Credit Suisse’s $17B of Risky Bonds Are Now Worthless | Hacker News Reader

Credit Suisse’s $17B of Risky Bonds Are Now Worthless

bloomberg.com

92 pointsnairboon117 comments

I was initially surprised about this because AT1 notes are supposed to rank higher than equity. It seems that almost no one saw this coming (CS AT1 bonds traded higher this weekend before the write-down announcement), and traders presumed that bondholders should be made whole if equity holders get something.

However then I looked at the information memorandum of these AT1 bonds (e.g. https://www.credit-suisse.com/media/assets/about-us/docs/inv...). Credit Suisse titled their issues as "Perpetual Tier 1 Contingent Write-down Capital Notes". Note that it's "contingent write-down" rather than the more typical "contingent convertible". The IM also doesn't contain an explicit conversion price or conditions.

Almost everyone would call this a "CoCo bond", even though its terms are exceedingly clear -- if CET1 falls below 7%, a Contingency Event, which is a Write-down Event, occurs, and "the full principal amount of the Notes will automatically and permanently be written-down to zero on the Write-down Date." In other IM issued by other banks I've seen, usually such event is followed by a mandatory conversion to ordinary shares rather than an immediate write-down. I wonder if this nuance was fully considered and priced in the trading of such instruments.

Except that the CET1 is above 14%. I think what happened wasn't related the coco trigger but a bailin, i.e. the regulator forcing losses on bond holders to create equity. So the terms of the coco feature aren't really relevant.

Upon further reading I found that the Viability Event (which is also a Write-down Event) is probably the applicable one in this case:

> (b) customary measures to improve CSG’s capital adequacy being at the time inadequate or unfeasible, CSG has received an irrevocable commitment of extraordinary support from the Public Sector (beyond customary transactions and arrangements in the ordinary course) that has, or imminently will have, the effect of improving CSG’s capital adequacy and without which, in the determination of the Regulator, CSG would have become insolvent, bankrupt, unable to pay a material part of its debts as they fall due or unable to carry on its business.

Clearly this deal required non-customary, extraordinary support from the Public Sector, so if the regulator determines that without such a transaction CSG would have liquidity issues, then this event would occur.

However I think my point stands that the terms of these CS AT1 notes should be understood as materially different from similar securities. For example, this note from ING (https://www.ing.com/MediaEditPage/XS2122174415-ING-Groep-N.V...) has a single Trigger Event that will cause mandatory conversion into ordinary shares, and a more general provision for Statutory Loss Absorption which may be a conversion or a write-down. The terms of CS AT1 notes do not seem to provide for any automatic or discretionary conversion, only automatic write-down.

I completely agree that in situations like this, the regulators have a lot of discretion on these bail-in securities, but I consider this "automatic permanent write-down" feature to be of a materially higher risk than "automatic mandatory conversion" variant because it could be a difference between getting back something (or everything) vs nothing. What the regulators do are, by definition, not "automatic", and an automatic write-down should be a much lower hurdle than an explicit regulatory action.

Great analysis man

In the end bailin is a statutory action, so you really have to look at the terms in the law not in the doc.

Between this and Janet Yellen's shaky answer to the Senate regarding deposit flight from community banks on Thursday, I think regulators are prolonging this crisis. Each solution seems designed to address the localized problem but does not consider systemic effects.

1: With this weekends actions in Europe, how will the AT1 bond market react tomorrow?

2: With Yellen's uninspiring answer on Thursday regarding deposits in mid sized banks, what will depositors / bondholders / shareholders do?

Regulators need to address the system as a whole.

Yellen:

https://www.youtube.com/watch?v=Bcvl104tyRY

https://www.cnbc.com/2023/03/16/svb-signature-bank-failures-...

No sane regulator would want the bomb to explode on his/her own hands. Volcker might be an outlier but everyone else is sane.

Yellen really fumbled the answer and she should have had some slick thing prepared but at the end of the day it isn’t the answer that was the problem. It was that the apparently no one thought through the second order consequences of the SVB depositor bailout. This even though the explicit legal requirement was that the government actors determine it was necessary to prevent systemic risks to the financial system.

