worth Having.

Open dialogue is the only way we reach common ground, sharpen our thinking, and grow as individuals. Too often, critics of Bitcoin dismiss the conversation outright. Rarely do they take the time to craft a thoughtful, multi-page rebuttal. For that reason, I want to thank Chris for engaging so thoroughly. His insight and effort raise the level of discourse we all benefit from, and I hope others will step forward with the same spirit of debate.

With that, here is Chris’s rebuttal.

Rebuttal: Does Fiat Really Erode Wealth? 

-Chris Fawcett

First, I’ll make a general comment. The title of the piece is more broad than the actual argument I was making.  Does fiat currency really erode wealth?  That’s a complicated question. I’m well aware fiat currency has issues. But I was making a very specific argument, not a general one. 

A common canard I see in the crypto apologist community goes like this: “Look at your 401k. It went up 100% over the last decade. But wait - fiat money expansion eroded most of that! Inflation in the last decade was 25%. That has eroded your return. You only really have a 60% return!” 

On the surface this seems rational, but it’s completely wrong. The thinking is upside-down. The 25% inflation did not erode your stock return. Your stock return gained an additional 25% more than it would have in a non-inflationary environment. You did not lose. Nothing was eroded. The asset kept up with inflation for you. 

As an analogy: Take the people movers at an airport.  Two people with the same stride walk 200 steps — one on the people mover, one off. When they stop, the one on the mover is further ahead. Did the people mover “erode” the steps of the other? Of course not. Both people still walked 200 steps.  The steps are your real return.  The moving walkway is inflation.  The distance the person on the walkway traveled is the nominal return. 

This is what I mean when I say that in the long run, monetary expansion does not erode existing non-cash assets.  Now on to each point. 

1. The Uneven Distribution of New Money 

The article conflates two very different things: current assets and income. Yes, inflation erodes purchasing power in the short term because prices move fast and wages are sticky. But that’s about income, not the current assets. The short-term erosion of purchasing power can erode future wealth accumulation as money must be diverted from savings to living expenses. But that was not the argument I was making. 

So, this is a strawman — setting up an argument I never made in order to knock it down. I do agree that fiat currency creates wealth-generation problems, but let’s be honest: so does Bitcoin  - just in the opposite direction. Bitcoin’s fixed supply (really a diminishing supply as coins can be permanently lost) sets up future deflationary pressures. 

Deflation hurts too. Debt doesn’t deflate even when assets do. The asset you bought with credit isn’t worth as much as you owe on it over time.  Banks actually become reluctant to 

lend as declining asset values lead to higher default rates.  All this leads to reduced spending, a slower economy, and slower investment as cash flow dries up.  That dynamic misallocates investment and inhibits wealth generation just as inflation does. 

Two summary points: 

1. My original argument — that inflation does not erode non-cash asset investment returns over the long term — stands. 

2. The new idea introduced:  that inflation erodes wealth generation in the short term is true.  However, the idea that Bitcoin solves this problem is false. Bitcoin just introduces different distortions: hoarding, debt traps, and potentially a deflationary spiral where spending dries up. 

2. The Forced Chase for Yield 
The article claims fiat forces investors to chase yield. That just isn’t true in the way it’s presented. Real yield is real yield. All boats rise with inflation. It doesn’t push people into riskier assets just to “stay ahead,” because real returns scale with inflation. 

In a zero-inflation economy, a bond might yield 2% and stocks 6%. In a 6% inflation economy, bonds yield 8% and stocks 12%. The spread — the real risk premium — remains the same. A savvy investor evaluates risk independently of inflation.  Now, yes, money expansion can fuel malinvestment, and that is the real danger. But a well-diversified portfolio (an index fund, for example) smooths this risk considerably. 

And let’s be clear: Bitcoin is no safe haven here. In fact, its last decade looks disturbingly like the 2008 housing bubble. A flood of capital juiced with leverage and exotic financial constructions (convertible bonds now, mortgage-backed securities then) pours into an asset widely believed to be on a perpetual upward trend.  Interest on leverage (not to mention the eventual principle) is assumed to always be paid by the gain in the assets’ value.  There’s even a go-to formula that “proves” prices will continue to rise (David Li’s Gaussian copula then, Plan B’s “stock-to-flow” and the Pi Cycle Indicator now).  David Li’s equation worked fantastically, right up until it didn’t. 

Meanwhile, those closest to the hype machine have incentives to keep drawing in new investors, buying back chunks at premiums to preserve momentum, and selling the dream through videos, seminars, and books.  

Sound familiar? 

Additional point: even if you believe chasing yield is necessary, Bitcoin fares poorly on a risk-adjusted basis. Its volatility is so high that its Sharpe ratio — the measure of return per unit of risk — is worse than equities over many periods.  For example, during the run up over the past three years, Bitcoin’s Sharpe ratio is 1.4.  The SP500 index is 0.86. “Keeping up” with inflation isn’t enough if the path is a roller coaster. 

3. Money Shapes Behavior 
The article claims:  “Under sound money, societies build cathedrals.  Under easy money, societies lurch from boom to bust.” 

That’s romantic framing, but history tells a different story. Since 1971, under a fiat regime, the U.S. has seen dramatic progress in productivity, innovation, and wealth creation. 

