The "Speculative Attack, Season 2," builds upon the original "Speculative Attack" thesis from 2014, arguing that the economic incentive to borrow depreciating fiat currency to invest in Bitcoin remains compelling and has, in fact, become even stronger. The core idea is that this "pair trade" (short fiat, long Bitcoin) is not only rational for individuals but is increasingly driving the actions of institutions, companies, and even central banks, making it the "greatest pair trade in history."
Key Themes and Ideas:
- The Original Speculative Attack Thesis (2014):The core idea is that the economic rationale for borrowing fiat to buy Bitcoin is overwhelmingly favorable.
- The price of Bitcoin is driven by this buying pressure and news of its properties.
- Individuals with debt obligations (mortgages, loans, etc.) are inherently leveraged in favor of this attack, as they can choose to buy Bitcoin instead of paying down liabilities.
- This strategy becomes more potent with weaker local currencies compared to stronger currencies like the US Dollar.
- "The returns figures cited just above are magnified even further if one takes as one’s starting point the Turkish Lira or the Argentinian Peso."
- The authors argue that this thesis has proven correct, with Bitcoin being the world's best performing asset over much of the last 10 years, and that this thesis has now expanded.
- Fiat Currency Degradation:Fiat currencies are in significantly worse shape than in 2014 due to increasing debt/GDP ratios, spiraling deficits, and banking failures.
- "Debt/GDP ratios globally have marched upwards. Deficits have spiraled. Banks have failed, as have entire financial markets, on occasion."
- Approximately one-third of all US dollars have been printed in the past four years.
- "Roughly one third of all dollars in existence have been printed in the past four years, never mind ten."
- Inflation is largely exported through the dollar's reserve currency status, worsening the situation in other fiat currencies.
- The necessary political will to fix these issues is unlikely to exist.
- "The necessary political will simply does not exist, and it is unlikely it ever could."
- This continuing degradation of fiat enhances the speculative attack thesis.
- Widening Avenues for Attack:
- Fiat currency's monetary premia is leaking into almost every asset class, creating "short dollar positions everywhere, almost all of which are involuntary."
- "Over the past ten years it has become clear that fiat is utterly out of control in leaking de facto monetary premia into practically every asset class in existence."
- There are more "dollar shorts looking for a long" than there is Bitcoin, suggesting a massive potential demand for the asset.
- The financial system is so credit-fueled that it requires a constant increase in the money supply to simply function.
- "This is the essence of the speculative attack. As Bitcoin strengthens, the demand for fiat credit goes up, more is printed, and the problem Bitcoin solves gets even worse."
- Central banks have actively intervened in capital markets by stockpiling securities to prevent the collapse of the fiat system.
- "perhaps the most startling development is the volume of direct intervention in capital markets and stockpiling of listed securities on the balance sheets of central banks worldwide."
Conclusion:
The document concludes that the speculative attack on fiat currencies via Bitcoin is not only still valid but is accelerating. The degradation of fiat, the expansion of avenues for attack, and the increasing adoption of Bitcoin suggest that this trend will continue. The authors believe that this is just the beginning of "Season Two" of the speculative attack, with further development and evolution expected in the coming years.
