The meme of Bitcoin as a hedge against inflation and central bank money printing is stupid and perfectly tailored to stick in the brains of financially illiterate bagholders.
First, it seems intuitive that inflation should push Bitcoin up, as everything goes up with inflation.
Except Bitcoin isn't bacon or milk, it's a financial construct. Not all assets go up with inflation. Bonds go down with inflation as interest rates rise. Stocks can go down with inflation if input costs exceed the company's pricing power.
Bitcoin's input costs would rise.
Bitcoin costs money to exist - it needs ASICs and electricity, and those will definitely go up with inflation. Of course miners are free to reduce the hash power to counter-balance that, but then the security of the network will decline, so how is that good for the price?
"But gold goes up with inflation" - gold has genuine, inelastic demand; people buy wedding rings if they cost $300 or $600 just the same. One might argue that people buy Bitcoin at $30K or $60K just the same, but that's assuming all their other expenditures aren't going up.
Bitcoin's price is very much correlated with risk assets, as we've seen during the only real test (in March 2020), which means that it's not inelastic. That doesn't bode well for a new normal of inflation-induced trauma.
Then there's the idea that "money will flow into Bitcoin".
Supposedly people will spend money on anything to protect their savings, which will push Bitcoin up.
I hate to break this up for you, but when inflation hits, most people don't have any money to spare. Plus money doesn't "flow into something". For every buyer, there's a seller.
Assets aren't "stores of value" in the sense that they somehow store the money that you spend when you buy them. Unless the asset is a stock or a bond being issued by a company to finance a new project, the money doesn't go into the asset, but into the seller's pocket.
If real inflation hits and people, on average, start witnessing their wages plunge in real terms, their first reaction won't be "quick, I need to buy some Bitcoin" - they won't have the means to. Instead, they'll go "hey, I have some Bitcoin, let's sell some to make rent".

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More from @Tr0llyTr0llFace

9 Mar
I woke up early this morning & stumbled upon Seetee's "letter to shareholders" and oh boy is it an alphabet soup of nonsensical Bitcoin memes.
To quote Wolfgang Pauli, "it's not even wrong"
I guess Nic Carter must have had a strong influence over whoever wrote it.
Let's dive in.
TL;DR: "I've watched Bitcoin go up tenfold in a year and that gave me confidence that it's very valuable so I jumped in".
Of the 19 advisors that were consulted, only one, Mike Green, is a critic, and also the only one who understands finance and doesn't have a vested interest.
Let's start with the "Bitcoin is like the early Internet" meme. The letter references Tim Berners Lee - maybe they should have talked to him. Since Tim said 6 years ago that Bitcoin was getting ahead of itself, the number of daily transactions has barely gone up threefold.
Read 20 tweets
7 Mar
Remember when Paul Tudor Jones invested in Bitcoin, in May 2020? In his letter to investors, he explained that Bitcoin would be a good "hedge against inflation and money printing", without going into much specifics.
But he did one very weird thing. He didn't buy Bitcoin.
Instead, he bought Bitcoin futures. That's very, very weird for one reason - Bitcoin futures have a very negative carry as their term structure is in contango. A Bitcoin future a few months out costs much more than Bitcoin spot, and PTJ was willing to give up that spread. Why?
Some said that it was "easier than buying Bitcoin", but come on - a multibillion dollar hedge fund can figure out how to buy Bitcoin and store it in a wallet.
I can tell you that in funds like those, an army of PhDs spends their days figuring out the best way to make every bet.
Read 11 tweets
6 Mar
Nic Carter still tries to spin Bitcoin's mind-numbingly stupid energy and cash burn as a "debate". It's not a debate: Bitcoin's energy energy and cash burn is mind-numbingly stupid.
Let's dissect the desperation of a hypocrite who's backed into a corner.…
The opening salvo sets the tone.
Nobody's debating if it's worth to spend "any" energy on Bitcoin. Sane people are simply saying that it's stupid to spend 100+ TWh/year because it's an insanely large amount and much more efficient systems could be set up to the same effect.
Then there's the assumption that Bitcoin is, or enables, "a non-state monetary system" and "sound money". It's not, and it doesn't. Bitcoin, in itself, is just a database - a distributed ledger, like tens of thousands of other databases, only much slower and more expensive.
Read 16 tweets
5 Mar
Michael Saylor's stated strategy to load up $MSTR with debt to buy Bitcoin is a mathematical guarantee of bankruptcy.
Remember $XIV, the "short volatility" ETF that went bust when the VIX jumped 100%? HSBC had written in the prospectus of the fund that was going to happen.
In the case of $XIV, you knew that an event where the VIX goes up by 100% in a single day is very unlikely, however, over a very long period of time, it's a certainty. Let's say the probability of that happening on any given day was only 0.1%. This means that the probability...
of it NOT happening is 99.9%, on any single day. But if you intend to hold your ETF for longer periods, the probability of the ETF not going bust over 10 days is down to 99% (99.9% ^ 10), over 100 days - down to 90.5% (99.9% ^ 100), and over 1000 days - down to 37%.
Read 5 tweets
5 Mar
I've been ranting about this for almost 2 months now.
To answer all those who are asking "how can I arbitrage this", the answer is, you can't.
Because the SEC doesn't want a Bitcoin ETF, it only allowed $GBTC to exist with one huge caveat: it's a closed-end fund.
A consequence of that is that $GBTC can't redeem shares. They never got that "exemptive relief" from the SEC (excerpt from their IPO prospectus below). Which means that you can buy $GBTC at a discount to NAV feeling smug, but what are you going to do if the discount goes to -30%?
The only way to milk a discount is to buy a very large stake in $GBTC, and then vote to liquidate the trust in the next shareholder GA - you'll then get your bags of Bitcoin. But then the market will know that you got a crapload of Bitcoin that you probably intend to sell.
Read 5 tweets
3 Mar
Grayscale Bitcoin Trust premium cratering, now trading over 4% below net asset value. Tens of billions of $$$ are trapped and can’t get out. No buyers.
You can manipulate prices on unregulated exchanges with scam stablecoins. On real markets where you need real USD, not so much.
Grayscale Bitcoin Trust premium -5.2%.
Getting uglier every day.
FYI Grayscale stands for half of all "institutional money" in Bitcoin, as per Goldman's research. And now those institutions are getting buttrekt. How will this attract more bagholders? It won't.
Now the $GBTC premium is -7%. Barry Silbert managed to leverage mild retail buying into a “smart money” stampede by selling them the idea of arbitrage - buy at NAV, sell to retail suckers at a premium. It worked well until people tried to cash out - a recurrent theme in crypto.
Read 5 tweets

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