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@ mike
2024-12-04 08:52:23
When we had the Gold standard, gold only backed assets.
Now we are approaching the Bitcoin Standard, what will happen if Bitcoin is used to back debt?
$MSTR is the Alpha release
Trumps USA will be the Beta release.
If it works, the world has $315T of debt.
That will be the full release V1.0
In comparison, the world has $454T of assets.
Can it be done?
What happens when you back a negative debt with a positive asset?
Has it ever been tried?
Is it possible?
The problem with the debt is it isn't "owed" to anyone.
If I lend you $10 you owe me $10.
To explain further:
If you lend me $10 worth of gold, then I can pay you back $10 of money if it's backed with gold - the gold standard.
If you lend me $10 worth of gold, and I pay you back with unbacked fiat, the repayment is arbitrary.
Like for like you can back any backed money with any asset.
Without a backed money, you can only repay an asset with an asset, otherwise paying with fiat, the global books don't balance.
In the current fiat world, if the US government print $10 and sells it to the market for $10 + interest, their is no creditor. You are simply diluting all other dollars.
When they have to pay back the debt to the “creditor”, they can't return the original $10 because that's been spent and they haven't generated any wealth (they are a government, not a company), so everything they return (the original lent $10 + interest) is printed again.
This is monetary recursion and destroys all fiat systems eventually.
So what happens when you insert a hard asset into the equation? Do you destroy or weaken that asset, you certainly don't strengthen it.
Does this turn Bitcoin into an inflationary currency despite its inherent deflationary properties.
After all, the U.S. had to come off the gold standard, because they didn't have enough gold to pay back.
I think best case scenario is Bitcoin repeats what happened to gold. It weakens Bitcoin until it makes it flacid, at which time the government will be forced to leave the Bitcoin Standard and Bitcoin will be a shadow of its potential.
Why?
Currency can be created and destroyed.
Money (the measure of wealth) is absolute.
I think this is the fundamental flaw, we believe money can be created and destroyed simply because we are used to printing or burning government fiat and have copied that model for Crypto currencies like Ethereum or Tether, which are mined or burned.
So money (invent better word) cannot be printed or destroyed, it is a measure of wealth and if you increase or decrease the supply you change the unit measurement, not the money.
So what are the potential end point valuations of Bitcoin?
Can Bitcoin approach a $21M coin valuation?
i.e. 21M Coins at $21M?
If Bitcoin only backs assets, then it can't exceed, or even approach the total value of world wealth, currently $454T
At $21M for 21M coins, this approaches world wealth.
If Bitcoin is used to back debt, then you can add a further $315T of value, so if we assume $100T (about 1/4) of asset value + $300T of debt value, then we approach $21M per coin.
Another potential way of projecting the eventual stable price of Bitcoin:
If world wealth is currently around $454T
And world debt is currently around $315T
then can we consider it like a company and consider the profit to be $454T - $315T = $139T
Would that be a good expectation for final Bitcoin price?
i.e. $139T / 21M = $6.6M per BTC
However, I'm not certain Bitcoin can survive being used to back debt.
Gold never did that.