The Ideal Use Case For Bitcoin?

in LeoFinance6 days ago

Bitcoin maximalists believe that coin is the answer for everything. It seems this viewpoint is a bit overzealous. We know there are a number of factors that could be causing Bitcoin issues in some areas. The idea of it as a medium of exchange might not pan out.

This is not exclusive to Bitcoin. Throughout the cryptocurrency world, we see tokens treated like stock. Everyone is wondering when they will moon. The entry of Wall Street only enhances that. This is not how currencies primarily operate.

In fact, we even use a term that is commonly applied to equities: market cap. How often do people talk about the "market cap" of the USD? Or the EURO? Or YEN? The answer is that it is not applicable.

Money supply has to expand or contract as conditions merit. Now we can debate who should control it and how good a job they do. Nevertheless, there are times when an economic system needs a lot more cash to innovate and expand.

With Bitcoin, there could be a place where this fills a major need.

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Global Debt

Most people focus upon the amount of debt that is out there and proclaim it a problem. Leaving aside the cost of servicing, which is an issue outside this article, the amount of debt is never a problem in isolation. This is the first mistake people make.

For example, is a million dollars worth of debt too much? This is a question that is impossible to answer. The numerical value means nothing.

A debt load of $1 million is nothing if that is collateralized by a $5 million house. In this instance, presuming the individual can service the loan, it is not a problem. Of course, if this same debt was backed by $250K in stock from Sears, that might be an issue.

Thus, the challenge with the debt situation at the moment isn't the amount that is out there. While people say there is too much debt, the reality is there is not enough quality collateral out there.

Here is where we see Bitcoin possibly filling the void.

Pristine Collateral

At present, the most pristine collateral are United States Treasuries, especially the 10Y and 30Y. When it comes to backing debt, these are the best forms.

Contrary to what is espoused online, the United States Government is not going to default. It never has, nor will it. Politicians know this is their gravy train. Thus, they will stop paying Social Security, unemployment, repairing bridges, or worker salaries before they default on the debt.

The United States also finds itself in an interesting position. Since Treasury Securities are the best form of collateral, there is always a market for them. Since we are continually creating more debt, even in healthy economies, lenders continually seek ways to reduce their risk. Treasury Securities do this.

Therefore, if the situation got bad enough, the USG could generate Ponzi Debt. This is where they sell Treasury Securities to pay off the previous bonds. Remember, bonds holders only access risk based upon the ability to repay. Where the money comes from is of little concern.

The Opportunity For Bitcoin

At present, the global debt level is approaching $300 trillion. This is an astronomical amount of debt but, again, means nothing in a vacuum.

There are roughly $22 trillion in Treasury Securities outstanding. This means we see a maximum of about 7% of global debt backed by this highest quality of collateral. That also leaves us with about $280 trillion in debt backed by assets of lower quality.

This is the crux of the matter. What is backing all of this? It is going to range from junk bonds to Mortgage Backed Securities. The challenge is, as we learned in the Great Financial Crisis, what is perceived as quality collateral can implode. We have to question, for example, how much is being backed by Commercial Mortgage Backed Securities (CMBS) right now?

El Salvador recently announced the introduction of a Bitcoin Bond. This is being used to fund the development of what is being called Bitcoin City. Here we see an example of how Bitcoin can be used.

In an announcement by Blockstream, Mow also said that the $1 billion will be split into two parts. $500 million will go towards building energy and Bitcoin mining infrastructure in the region. The other $500 million worth of BTC will be locked up for five years. Mow further stated that after the five-year lock-up period, El Salvador would start selling some of the bitcoin used to fund the bond to give investors an “additional coupon,”

This is just one of the many ways to use Bitcoin as collateral.

Is Bitcoin Pristine Collateral

There are a number of advantages to using Bitcoin in this manner. Before getting to that, we need to mention the downside.

