I calculated the Bitcoin circulating supply equivalent of Central Bank gold reserves.pic.twitter.com/lSTvK7Szkh
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A central bank holds gold because they need a portion of their reserves that is trust-minimized and therefore a fallback to and anti-correlated with trust-based assets like government bonds and foreign currencies.
Once their need for trust minimization (which varies greatly depending on their political circumstances) outweighs the risks from Bitcoin's greater volatility, they will start to switch -- the ones with the greatest such needs much sooner than the ones with the least, naturally.
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Volatility can be sold using derivatives while keeping the trust-minimized underlying, so a liquid and mature derivatives market may advance government adoption.
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No, the trust-minimized underlying has to pay a big premium for this artificial construct. Also how do you do this in a trust-minimized way, without an oracle?
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You could sell futures contracts in a traditional exchange matching bitcoin holdings (volatility hedge is not trust-minimized). The cost equals convenience yield associated to holding the underlying until expiry (the price of trust minimization) of course.https://twitter.com/fnietom/status/1084815552223285248 …
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A centralized exchange isn't trust-minimized. The holders of the longs and the shorts (the latter needed to hedge the volatility of the underlying) would, unlike the underlying, have political vulnerability, eliminating which was the whole point of the exercise.
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A central bank could keep part of its holdings in bitcoin (trust-minimized) even if it uses a trust-based hedge to eliminate bitcoin volatility exposure. These are risks of a very different magnitude, it's not the same risking the hedge as risking the principal.
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That's an interesting idea.
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How would you characterize the difference between states with a need for high vs. low trust minimization?
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The biggest ones for gold vs. Bitcoin are likely the physical security and extra-constitutional political instability. With good key management control over Bitcoin can be much more closely mapped to political legitimacy and much less vulnerable to physical invasion than gold.
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If it required trusting them (as in for example the Petro) it wouldn't have comparable value.
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Do you think of this convergence on trust-minimized SOV as an inevitable outcome of the game theory?
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Nothing is inevitable, or fully reduceable to game theory, in complex human societies.
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Great point, Nick. I focused on the benefit of an improving a reserve position but I now I think available liquidity under adversarial conditions is much more important for a sovereign (especially a small pariah like Venezuela).pic.twitter.com/ZKSdWBMFn2
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Gold, the original PoW. Not just in mining or obtaining, more so in the maintenance costs. It ain't cheap to store and protect.
Thanks. Twitter will use this to make your timeline better. UndoUndo
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Yup, Nick is right. And that kind of underscores this: "Bitcoin's killer app will not be an app. It will be a series of socio-economic and geopolitical events. The rest is built in."
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H-A-P-P-Y @Daniel_Plante
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