Everyone's trying to prop the banks up enough, but not too much; there's a fundamental tension between preventing a panic and ensuring that those who were prudent or otherwise are fairly compensated.

If the casino always wins, why is it so hard to identify who owns this[1] casino?

[1] Not CS, but the entire "serious" financial system.

Well don’t keep us guessing! What’s the secret cabal owning the financial system, according to your research, and how do they manage to own both the „serious“ business and the funny pages?

The winners?

My vote goes to the Rockefellers (who are actually psychic mushroom people first discovered in caves about halfway into the hollow earth. This is why they use that last name. The first people they encountered referred to them as "them rock fellers" before they were psychically controlled.)

Those are the Fraggles, common misconception.

Careful, this place can't take a joke, even when it is hilarious.

They’re supposed to come in threes so you know it’s a joke. Damn, I had something about Blackrock.

It's not secret and it's not a cabal.

It's the group of people who benefit from a collusion with governments (by funding politicians campaigns) to get constant protection of their profits through systematic, de facto or explicit, bailouts by central banks, and more generally complacent regulations.

Abolish central banking and have a gold-backed financial system and they mostly disappear. You can't cheat with gold. People who say it's fundamentally unstable and the cause for deflation or whatever have so far not demonstrated that the alternative is any better.

> It's the group of people who benefit from a collusion with governments (by funding politicians campaigns) to get constant protection of their profits through systematic, de facto or explicit, bailouts by central banks, and more generally complacent regulations.

You'll have to be more specific. There are literally millions of people who 'fund politicians campaigns', and many of them have competing interests at stake. Is it your contention that all of these people are in on it, or only a subset?

> Abolish central banking and have a gold-backed financial system and they mostly disappear.

The U.S. was on the gold standard until 1971, do you have any evidence that there was no government corruption before we made that switch?

Why are you presupposing that the entire financial system is owned by one entity?

Seems like a rather ridiculous assumption.

US federal historical government spending is an exponential growth graph. As are unfunded liabilities that politicians at some point promised to pay people. EU seems pretty much the same. More gov spending, more social spending. Repeat ad infinitum. Of course, all of this wealth has to come from some place. Not the rich, because they have enough influence and connections to avoid it.

No, it's incredibly flat, if you consider it to be in percent of GDP.

I totally agree with you. The socialism is unstainable. Especially as the world's population gets older and older. Socialism is not the way

There is zero socialism happening. Socialism is not "when the government does Stuff"

You may be mistaking socialism for social welfare?

Yeah, social welfare through policies of socialism.

Related: "The American Republic will endure until the day Congress discovers that it can bribe the public with the public's money." -Alexis de Tocqueville

> "It's stunning and hard to understand how they can reverse the hierarchy between AT1 holders and shareholders," said Jerome Legras

Finance dude has a hard time understanding the concept of a sovereign government.

Makes you wonder what other first principles the world operates on he has a hard time understanding.

> Finance dude has a hard time understanding the concept of a sovereign government.

I don't understand what finance dude is saying. AT1 bonds can be written off before equity. It has happened before, albeit at a much smaller scale.

https://archive.md/EmhLs

The Reuters article has more background information, and isn't behind a paywall:

https://www.reuters.com/business/finance/credit-suisse-write...

This also, more explicit about the shareholders and bondholders, also not paywalled (Reuters doesn't even mention Saudi and Qatari losses):

https://www.afr.com/companies/financial-services/one-big-win...

So did CS officially fail now?

Yes, it is now the 5th failed bank in the last week.

I wonder how Deutsche is now feeling.

For all its past mishaps I never would have imagined CS actually going down, or being allowed to go down in such a manner. The same discourse was being applied to Deutsche as recently as last year, if I'm not mistaken, hence my curiosity.

I'm not all that surprised. CS didn't make one mistake, not even one really big mistake; it was involved in scandal after misstep after scandal after embarrassment, for a decade. It takes a lot to bring down an institution this old and big, but the CS management (mostly former) had what it took.

