The crypto community is often dismissed as naïve gamblers at best or, worst, scammers. But Annaliese Milano Merfield argues that the crypto community is in fact highly financially literate and use Bitcoin and other cryptocurrencies as an escape from what they see as the wealth-eroding financial policies of governments, such as covert taxation through inflation and fiscal drag. 

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Less than a week after Labour unveiled its autumn budget—a key part of its pro-growth strategy for the UK—Americans delivered their verdict on four years of economic growth under the Biden administration. The message sent by the victory of Donald Trump was clear enough; Democrats’ insistence that the economy was in rude health jarred with the experiences of many Americans. What, if anything, should Labour take away from this result?

If the American context is any indication, Labour must understand that growth is not a panacea for economic discontent. Framing economic problems in terms of growth, or lack thereof, is a poor reflection of the way that average people experience the economy. Importantly, this framing also does little to address underlying popular discontent with the way the economy is governed—discontent that has been simmering since the financial crisis, but which has yet to be seriously addressed. To better understand popular grievances with economic governance, I suggest we look to what, for some, may seem like a strange place: the crypto community.

Community members often refer to crypto as an “escape hatch” from a world in which high levels of personal indebtedness, extortionate housing prices, inflation, and diminished opportunities for social mobility have become the new normal.

An “escape hatch” from the traditional economy

Though crypto people have long been derided as gamblers and scammers, my research suggests that the community represents a serious source of popular opposition to contemporary economic policy. Many of the crypto people I know came of age during or after the financial crisis, and within the community, there is a pervasive sense of financial insecurity. Struggling to attain the same markers of financial success as their parents—such as owning a home— crypto offers these young people new possibilities for accumulating wealth. A feeling of alienation also pervades the crypto community—indeed, community members often refer to crypto as an “escape hatch” from a world in which high levels of personal indebtedness, extortionate housing prices, inflation, and diminished opportunities for social mobility have become the new normal.

At the core of crypto are public blockchains, such as Bitcoin and Ethereum, which host a wide range of experiments in money, finance, and economic governance that speak to a variety of political sensibilities. These blockchains are not simply technical creations, but also deeply social ones. Their designs, and the assumptions that are built into them, are the product of reflections about how social institutions like money and finance work, and how they ought to work. Both Bitcoin and Ethereum represent an explicit and intentional departure with the conventional economic institutions that crypto people see as deeply flawed, such as fiat currencies, central banks, and traditional financial institutions.

To crypto people, the success and staying power of these technologies over the more than decade since their inception is seen as a powerful rebuke of governments and their economic policies.

These blockchains are carefully calibrated to distribute power, undermine censorship, and disincentivise corruption. They are governed by consensus and consent, rather than the coercion or deception that crypto perceives as foundational to the traditional economy. To crypto people, the success and staying power of these technologies over the more than decade since their inception is seen as a powerful rebuke of governments and their economic policies. What’s more, with Trump’s re-election and recent embrace of the community, crypto is confident that the next American administration will not stand in the way of its development—a sentiment which is reflected in the surging prices of bitcoin and ether.

So, what can the world of crypto and its anti-establishment dynamics tell us about the state of the economy and economic governance in the UK?

Covert policies: from indirect taxes to deficit spending

Throughout the election campaign, Labour pledged not to raise taxes on working people. Yet, when Rachel Reeves revealed the autumn budget, it included a measure to increase employers’ national insurance contributions which was quickly criticized as an indirect tax on workers. Similarly, Labour’s budget puts off adjusting income tax rates for inflation until 2028 while inheritance tax rates will remain frozen. This policy of “fiscal drag” amounts to another indirect tax increase on workers—one that is often referred to as a “stealth tax.” In short, because income tax thresholds have been frozen since 2021—not long before inflation rose sharply in 2022—wage increases due to inflation will push workers into higher income tax bands.

Crypto people are highly engaged with economic and monetary policy issues and are critical of the covert policies governments have pursued.

These measures are only two examples of covert distributive policies that governments have relied on to raise revenue in recent years. To this list, my interlocutors in the Bitcoin community might also add deficit spending. Why have governments pursued covert policies? One answer is perhaps for reasons of political expediency—parties think they cannot tell voters the “truth” of “what must be done” and still get elected. Recall Labour’s campaign platform, for example, which emphasized that the party would need to make hard decisions with its budget but pledged not to tax working people. Another, related reason seems to be that governments think that economic policy is too complicated for their citizens to truly engage with, and thus the power of decision-making is handed to technocrats rather than the populace. Clearly this has not been a resounding success. Likewise, the very existence of the crypto community calls into the question the idea that economic policy is too complicated for average people to understand. Crypto people are highly engaged with economic and monetary policy issues and are critical of the covert policies governments have pursued.

Bitcoiners perceive deficit spending and inflation as underhanded fiscal policies which devalue citizens’ livelihoods, subordinating them to the repayment of government debt.

For example, Bitcoiners argue that mechanisms like deficit spending and quantitative easing allow governments to pursue expansive spending agendas that, if funded solely by tax revenue, would be unlikely to secure the support of voters. In a recent podcast examining the UK budget, one well-known Bitcoiner summarized this sentiment: “Look, but the truth is, we know with governments, if they hit their threshold of what they can really tax people, they just go to borrowing. It’s just a different way to tax people.” Later, he explained that borrowing incentivizes governments to implement inflationary measures in order to pay off their debts: “…a reckoning will come and the only way to wipe the debt—it can’t be paid, it won’t come through growth—the only way is through inflation. It’s the only way they can get rid of it.” In short, Bitcoiners perceive deficit spending and inflation as underhanded fiscal policies which devalue citizens’ livelihoods, subordinating them to the repayment of government debt. Deficit spending is viewed as a means of pursuing policies under the radar of citizens who might object if taxed directly.

Many readers will undoubtedly disagree with Bitcoiners’ economic analysis. My point in including it here is not to endorse it; rather it is to highlight that Bitcoiners’ critique raises an important question about whether such “under the radar” policies—from indirect taxes to spending funded through debt—enable democratic governments to advance policies without the assent of the people they represent. In a democracy, can this truly be tenable?

Imperfect though it may be, Bitcoin deserves to be taken seriously as a comment on the creditworthiness and competence of the state.

A crisis of confidence in the state

In the Bitcoin community, covert fiscal policies have not gone undetected. Instead, they have greatly undermined confidence in the state’s capacity to manage economic policy and have called into question the legitimacy of its governance strategies. Bitcoin’s features are reflective of this crisis of confidence in the state. It is designed to contrast with contemporary fiat currencies in almost every way. It is non-state issued, debt-free money with a fixed supply—an opt-in system whose rules change only by community consent. Imperfect though it may be, Bitcoin deserves to be taken seriously as a comment on the creditworthiness and competence of the state. Its success is suggestive of a withdrawal of popular trust that should not be ignored.

Labour has clearly inherited an immensely challenging economic situation, and it remains to be seen if its policies will produce the growth it desires. What both the American election and the above dispatches from the crypto community make clear is that this is unlikely to be enough. Growth or no growth, questions of governance will remain. One UK-based member of the crypto community told me he was waiting for the moment when “enough is enough and people push back.” Until then, he said, the government and its policies are “building the case for Bitcoin”—the case for money without the state, for economic governance without government.

All articles posted on this blog give the views of the author(s), and not the position of LSE British Politics and Policy, nor of the London School of Economics and Political Science.

Image credit: Bitz 100 Shutterstock

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