Thread by @real_vijay

1/ Bitcoin and gold are on the rise. A thread explaining why.

All monetary goods are in constant competition with each other to attract the pool of global savings. They compete primarily on the attributes that make for a good store of value:

medium.com/@vijayboyapati…

2/ Fiat monies, while being inferior on the standard attributes that make for a good store of value, have one advantage over market based monies: you are paid interest to hold them. This interest can be paid because the sovereign claims seigniorage over their money.

3/ In effect, a state can pay interest on the money it issues because it parasitically profits from the productivity of the population over which it claims dominion. States also use the interest rate in a counterproductive attempt to keep their national economies growing.

4/ When an economy is slowing, the prevailing theory among central bankers is that the interest rate should be lowered to spur demand. It is precisely in these environments that the one advantage fiat monies can claim over market based monies is diminished or destroyed entirely.

5/ It is in an environment of negative real interest rates that gold thrives. In such an environment, there is a cost to holding fiat money - your purchasing power is purposefully debased away from you. Gold then becomes a very attractive substitute for cash savings.

6/ #Bitcoin should behave similarly to gold in a negative interest rate environment with the caveat that Bitcoin is far smaller than gold and so its price is still dominated by the inflows of new HODLers and outflows of long term whales.

7/ Eventually #Bitcoin's market capitalization will reach parity with, and likely surprass, gold's (approximately 10Trillion) due to its superiority along the attributes that make for a good store of value.

8/ At parity with gold, #Bitcoin will react to interest rate manipulations in a similar way to how gold does today. One thing is for certain: the current environment of negative real interest rates is likely to stay with us for a prolonged period of time.

9/ The botched handling of COVID-19 has put millions of people into unemployment. The reallocation of this human capital back to productive purposes necessarily takes time - and likely a long time. Many industries have suffered a long term destruction of demand.

10/ Central banks and nation states will continue to keep interest rates low in a vain attempt to rekindle the economies they have shattered through mismanagement. They have created the perfect environment for a sustained bull market in both #Bitcoin and gold.