Brett Scott Profile picture
Jun 13 15 tweets 4 min read
I've heard a lot of people claim that Bitcoin is somehow a unique weapon to protect yourself from inflation. The current #cryptocrash should make you doubt that, but I used to work in 'inflation hedging', so let me offer a perspective to help you decide for yourself. Thread 1/15
I used to work in 'inflation derivatives' markets. I'll explain what those are, but let me start by saying that during that time I learned that there are basically four ways to hedge yourself against inflation...
The first is to invest in something that has inbuilt legal protection against a rise in inflation. The most well-known example of this are 'inflation linked bonds', which are legally required to increase their payout as inflation goes up (see for example, investopedia.com/terms/t/tips.a…)
The second is to enter into a bet that inflation will rise against somebody who disagrees. These are 'inflation derivatives' (swaps, options etc). A counterparty bets against you & pays up to compensate you if inflation rises above a particular level (see investopedia.com/terms/i/inflat…)
The third is to buy an asset with current money and attempt to resell it for more money in future, thereby offsetting any losses in purchasing power with increases in the absolute amount of money you hold: (e.g. buy shares in companies that can charge more when inflation rises)
The fourth is to swap one inflating currency for one that is not inflating. Go to an FX dealer and get them to take your currency in exchange for another.

So which of these strategies are you following if you buy Bitcoin? Ta da, it’s strategy 3, but it masquerades as strategy 4
Because Bitcoin tokens (unlike shares or rare art) are *branded* as money & because they're highly movable, they have the superficial appearance of 'money'. This means this volatile asset can be pitched as if it were a ‘deflationary’ currency that fights inflationary ones...
But really Bitcoin tokens are just a new contender in the inflation-hedging asset purchase category (no.3). They're not competing against the dollar. They are competing against shares, rare stamps, art, land and anything else that can claim to rise in monetary price over time
Rises in Bitcoin prices are not ‘deflation’, any more than declines in Bitcoin prices are ‘inflation’. Bitcoin is a just another object on a dollar-denominated market. It’s changes in price are ‘asset appreciation’ or ‘asset depreciation’
The first implication of this is that every time a Bitcoin promoter says ‘inflation is rising therefore buy Bitcoin’, they should also add ‘or shares, land, art, or any other potentially appreciating non-monetary asset’
Inflation is a phenomenon where all prices in a particular currency system shift up while their ratios relative to each other stay – roughly – constant. E.g. a coffee that once cost $3 and a sandwich that once cost $5 become $3.30 and $5.50, whilst maintaining a ratio of 3:5
This is different to a scenario where a sudden coffee shortage causes the coffee price to spike up to $4 while sandwiches stay $5, thereby changing the ratio to 4:5 (albeit, shocks to the prices of key imports like energy can cause the entire currency network to recalibrate up)
Bitcoin's price ratio to other goods in an economy wildly fluctuates, because really it's a speculative digital object which resists any attempts to calculate a 'fundamental value'. This means it's subject to extreme shifts in its dollar value relative to other goods on a market
If you happen to buy it at the right time and resell it at a higher price later, you may consider it an 'inflation-hedging asset', but if - for example - you bought it in Dec 2021, you've suffered a 47% loss, which hardly is going to compensate you for inflation...
Finally, bear in mind that the industry that promotes Bitcoin has to find every possible marketing strategy to push up its price. This means they engage in inflation fearmongering to create buying pressure for BTC, but without offering you advice on other options. Pls be careful.

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More from @Suitpossum

May 31
Here’s a somewhat philosophical take on the politics of money.

I'm fascinated by monetary systems because they simultaneously connect and separate us. They enable us to interact with distant strangers, but often at the expense of weakening our reliance on closer kin (1/14)
We work in huge depersonalised markets because we have huge depersonalised monetary systems that enable vast collectives of people - ‘the public’ - to operate as an interdependent economic web. But it makes a difference as to what form the units of money take (2/14)
A modern monetary system is made of two central components. The state issues physical cash, while the commercial banking sector issues digital IOUs (think of them as digital ‘chips’) that can transferred via card payments, but also redeemed back for cash at ATMs (3/14)
Read 14 tweets
May 23
'Cashlessness' is often slowly engineered from the top down. Here's an example of how this happens:

In 2019 Visa entered into a sponsorship deal with the NFL, but made it dependent on the Super Bowl 'going cashless'... (1/11)
In 2020 this was pushed under the guise of helping people avoid contact during Covid, but this is BS. Not only have major health bodies rejected the thesis that cash spreads covid, but the NFL admitted that the 'decision to go cashless was in the works before the pandemic' (2/11)
Indeed, it was in 2019 that Visa told their investors how they'd use the NFL deal to basically force football lovers to use digital payments. “Looking ahead" they said, "we see a cashless future for NFL fans" (investor.visa.com/news/news-deta…) (3/11)
Read 11 tweets
May 19
It's with deep joy that I present my new book to the world today. Cloudmoney: Cash, Cards, Crypto and the War for our Wallets.

What's it about? Cards seem convenient and crypto seems cool, but the book lays out a contrarian argument for why cash is more crucial than ever (1/20) Image
The book rejects the idea that a move towards a cashless society is a 'bottom up' phenomenon driven by us all. It shows why our decisions to ‘go cashless’ are often slowly engineered from the top down... (2/20) Image
This is what global inequality scholar and author @jasonhickel says about Cloudmoney... (3/20) Image
Read 20 tweets
May 17
An impressionistic sketch of my position on Bitcoin.

Firstly, Bitcoin uses a radical decentralised architecture (which appeals to people on both the libertarian right and anarchist left) to implement - in theory - a monetary system that appeals to conservative thought.

1/6 Image
But that conservative vision of Bitcoin as a kind of 'commodity money' is actually never realised, and is largely a myth. Rather, it serves as a *marketing* story for the true Bitcoin, which is a limited supply collectible bought and sold for money.

2/6
That dollar-priced collectible, however, becomes useful for *countertrade*, which is the process of using money-priced objects for exchange, by swapping them for things of equivalent price (E.g. dollar-priced camera swapped for certain amount of dollar-priced BTC)

3/6 Image
Read 6 tweets
Apr 20
When a bank creates money it doesn't issue the money to itself. It issues it as an asset to *somebody else*, and experiences that as a *liability*. When a Bitcoin miner creates new tokens, by contrast, they issue those *to themselves* as an asset. There's no liability side

1/7
Bitcoin tokens may have no liability side, but they have one similarity to bank-issued money. They are 'created from nothing', in the sense that they are simply written into existence. It's just that you have to sweat a lot before doing that writing...

2/7
(It's somewhat like running through a very exhausting maze before reaching a desk where a piece of paper and a quill pen awaits, at which point you simply write the new units into existence, for example, by writing the number '25')

3/7
Read 7 tweets
Mar 30
Understanding of modern money is jammed by a noun-verb confusion. Here's why:

In English, the verb 'deposit' typically creates a noun of the same name: "the flood deposited sand in the river and now there's a sand deposit in the river"

Never apply this to money! (1/9)
Unfortunately, people do mistakenly apply this same convention to money: "I deposited cash in the bank & now I have a deposit in the bank"

What's the mistake? The noun 'deposit' in banking actually refers to something *issued out* by a bank, not something that is *put in*

(2/9)
A 'bank deposit' is a digital IOU created by a bank, and handed out to you when you hand over ownership of your state money to them.

I hand £100 of cash to them. It is 'going in'. They issue me with a digital IOU for £100. That IOU is 'coming out' of the bank, to me.

(3/9)
Read 9 tweets

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