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? 🤔