Fast forward 40 years.
...The world runs on a #Bitcoin standard, and governments are largely uninvolved in influencing the supply & price of money.
What happens to interest rates??🤔
Discussion
Market set rates. I imagine they’re not very high because you should get a real return from just holding btc.
Mind-bending still for me to imagine it but it in that hyperbitcoinized world the only thing worth borrowing for would be….more Bitcoin. You’d pay whatever Bitcoin borrowing rate and terms the market sets by those with Bitcoin to lend, HODL and wait for the house or car you want to deflate in price, then buy. While HODLing I guess you’d make your loan payments in Bitcoin.
Interest rates will mostly disappear under a bitcoin standard. The world will switch from a debt based fiat system to an equity based hard money system.
Debt doesn’t work “at scale” because interest requires new money to be created.
Also, most people won’t lend their bitcoin for a fixed payment and risk the borrower’s bankruptcy.
The only reason to invest your bitcoin will be to own other hard assets or a share of a bitcoin business.
Yes, lending bitcoin will be disincentivized because since there's no supply of new bitcoin, eventual defaults are mathematically assured.
Instead of lending rates, perhaps there will be fluctuating rates of equity-for-capital. That is, the purchasing power of bitcoin will increase with greater general productivity growth, and will decrease with lower productivity growth. As a bitcoin holder, if general productivity growth is slow or negative, you'd be incentivized to accept less equity in a business per unit of bitcoin buy-in. If productivity is growing quickly, you'd demand more business equity in exchange for your fast-deflating bitcoin capital.
Makes intuitive sense: if there isn't much innovation or population growth happening, then it will become cheaper to get capital in exchange for equity. A naturally competitive dynamic.
Borrowing for consumption though? I would think that would be impossible.
They become uninteresting.
Rates will be determined by the risks of lending. Probably with the least riskiest being the lightning network. And moving out on the risk curve and up in interest rates from there.