I Still Can’t Draw a Line

Monetary System Funderrrrmentals

Monetary systems can largely be broken down into three parts.

Monetary Unit

TradFi

Value Transfer Mechanism

TradFi

Financial Intermediaries

TradFi

The Problem

The fundamental problem with TradFi is that banks operate the Value Transfer Mechanism and are the largest intermediaries. Governments are concerned about the stability of the broader financial system. Therefore, if the banking system over-leverages itself, and suffers cataclysmic losses, the government must always bail it out. The fact that the government can print the money to cover any and all bank losses with a key stroke means it must use this power every time there is a banking crisis. This is especially true as the global economy has become more complex and interlinked. The only mechanism to stay the decision to bail out the banks is the potential ensuing goods and services inflation which results from the expansion of the money supply.

Case Study: Mt Gox Bankruptcy vs. 2008 Global Financial Crisis

Mt Gox

How Leverage Works in Crypto

What exactly is bitcoin? Is it property, a currency, a commodity, data, a network? It is parts, if not all, of these things at the same time. This makes it hard to legally define what it is, and leads to different legal definitions jurisdiction by jurisdiction.

The Real Masters of Leverage

Y’all know what time it is. If I start with proclaiming the virtues of crypto, I need to deride some foibles of the TradFi central banking system. As the name implies, a central bank is a bank. Like all banks and private companies in general, a central bank has an equity cushion on the liability side of its balance sheet. This cushion would suffer losses if the assets it holds suffer a decline in value.

96.35x, Can I get a 100x!!!

And a special shout out to the honourable inhabitants of the Marriner Eccles building, who use a respectable 200x leverage. The only major central bank with a larger leverage ratio is the Bank of Canada, who uses 850x leverage.

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Arthur Hayes

Arthur Hayes

49K Followers

Co-Founder of 100x. Trading and crypto enthusiast. Focused on helping spread financial literacy and educate investors.