Thread by @duganist

Had an important insight into BTC funding and the path through Bitcoin Dollarization to Bitcoinization.

But to get to it, you must brave this thread:

If you're running a fund, LP money is very expensive, you pay them 80%. People make a big deal of the performance fee, but consider it like you'd pay the bank 80% if you make money and repay the principal less 2% if you don't. For arb, it's expensive. Wholesale finance is debt.

Is it cheaper to borrow USD or BTC?

A cheap BTC borrow + cost of hedging = BTC absolute cost. USD can be lent quite cheaply also, but usually comes at higher rates. In USD you stick to safe stuff, in BTC you risk under-performing selling calls.

BTC is more flexible to owe.

It's also harder to get BTC-denominated return when the market is trending up while it's easy to crush USD loans by being spot-long with trailing stops. In a BTC bear, it's easy to out-perform BTC on raw price but also, you hold the keys to the kingdom of inverse carry, long swap

Because the BTC borrowers can hedge the trades that pay during bears, they rule the market structure on the way down, but on the way up they can sorta rehypo the BTC via being long *The Curve*, long futures, short swap. BTC debtors can always get paid by derivatives.

The large leverage available in derivatives is a superior way to sorta rehypothecate BTC, because the onus or risk doesn't contagion in default, it's on the operational acumen of the trading desk to manage those spreads. We can do where spot BTC hypothecates *once* demonstrably.

So considering the possible paths of BTC prices and rates, and seeing cream, let's consider the possible path of Fiat prices and rates, and find the Gresham's law finance migration, if it is to be found:

1 ) Neg nom. rates, any inflation kills real yield.

2) Total deflation means BTC and the means to state-level attack it become constrained in price but BTC becomes a tool for counter-economics, BTC dollarization probably king. BTC dollar rates rule the market.

3) Stagflation, BTC rates stay cheaper.

Key variable is duration. Really rates are a landscape not a barometer, the net-present value of long curve/long duration goes up as BTC performs higher in USD. So stagflation would have net-real yields on swap hedge, less so on futures, BTC borrow fuels that.

I've seen how Argentina can sustain 27% a.p.y. at the bank for retail savers with higher inflation, for many, *many* years, multiple generations. They aren't Venezuela, they aren't collapsing, they just chug along in their stagflationary heck, even growing GDP a little, net.

I'm not sure about the paths but in all of them there's room for BTC borrow to be either an edger for trading desks in a big range-bound market/bear, or the preferred borrow mechanism. Rehypo surely enters in to meet demand/change the profit potential. Hypo'd once BTC lower rate?

You could have banks trying to survive by originating loans in EuroBitcoins, they just sign it saying hey, you owe us 100 BTC, here's your 40M EUR loan. I could see that. Seems like BTC becomes the Unidad de Fomento for the whole world that way. Then Bitcoinization can commence.

tl;dr Maybe BTC is cheaper to borrow driving a network of contracts that make it the world reserve currency. Someone tweetstamp.