2minutebitcoin on Nostr: On the liability side of the Bitcoiner's balance sheet there are mortgages, student ...

On the liability side of the Bitcoiner's balance sheet there are mortgages, student loans, car loans, credit cards, etc.

Everyone admonishes people not to borrow in order to buy bitcoins.

The reality is that disposable cash is fungible: if you buy bitcoins instead of paying down your mortgage's principal, you are a leveraged bitcoin investor.

Almost everyone is a leveraged bitcoin investor, because it makes economic sense within reason. The cost of borrowing (annualized interest rates ranging from 0% to 25%) is lower than the expected return of owning bitcoins.

How leveraged someone's balance sheet is depends on the ratio between assets and liabilities.

The appeal of leveraging up increases if people believe that fiat-denominated liabilities will decrease in real terms, i.e. if they expect inflation to be greater than the interest rate they pay.

At that point, it becomes a no-brainer to borrow the weak local currency using whatever collateral a bank will accept, invest in a strong foreign currency, and pay back the loan later with realized gains.

In this process, banks create more weak currency, amplifying the problem.

-- an excerpt from Speculative Attack (2014), its 2-minute version can be found here: https://2minutebitcoin.org/blog/bitcoin-speculative-attack-on-the-dollar-2014