I think part of why the Swiss gov't wanted to do it this way, is that it was clear CS was going to continue to be a problem, if it was rescued in a way that kept it an independent bank. Not that the current top mgmt is really responsible for its current state, but there had to be a fair amount of institutional/cultural issues, for that many problems to hit the same bank, year after year.

> So did CS officially fail now?

Define "fail".

Did they fail their shareholders?

Did they fail their creditors?

Did they fail their clients?

And if so the latter, which category?

every 10-15yrs. like the set interval of a ground swell, traversing the pacific ocean. Sets roll in, the surfers waiting turn and paddle hard. How unimaginative we are

And they wonder why we want to replace the traditional banking system.

Here’s a hint: it’s not got anything to do with either “metaverse” bs nor with silly “NFT” JPEGs.

Read the original Bitcoin whitepaper.

https://bitcoin.org/bitcoin.pdf

The competing system is BRICS + Saudi Arabia, Egypt, Iran, Turkey and Pakistan. They will probably transact in gold - certainly not bitcoin. In the West, if there is a collapse of our system, they will make bitcoin illegal. I just don't see it as anything other than a short term speculation.

The problems with the gold standard is we had one and everyone lied about how much gold they had, Causing the lost decade in the 70s/80s.

Maybe BRICS will propose a solution that uses Blockchain to verify gold ledgers.

The ledger is verified but how do you know the gold is really there?

You ask for the counterparty to send it.

Historically, the dollar was the ledger and redeemable in gold. Which the USA printed a lot more than it said it did. A ledger would stop this kind of abuse.

The ledger wouldn't stop the abuse at all. USDT is a ledger. The ledger didn't change at all when Binance's public position moved from "every USDT is backed with an actual dollar" to "well we have a reserve of dollars and some... er ... other assets", and nothing about the ledger tells you if Binance ever had the dollars in the first place.

That would only prove that there's enough gold in a pile to send you some. It doesn't prove the entire ledger is accurate.

If you're dealing with physical goods, there's always an analogue hole unless there's a (usually centralised) authority standing by to penalise attempts to subvert the system.

One can conceive of "for-now-unforgeable" NFT-isation of physical items, perhaps based on random physical phenomena like metal grain patterns, with the fingerprints stored in the blockchain. But this would be expensive and is a disadvantage compared to the "gold in a pile at least as big as we told you" system. And it's still open to kinds of abuse: e.g. you can secretly melt some coins down and recast them into new ones, as long as you can avoid anyone asking to see the "burned" ones, and you can also file fake fingerprints for coins that don't exist, that no one really owns, in the ledger so they won't need to be proven, but they inflate your ledger's value.

How could blockchain verify anything physical?

It can't.

I'm not talking about physical verification but the idea that having a public ledger of each countries gold would add transparency. Whenever gold is moved it would be reflected on the ledger for all other central banks to see.

The problem with the gold standard era was countries, particularly the USA, claiming it had a lot more gold than it did and you just had to take them at their word. It wasn't until Charles de Gaulle called them out and demanded the physical transfer.

Not sure what a ledger would change to the problem.

Ledgers do not necessarily add transparency, because it's easy to document all sorts of fictitious transactions.

What you really want are audits.

In the West, if there is a risk of collapse, it will be illegal to take your money out.

Can the exit tax, then, be considered as a partial collapse (or a hint of it)?

They'll transact with Bitcoin given two conditions: 1. They know that resistance is futile. You can't stop it (or at least one party acting alone can't stop it) and 2. Crypto is liquid enough across many markets.

People (and government) will use the path of least resistance. Crypto is pretty liquid in many parts of the world now. You can P2P from crypto to your bank account and $10K is pretty feasible. However, $1Bn is not (outside the US and maybe EU). Once the liquidity is high enough, point 2 becomes possible. Point 1 always was.

issues are coming up mostly because of interest based economy and multitude of instruments built on top of it.