The advantage to U.S. Treasuries as collateral is a holder knows exactly what the return is. With a bond, at the time of purchase, one can figure out the ROI by the stream of payments and the bond value at redemption. There is no speculation required.

With Bitcoin, there is the problem of volatility. As collateral, this will cause an issue when the market does major pullbacks. Of course, as the market grows in size, volatility tends to get reduced. However, even a 10% reduction, when something is used as collateral, can make lenders nervous.

It is not a situation that cannot be overcome. At times, borrowers might be required to put up more collateral to offset the drop in value. This could keep it from being pristine collateral. Nevertheless, it still would be high quality.

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The advantage to Bitcoin as collateral is the transparency. Everyone knows how much is out there, where it is, and what is is worth. All of this is mark-to-market at every moment. So while prices can drop, lenders know exactly what the value is on the open market.

Bitcoin can offer instant liquidation. Lenders always have a place to sell the Bitcoin if they need to call in the loan. We know billion dollar transactions were already done. As the entire market grows, so will the ability to process larger amounts.

The fact it is liquid and easily transferred, being digital, offers Bitcoin advantages when used for collateralization.

Too many want to focus upon whether Bitcoin will replace the USD. That is not likely to happen. However, Bitcoin could rival US Treasuries as the most desired collateral in the world. The finite amount is a drawback as a unit of exchange yet is ideal backing debt.

In the end, this might be the idea use case for Bitcoin.


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It sounds like a nice idea but I am a bit skeptical about really wanting to use BC as collateral. As an asset, it's great but sometimes I wonder if just HODLing the BTC due to the tokenomics is better.

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 5 days ago Reveal Comment

My point of view is more or less on the worst case and I prefer not to use leverage at all due to the dangers. Even when I do use leverage, I make sure that I am covered and have a plan in place.

We all know BTC should go up in price but there is no guarantee of it forever. After all BTC could just dip and not move from that price for a year. Then you have to pay off the interest and you might just sell out if you are relying that as your source of income.

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 5 days ago Reveal Comment

When Bukele announced the Bitcoin Bond Nexo Finance was quick to approach him for a Business relationship which got a retweet. I think a qualified Representative from HIVE needs to make him a serious offer for creating an El Salvador Community on Hive with an on/off Ramp for a BTC/Hive Pair WLEO/BTC Pair etc

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Good points.

What I'm a bit worried about is Mortgage Backed Securities. In light of what you have written about the construction industry and the real estate sector being likely to be transformed in the next 10-20 years could mean that the valuations of current real estate may take a nosedive. Are we going to have another crisis like in 2008 on our hands?

Are we going to have another crisis like in 2008 on our hands?

A good chance of it for a couple different reasons. I think the thing to watch now is the CMBS market. Commercial real estate is in rough shape in my opinion.

Long term, yes the change in valuations will cause a lot of problems with the homes as collateral.

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Great post @taskmaster4450
You are my chosen crypto to go guy bro
Keep up the great work:)

Thank you. Appreciate the support.

But there are a lot of great writers on Hive/Leofinance. A lot of knowledge being passed around.

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Your welcome bro @taskmaster4450
I know mate but i like your style have the best day:)

Interesting thoughts. It seems that Bitcoin will have a place, but it might not be exactly what the majority of people are thinking.

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Hard to tell how things evolve but it often doesnt go how the masses think. I think with BTC, they are intending on the USD going away, which I dont believe it will, for a long time.

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No, I don't believe that will be the case either.

A debt load of $1 million is nothing if that is collateralized by a $5 million house.

If the things go wrong, the house could also be nothing in an instant. Especially with debt. Like in our case. We had a home between 2015 and 2018. My brother made a lot of debt by not paying the bills for months, and by taking bank loans. We had to sell our house. Since then I have to pay very high rent. But I am thinking about a solution to be free again (and get out of the financial discrimination) by live again without having to pay rent.

