Forget Hamilton! Andrew Jackson has re-entered the nation’s consciousness, though it’s hardly been an auspicious return. Lately, he’s been seen photobombing one of the most polarizing presidents in modern history and next year he is supposed to be replaced on the $20 bill. All of the renewed attention has reminded people of the more unsavory historical accounts of Jackson’s life — from alleged trading of slaves to the Indian Removal Act. But the meteoric rise in the value of bitcoin should have the public thinking about another calamity Jackson is blamed for — the Panic of 1837.
Some historians have suggested Old Hickory’s reported hatred of paper money and distrust of the federal bank nearly drove the economy to ruins. In an effort to combat high inflation and curtail speculative land purchases with currency declining in value, in 1836, Jackson issued an executive order – the Species Circular – decreeing that only gold or silver could be used to buy public land. Demand for these precious metals, which were in limited supply, went into the stratosphere. Despite land speculation grinding to a halt, land became generally unaffordable, property prices dropped precipitously and the states lost a major source of revenue. A monumental recession, lasting four years and known as the Panic of 1837, ensued.
With that cautionary tale in the background, what is the future of bitcoin? The original intent was to provide an online currency that could be used to pay for goods and services or exchanged between peers in a decentralized system without intermediary banks or government interference. These purposes raise concerns regarding lack of oversight and its ability to be used for nefarious purposes. But now, with its significant price swings and recent values skyrocketing, it is clear that bitcoin now is being treated like it has intrinsic value – like any commodity – and this volatility causes even more concern for the stability of an economy based on bitcoin.
Jackson’s inability to foresee the impact of the Species Circular remains one of the most compelling reasons for a fiat currency (one based on legal tender), which can be contracted and expanded as needed, rather than one based on a physical commodity in limited supply. In the case of bitcoin, however, it may not be the laws of supply and demand that are the issue – bitcoin’s supply is not running out any time soon – but changes in law and its acceptance will determine bitcoin’s fate. As everybody and their cousin considers an initial coin offering (ICO), the Securities and Exchange Commission (SEC) is poised to apply the securities laws based on historical tests. Ultimately, as the law is settled and regulations are enacted, the value of bitcoin could be impacted. Issuers should not discount the intent and reach of the SEC, and investors should make informed decisions.
The world seems divided. On the one hand, there are “old white men” like Warren Buffet and Jamie Dimon who are wary of the dangers from a bubble, speculation and lack of oversight, and on the other hand, bitcoin proponents, the most fervent of whom see an extreme future where paper money is seen not only as intrinsically worthless, but nearly valueless in a new digitized economy created by cryptocurrency. The awesome potential of bitcoin to disrupt, or even destroy a nation’s monetary policy, would surely please “King Andrew the First.” If President Trump keeps Jackson on the $20 bill, he may just put a smile on his face.
James R. Serritella is a partner in the Insolvency, Creditors’ Rights & Financial Products Practice Group of Davis & Gilbert and his practice focuses on complex litigation in the financial services sector, bankruptcy litigation and insurance recovery on behalf of policyholders.