- Productivity Growth 

Since around 1960, U.S. labor productivity (output per hour) has compounded at roughly 2% per year. That has more than doubled output per worker. In 1971, productivity was around $30/hour (in 2024 dollars). By 2024 it was $79/hour. These gains underlie rising living standards and the capacity for innovation.  

- R&D and Innovation Intensity 

In 2024, U.S. R&D spending hit 3.43% of GDP, much of it private sector driven (~80%). In 1971, the share was only 2.1%. This intensity has directly funded breakthroughs in gene editing, vaccines, AI, computing, energy, and more. 

- Wealth Creation 

Since the early 1970s, U.S. household net worth has increased several fold in real terms. Equities and real estate — productive, adaptive assets — have multiplied wealth in ways that fiat critics downplay.   

An aside:  I’ll point out there that the household wealth numbers are skewed low because of the increase in single-parent homes (10% in 1971 vs 25% today).  Why does this skew the numbers?  Because the measurement is household wealth.  You take one household that has, for example, $500k in assets.  You throw in a divorce and you now have two households with $250k each.   That will skew the average down, yet the total wealth for those individuals did not change at all.   

(source: https://www.bls.gov/productivity/) 

(source: https://ncses.nsf.gov/pubs/nsf25327) 
(source: https://fred.stlouisfed.org/series/BOGZ1FL192090005Q) 

These aren’t signs of a society lurching from bust to bust. Under fiat, the U.S. built the internet, invented smartphones, created GPS, mapped and then edited the genome, and created some of the most valuable companies in history.  

If “easy money” truly sapped ambition, the last fifty years should have been barren. Instead, they produced an unprecedented boom in science, technology, and capital formation. 

Now, I’ll head off the imminent argument that always follows any sourced data:  “Those are government databases.  You can’t believe them.”  I’ll say simply here that is the logical fallacy called the “Genetic Fallacy.”  You cannot just state that and have it be true.  You have to prove that the numbers are wrong. 

4. Bitcoin vs. Stocks 

The article flips logic upside-down. Stocks, tied to earnings, are seen as flawed simply because they have humans actually pursuing value creation. Bitcoin, with fixed supply and no CEO, is pitched as pure. 

But: 

- Stocks are productive assets. They generate goods, services, and cash flows. 

- Bitcoin is not. Like cash or gold, it produces nothing. 

Money itself is not wealth. It’s a lubricant of trade. Bitcoin is therefore comparable to currency, not stocks.  I find that the Bitcoin evangelists often want this both ways.  They say Bitcoin is going to be huge because it’s going to become our currency or replace gold – and yet at the same time they say it will give returns better than stocks as if it actually produces something. 

Here’s the bottom line: currencies tend to equilibrate against one another over time. They do not run up 10x or 100x against each other in perpetuity. Yet Bitcoin has run up those kinds of numbers against other currencies.  Which should make anyone at least a little leery. 

Now, I do understand that there will be some initial run up – the “adoption curve”, if you will - as a new currency goes from zero to finding it’s equilibrium value against other currencies. The big question no one knows is: assuming Bitcoin does become a respectable store of value asset (SOVA) like gold, what should its price be?   

However, we could make some guesses.  The total global assets in SOVAs (excluding real estate) is around $20T USD, gold being over half of that and Bitcoin at about 10% (total crypto around 20%).  Then the question is:  what market share of that could Bitcoin reasonably take over?   

Some gurus are saying bitcoin can go to $1m a coin.  Just think about that a minute: That would mean Bitcoin took over the entire market for non-real estate SOVAs.  Impossible.  Even getting to $500k means it would have to take over half the market.  And that’s not just stealing from gold, but also from all the other competing crypto currencies.  Those kinds of numbers would be a clear indication of a bubble in Bitcoin.   

The only real question is are we already there?  Where will Bitcoin’s share of SOVA settle out in the future?  5%?  Look out, we’re already in a bubble.  0%?  Don’t think it’s not possible. 10%?  Well, it’s not going much higher unless it’s speculation.  20%?  Ok, maybe there’s still meat on this bone for investors today.  The point is no one knows the answer and the Bitcoin evangelists are very much downplaying the risks. 

As for manipulation: of course Bitcoin can be manipulated. Treasury desks, whales, exchanges, politicians, influencers — all can and do move the market. Just like with stocks, only with less regulation. 

Conclusion 

Fiat money has problems. Inflation distorts, just as deflation would under Bitcoin. But history shows that productive assets adapt and preserve wealth under fiat. 

Bitcoin, by contrast, produces nothing, remains thinly adopted, burns energy, and thrives mainly on speculative leverage and promotional hype. Its defenders lean on flawed canards — like “inflation erodes your 401k” — to fuel fear and recruit buyers. 

Fiat may be a crooked ruler. But Bitcoin isn’t the straightedge it’s claimed to be. It’s another bent ruler — one that introduces new distortions, new risks, and new costs.   

The final takeaway here is to understand that Bitcoin investing is very risky.  And, despite the canards of the Bitcoin gurus, the “tried and true” ways (like 401k, mutual funds, stocks, real estate) are still perfectly viable paths for people to build wealth.  

Check out Chris on Linkedin here!