Subnostr

I'm not 100% I followed your argument in the article, but I don't see how backing debt (or anything) with BTC weakens it.

What happens when you back debt with a hard asset like BTC is that you may not have enough of it to cover the amount you want to borrow in the conditions you want to borrow it.

But by definition if you're backing your debt "with" BTC, you either pay it back, or you lose your BTC, and then you have less BTC, so you can't borrow as much.

Yes, you can pay back in fiat, and that's why you have to overcollateralize your debt (say twice as much BTC as fiat you borrow) and pay an interest on top, otherwise no one will buy it.

Sure too, as a government, you "can" default, but good luck finding lenders ever again then, as Argentina learnt the hard way in the past, as is still suffering even today.

And if you force the central bank to buy that debt, like Argentina did, all you're doing is, as you said, monetize it and dilute the currency -- which leads to devaluation and price (hyper)inflation. So you can do that only for so long as well.

But I don't see why this would be different with BTC or how it could weaken it.

mike 1y ago

I think the main point I'm trying to make is there are two types of debt. If I borrow $10 of gold from you and pay you back with $10 of silver, we have settled the debt.

But if the government borrows $10 of your gold and prints $10 of fiat to pay you back, while you have received an equivalent amount, the government hasn't paid you, everybody who holds dollars has.

$10 is not significant, but what happens if, in the future, we lend the government $315 trillion of Bitcoin and they pay us back by printing $315 trillion dollar bills?

Reply to this note

Please Login to reply.

Discussion

gojiberra 1y ago

theft!

ᴛʜᴇ ᴅᴇᴀᴛʜ ᴏꜰ ᴍʟᴇᴋᴜ 1y ago

bitcoin price pumps some time later to adjust to the change in fiat supply

mike 1y ago

But it’s pumping to nothing if we’ve just diluted the money supply!

ᴛʜᴇ ᴅᴇᴀᴛʜ ᴏꜰ ᴍʟᴇᴋᴜ 1y ago

adjusting to inflation is what commodity prices do when they ctrl-p

the bitcoin hodlers will be fine after the adjustment, it's the fiat hodlers who always suffer

isn't that the whole point of why you have to hodl your own bitcoin?

the temptation of rehypothecation and fractional reserve banking is inevitable for the money grubbing scumfucks who run exchanges and banks

as it is, already, we know that major crypto exchanges are faking their bitcoin hoard, but eventually enough demand for offramp happens - especially due to such things as money printing diluting people's cash assets, and a trend that will simply increase over time

while there is a big enough, hard core anti-fiat contingent maintaining the bitcoin hard issuance rules the best they can do aside from false claims of bitcoin holdings is try to fork it again and that has never worked in the entire history, for very long, a year or two in most cases and the shitcoin is effectively worthless, the founders have run off to some new ponzi...

hh 1y ago

Instant hyperinflation.

hh 1y ago

As I say in my other reply: instant hyperinflation - *fiat* price hyperinflation. BTC prices remain the same.

But you did something there: you now said "if we lend the govt X amount of BTC". There's no way anybody lends BTC to the govt or anybody in exchange for fiat, and that wasn't the original scenario, but it's exact opposite -- we were discussing the government backing debt *with* BTC, not the other way around.

mike 1y ago

But does BTC remain the same?

Yes, hyperinflation, but look beyond that, also lend or sell are distractions, you're focusing on the noise.

BTC is currently valued at around $95K, but the dollar is an abstract amount.

We all agree that $10 today is worth less than it was last year or even 10 years ago.

Currency is the supply of money.

Money is the measure of wealth.

Perhaps we need to make that distinction clear and stop confusing currency (dollars, pounds, euros etc..) with money and use a better measuring tool.

For example BTC.

That would be the Bitcoin standard.

hh 1y ago

Well, that's what I'm saying.

BTC has a market value of X, which is the amount of goods that THE MARKET says it can buy. It doesn't matter how you denominate it: USD, GBP, tons of gold, oranges or paper clips.

Say that the USD Govt holds BTC worth 1/10 * X, and wants to borrow 10 * X.

If the market believes the USD Govt can leverage that BTC 100 times, then good for them. They'll be able to borrow. But the VALUE of BTC will continue to be X.

If then the Govt turns around and decides to hyperinflate the USD to repay, it definitely can. Lenders will get rekt, the economy will completely collapse, and probably whoever did the hyperinflating will end up hanging by the neck.

What may happen then is that because the USD stops being a usable unit of account, people decide to simply switch to BTC for that purpose.

But BTC keeps buying X amount of goods. That doesn't change.

Account deleted 1y ago

When BTC will hit 1M USD the dollar will be worth 1/3 less than it does now

freeborn | ἐλεύθερος | 8r0gwg 1y ago

Mike Maloney covers this distinction well in his 'Hidden Secrets of Money' series (free on Youtube).

mike 1y ago

I watched that years ago.

He's a gold guy I think.

freeborn | ἐλεύθερος | 8r0gwg 1y ago

He is, mainly. Open to bitcoin, but got sucked in to hedera hashgraph, having prioritized transaction speed over DLT and a fixed supply.

𝕞ptf 1y ago

This is why people need to accept only real money

🇵🇸 whoever loves Digit 1y ago

You're thinking like a capitalist. Stop that. Use your neurons.

Whatever the fuck dollars are, if you borrow an oz of gold from me and you're planning to pay me back in silver while the gold to silver ratio is 86 to 1, you'd be an idiot, but I can see how that would make me have some sympathy and leave interest out of it, so when you give me back 86 oz of silver, we'd be all set.

Whatever the fuck a government is, if it borrows gold according to some gold-dollar ratio and then these things can just be printed to pay you back, you'd have to be an idiot to leave interest out of it because that ratio is going to get worse for you when they print the things to pay you back.

hh 1y ago

Correct. In fact to begin with, nobody in their right mind would lend BTC, least of all to a government.

And inversely, if I am lending fiat against BTC, I will definitely demand overcollateralization and a fat interest to top it and to pay for the cost of opportunity that I'm incurring by lending that fiat to you instead of using it to buy BTC myself.

So, if in normal conditions I expect BTC to appreciate 100% yearly against the USD, and today's price is $100k, and you ask me to lend you fiat putting 1 BTC as collateral:

1. at most I will lend you $50k

2. I will make you pay at least 100% yearly interest

3. plus a premium