Imagine two vast reservoirs of water. One sits high above a waterfall, brimming with potential energy. The other rests calmly below, having already plunged over the edge. In financial terms, the upper reservoir is our global economy—laden with debt, inflation, and plenty of capital searching for the next big bet. The lower reservoir is an alternative state of money and value, quieter and ostensibly more stable, yet still receiving an inflow from above.
Between these reservoirs roars a waterfall—a torrent of volatility. By itself, it seems chaotic, but with a bit of engineering, that volatility can be harnessed, much like a hydroelectric dam harnesses the power of falling water to generate electricity. Here’s how it all fits together in the broader picture of debt, inflation, military might, and a possible lower-entropy system.
Choose a “beta”—in other words, select an average risk-adjusted portfolio. It could be a 60/40 target-date fund, an S&P 500 or global index, or anything similar. Regardless of the specifics, these portfolios roll over debt at higher rates, barely outpacing inflation. It’s the hamster wheel of constant refinancing: rinse, repeat, refinance. All that money—trillions of dollars—sloshes around, poised to pour over the edge at any moment.
Life in a historically prosperous nation with the world’s most formidable military might feel stable. The U.S. dollar remains strong, supported by this dominance and long-standing economic success. It’s easy to overlook any cracks forming in the dam when prosperity is all we’ve ever known, much like fish unaware of the water they swim in.
Then there’s the waterfall itself: volatility. Capital sometimes takes sudden plunges, triggering market crashes, yield spikes, or crypto price surges. Volatility can be scary, but it can also be transformed into something useful. A well-placed turbine in the cascade captures energy from the force of falling water.
Volatility isn’t automatically harmful—think of it as energy in motion. It can be left alone to tumble, or it can be redirected to serve a constructive purpose. This is where design and foresight become essential.
Once water reaches the lower reservoir, it has already surrendered its potential energy. It’s no longer plunging; it’s settled. Bitcoin often gets compared to this calmer, lower-energy state because it’s anchored by global, decentralized computation rather than debt and military might.
A lower-energy state doesn’t mean a lack of usefulness. It can be more stable, in part because it’s not tethered to perpetual debt spirals or the promise of force. Volatility from above might still churn its surface, but the underlying structure—mathematics and consensus—remains intact.
The upper reservoir (global markets) is flush with liquidity but burdened by refinancing and mounting obligations. The U.S. dollar endures, strengthened by historical prosperity and military power, yet there are signs of strain. In the lower reservoir, an alternative store of value exists that doesn’t end volatility but can transform chaotic movement into a more enduring system. Like a dam powering entire cities, a lower-entropy monetary network could act as a public good, offering a degree of stability in turbulent times.
“The Volatility Waterfall” highlights a simple truth: volatility isn’t inherently negative. It’s the natural result of high-energy systems interacting with the pull of gravity. Thoughtful engineering can capture that force and channel it into something beneficial. When viewed this way, volatility becomes an opportunity to illuminate a more balanced financial future—just like harnessing a waterfall to power a city.