Yes but your situation did not make the property worthless. The bank was able to sell it for something. You house was collateral for the loans.

It is true there are situations where losses occur for the lender but real estate tends not to go to nothing.

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I did not mean that literally. I mean "nothing" in the sense that you could lose a house instantly (or at least very quickly) because of a sudden high debt.

Bitcoin does have use case and all I can say is El Salvador is doing a lot.

Let's see what the future holds.

Currently, I think the only use case that applies to BTc for me is the universality and convenience of having my money easily accessible.

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With Bitcoin, there is the problem of volatility. As collateral, this will cause an issue when the market does major pullbacks

This is probably my area of concern, i've been wondering how the issue of volatility will be resolved, since fiat being used especially for collateral beforehand is less volatile than bitcoin. I guess there might still be issues irrespective of the underlying solution by crypto enthusiasts.

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The larger the market gets, we can expect less volatility. Often, there are terms where more collateral is required if it falls below a certain level.

This could be done, even with smart contracts.

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Got it, so the larger the market?

This is quite technical though, im glad you to clarify it.

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Bitcoin is complete garbage. It's trash and everyone knows it. The biggest issue is it failed as a currency. That's where economic prosperity and freedom comes to the people. Capitalism as we know it is on the way out.

It's no way i don't care what anybody thinks. We can maintain this capitalistic system under the guise of all this technology and freemium services and robotics that are looming on the horizon. It's just futile, asinine and illogical to think otherwise.

Satoshi saw this as a currency because that's as far as he could really see. Now they scrambling to find anything of use to keep this baloney going. it's absolute trash. Bitcoin MYK makes far better sense. It's just a million times better.

Giving away our token in the future will make people wanna spend it more. That's its purpose to be spent. that's what you do with currencies. The reason in crypto we gotta desperately look for use cases is because they don't have significant use cases. LIsten if you have something useful. Do you think you ever have to go around for years looking for a purpose?

When the party who created the darn thing clearly underlined what the purpose of it was? Now you gotta go dig up uses for it? That's not a good situation to be in. Bitcoin is valuable because people think it's an asset that will make them rich. That is it point blank. It fails in everything else but network effect. that makes it even worse than facebook. Atleast with facebook people clearly know what they using it for day in and day out.

The intellectual positions on cryptocurrency around here are horrible. It's like a bunch of people wishing their way to something that is weakly built on sand. If bitcoin doesn't die it should die. It's worse than doge coin. It may as well be a meme coin. It is trash and complete garbage. Bitcoin MYK for people who understand it. LIke thinking people,, makes bitcoin look like nothing in a dumpster. I know in the future that's going to be proven to be true.

If you want something useful that gives freedom and economic prosperity. People gotta exchange it and move it so it goes around. Bitcoin stagnates to like 87% of the network owned by 1%. It's similar to hive in a sense but even worse however with more money.

That is because nobody wants to actually spend it on anything. It's just common sense lol. So how is the solution more of the same. Financial products and banking products we don't need more of those.

if i want the security of the us government to repay a debt. I know the us govt can go in do what's necessary to pay the debt lol. They got guns and armies. if they wanna repossess something in sweden. It's not going to be alot sweden can do about it. So Sweden probably not going to have a problem with agreeing to the us govt terms. It means i get my money back.

Bitcoin can help an already dying system survive a little longer. It's certainly not showing me any real progress into the future. Whether people want to accept it or not right now. That's going to end up being something like Bitcoin MYK. It doesn't matter how people feel about it. It will serve the distribution needs of the people and that's what people want.

It can't look too attractive as far as value because you want it to float so people spend it lol. I"m more excited when the prices are low and new people enter the market. So that's the internal mechanism automatically working. Walking around with bitcoin an asset nobody will ever sell that we really don't need is going to help nobody. Eventually bitcoin brand and marketing effect will be challenge. It's stupid it's like the emperor has on no clothes. Eventually someone will ask where is the clothes?

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