Subnostr

Somebody once asked me whether regulators were scared that bitcoin would contribute to inflation.

Without thinking too deeply about it, I said no. Now I think my answer may be incorrect. Perhaps it’s possible that bitcoin, especially in the form of an ETF, could contribute to inflation.

As we know, an increase in the money supply drives inflation. Banks create base money out of thin air when they issue loans.

Will the ETF drive more loans and therefore more base money? Now I think it might.

Shares of an ETF might be margin-eligible making it easy to borrow money with the shares as collateral.

MicroStrategy has been borrowing money to buy bitcoin and short the dollar. The ETF might make this strategy accessible to almost everyone.

These new loans might increase base money and inflation, creating a reflexive feedback loop. As the price of bitcoin rises, more people will borrow money on margin, creating more inflation and a higher bitcoin price.

Could the ETF be the Trojan horse that consumes the financial system from the inside? 🤔

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Discussion

nobody 2y ago

An excellent point. Perhaps it’ll play out this way

BITwise 🐳 >>= RIGHTish 2y ago

Be that as it may, I don't think the amount of borrowing to buy the bitcoin etf will be high enough to move the needle on inflation

techfeudalist 2y ago

I wonder what it would take to move the needle. Perhaps nostr:npub1a2cww4kn9wqte4ry70vyfwqyqvpswksna27rtxd8vty6c74era8sdcw83a knows.

Merrcurr⚡️ 2y ago

That is assuming everyone does indeed FOMO into that ETF which i don't believe will be happening immediately after its launch but rather gradually over a few years as this asset is fully understood. Other factors that already contribute to money printing and inflation will be much more significant than an ETF

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OgFOMK ArTS 2y ago

They, the regulators, do not care. The Bitcoin ETF does not create inflation because it is just another financial instrument and all financial instruments based in Fiat, denominated in Fiat are FIAT condiuts. Regardless whether it is concrete, buildings or stuff. No more Fiat will be created than is getting created anyway which is always going to accelerate because the Fiat denominated debts are more than the actual Fiat money supply. As a debt instrument the Fiat currency created out of debt will never be enough to fulfill the Fiat denominated debt because the debt was not based on any capitol in the first place.

The reality sinister thing about this is this:

If I sell my Bitcoin for Fiat someone has to create Fiat to fulfill that buy. If so the currency is tied up in other debt instruments the new currency has to be borrowed!

Jack has a balance of 47 thousand dollars. Jim has 1 Bitcoin. Jim sells it for 47 thousand USD. Jack agrees and goes to his bank to get the cash. Jack's bank doesn't have it so he gets a cashier's check. Jim gets the check. Jim deposits the check. No money has gone anywhere. The settled debt has just transferred from bank A to bank B. But really both banks have just accepted two new debts since there is no collateral, no fractional reserve and no regulators to check that it's met because those rules changed in 2020.

It's an I owe you if you get in trouble because the FDIC will step in and or another bank will gobble up our debt or we'll go to the last lenders window, the Fed. Meanwhile the FDIC doesn't have any reserve either, so there is that too.

It's exhausting but it's true. Because Jack deposited over time his accumulated Fiat his back has a record and must honor it. That's it.

Next time you go to the bank ask to see the reserve of cash on hand. My credit union has to have this in the wall. If you want cash of a larger amount you have to ask them ahead of time to get that sum together.

The BITCOIN ETF will not add anything new. Nothing at all. It will be held in the same "trust me" system that already exists. Someone will own some Bitcoin but like all the assets in the banks, it won't be you. Don't be surprised if they even burn Bitcoin (which is impossible but that's another story).