First and foremost, Happy Thanksgiving to everyone! Hopefully you were able to spend some time with family and friends. I wanted to send this out yesterday but the wife told me not to. I mean, what’s better than talking Bitcoin on the holidays with your family?? If you find this newsletter helpful and are starting to realize the potential of Bitcoin I would encourage you to start telling other people, especially the ones you care about. The sooner everyone starts saving their time in Bitcoin the better. Share this newsletter with them if you think they’d like it.
I would define a speculative attack as borrowing a weak currency to buy a strong currency.
I know I probably shouldn’t quote Wikipedia but sometimes they have the simplest explanation of the topic and this is how they define it.
In economics, a speculative attack is a precipitous selling of untrustworthy assets by previously inactive speculators and the corresponding acquisition of some valuable assets (currencies, gold).
Why Is This Important
We are watching this play out with the dollar even if people don’t want to admit it or even realize it. Leading the charge is Micheal Saylor, CEO of the company Microstrategy. Click on their link and it provides a cool graphic showing how Bitcoin is outperforming everything. EVERYTHING. The company is borrowing money in various different ways in order to buy more Bitcoin. They are taking on cheap debt with interest rates being at historic lows to buy the best performing asset/currency the world has ever seen. Let’s be clear about one thing though.. this is debt they can afford because of the positive cash flow they have. This is a terrible idea if you can’t service your debt.
Next up is the country we were just talking about in TRH #23. El Salvador is taking on a $1B bond. They are then using these proceeds to buy Bitcoin (with a 5-year lockup) and Bitcoin mining infrastructure. The coupon or interest rate is at 6.25% I believe. This is pretty damn attractive for investors in a world where there are no interest rates. For example a 10-year US Treasury has an interest rate ~1.6%. As an investor you want as much interest as possible.
El Salvador is betting that Bitcoin grows at a higher rate than 6.25% over 5 years. Sounds pretty doable! Bitcoin has gone up ~180% yearly on average over its first 13 years. Let’s run some numbers. El Salvador is going to buy $500m of Bitcoin and lock it up for 5 years. Even if Bitcoin only goes up 50% compounded annually that number is now $3.8B! Let’s say it does 80% then that number is $9.44B! With numbers like this it becomes pretty easy to finance the debt they are taking on today. When the time comes due they will probably just borrow even cheaper dollars to make their payment rather than selling Bitcoin, THE BEST PERFORMING ASSET IN HUMAN HISTORY.
Conclusion
These are two examples. What happens when this starts to catch on? 5 companies do this? 20? What happens when another country does it? The key to doing this is the ability to service the debt in the meantime. If you do not have positive cash flow coming in this is impossible to do. Individuals can also do this but I’m not going to give anyone financial advise. Mortgage rates are like 2-3% right now, why not refinance (IF YOU CAN AFFORD YOUR PAYMENT) and put that money into Bitcoin. If you take a 10+ year approach on it that Bitcoin will make it pretty easy to pay off the house down the road. Let’s run the numbers and start with a modest $25k from the refinance. Hold it for 10 years and even if Bitcoin only does 50% your $25k is now $1.4M! Will that pay off your mortgage?
Borrowing has never been easier. Putting that money into a better currency is causing a speculative attack on the dollar as we watch one lose its value and the other grow its value. A phenomenal article about this was written by Pierre Rochard in 2014. Check it out! Speculative Attack.
If you’re looking for a good Black Friday deal, you can currently buy Bitcoin for 20% off.