I've been thinking a lot lately about what would happen to interest rates, lending, etc. once humanity lived on a Bitcoin standard.
Have you ever wondered how lending would look like under a Bitcoin standard? Here are thoughts on it. 👇
- With a finite money like bitcoin, which is designed to deflate (increase in purchasing power) over time, there is no need to earn additional returns. As is the case with an inflationary fiat currency, where losses in purchasing power due to monetary devaluation must be offset.
- The incentive for someone to lend #bitcoin will be considerably low because there is no benefit in potentially losing out on deflation without adequate compensation. As a result, interest rates will likely be significantly higher and market participants will think carefully about lending and borrowing.
- The lender must consider the risk of a significant loss of purchasing power if the money is not paid back and will need to require sufficient collateral to protect against the risk of default, which would have harsher consequences in a deflationary environment.
- The borrower must consider the interest to be paid and the difficulty of repayment due to the risk of deflation.
To a Keynesian economist, this may sound like a deadlock for the economy, but on the contrary, it is good if there is risk associated with taking out a loan.
- This will likely lead to a healthier market environment, as people will not be able to pursue ideas for which there is no demand because it would simply be uneconomical. There will likely be fewer useless companies feeding on cheap money, of which there are many under a fiat standard.
- Overall, when interest rates are higher, borrowers and lenders have an incentive to save money, have an incentive to be more selective with their financing, only put it into their most productive ideas and have an incentive to maintain low debt levels (@`LynAlden` ).
If you want to learn in detail how #Bitcoin could change lending and interest rates, you can read the following article of mine (published by @npub1ltt9g... media).
#Bitcoinstandard #lending #borrowing
https://armantheparman.com/realestatelw/
Have you ever wondered how lending would look like under a Bitcoin standard? Here are thoughts on it. 👇
- With a finite money like bitcoin, which is designed to deflate (increase in purchasing power) over time, there is no need to earn additional returns. As is the case with an inflationary fiat currency, where losses in purchasing power due to monetary devaluation must be offset.
- The incentive for someone to lend #bitcoin will be considerably low because there is no benefit in potentially losing out on deflation without adequate compensation. As a result, interest rates will likely be significantly higher and market participants will think carefully about lending and borrowing.
- The lender must consider the risk of a significant loss of purchasing power if the money is not paid back and will need to require sufficient collateral to protect against the risk of default, which would have harsher consequences in a deflationary environment.
- The borrower must consider the interest to be paid and the difficulty of repayment due to the risk of deflation.
To a Keynesian economist, this may sound like a deadlock for the economy, but on the contrary, it is good if there is risk associated with taking out a loan.
- This will likely lead to a healthier market environment, as people will not be able to pursue ideas for which there is no demand because it would simply be uneconomical. There will likely be fewer useless companies feeding on cheap money, of which there are many under a fiat standard.
- Overall, when interest rates are higher, borrowers and lenders have an incentive to save money, have an incentive to be more selective with their financing, only put it into their most productive ideas and have an incentive to maintain low debt levels (@`LynAlden` ).
If you want to learn in detail how #Bitcoin could change lending and interest rates, you can read the following article of mine (published by @npub1ltt9g... media).
#Bitcoinstandard #lending #borrowing
https://armantheparman.com/realestatelw/