IMHO, even if whole banking system will be replaced with bitcoin, interest based economy will be built on top of it and same instruments will be built with similar level of issues

The difference is that a central authority doesn’t control the size of the bitcoin supply. It wouldn’t be a utopia, it would only fix a certain class of problems we have today.

A central authority doesn't control the size of the money supply in our current economy either, as the vast majority of money is created by private banks and other institutions issuing loans.

Those “private banks” are at least in theory heavily regulated by the central bank. The central bank controls interest rates and thereby the cost of money. They control the amount of base money in the system and they control the reserve ratio of “private banks” thereby controlling the amount of leverage banks can apply to deposits. A central bank most certainly controls every aspect of the money supply.

Notably, the Fed set the reserve ratio for banks to zero percent in 2020 which absolutely contributed to this latest banking crisis. I am a bit surprised this hasn’t been mentioned as a contributing risk in the media, well not that surprised. [0]

[0] https://www.federalreserve.gov/monetarypolicy/reservereq.htm

If the national goverbment loses control of thr moneu supply you will have auch a total disaster that current issues will look rosy.

Just look at what happened to Greece, they cant control their fiscal policy and they have been stuck in the mud for 20 years. The same will happen to the world as a whole

> Just look at what happened to Greece, they cant control their fiscal policy

Who do you think controls Greece’s fiscal policy? (Before you answer, consider, what does “fiscal policy” refer to, and how is it different from “monetary policy”?)

Am I the only one who finds the Socratic method ill-suited to forums?

You wouldn't want a central authority to control the size of your money supply this would certainly lead to abuse oppression and a dystopia.

but in the end, an authority (usually centralised) does actually control the money supply.

This is simply the case because our economic system is based around the idea that someone will punish those who do not play by the rules of this system, otherwise we would not even have any kind of financial system to speak off.

Money is only worth something because of the rule of law, and the rule of law is only worth something because (central) authorities have the means the enforce the law (usually thanks to the monopoly on violence/imprisonment).

I am referring to the usa and creation of money supply. As another person pointed out one entity does not control the supply of money. The private banks are responsible for loaning(creating) new money. The fed just ensures those banks have the means to do so if market forces warrant it.

Although I agree with your point, a large imposing centralized force will ultimately lead to a controlling singular entity over time in such a system. But won't go sk far to say thats the way it has to be.

If the US gov collected taxes in BTC and funded its budget in BTC and borrowed its loans in BTC and paid that interest in BTC,

Then the US gov would have the ability to control the circulating supply of BTC.

Think of it this way, BTC caps out, then the US gov HODLed 50% of all BTC for an uncertain amount of time (call it a decade). The rest of the world starts to take risks accordingly and make investment strategies based on “no possible inflation, because BTC”.

After a decade+ of BTC HODL policy the US gov decides to release 5% it wouldn’t be “printing BTC” but it would still certainly be “quantitative easing” and the extra supply of BTC would result in very much the same inflation as we see today.

There is no scenario where the largest governments of the world cannot directly control the supply of circulating money! (Which is the only money that really matters).

Governments would have some control, much like large holders of an asset have a significant impact on its value by e.g. selling it all at once (see binance selling their FTT all at once). What they would not have is the ability to double the supply of the currency in 2 years for no apparent reason.

Sure they do, they can just make a new cryptocurrency, say BritCoin, and mandate it's use for paying taxes and getting paid and receiving pension.

You know, like they already do with this whole "fiat money" thing.

This is one of the reasons for the schizophrenic posture of Bitcoin maxi's toward government adoption - thus Central Bank adoption - of Bitcoin as legal tender, a la El salvador. I mean apart from the fact that this happening on a global scale would make them stupendously wealthy. But from a pragmatic standpoint, they also know that one advantage Bitcoin does not have, that fiat does, is an armed gang with orders to enforce its use by all citizens. Yet.

> one advantage Bitcoin does not have, that fiat does, is an armed gang with orders to enforce its use by all citizens.

Nail on the head!

The only difference between "tokens" and "currency" is an army and taxes!

Is even that a difference?

Countries don't all use their own currencies (and I don't just mean the Euro zone, this also happens with USD and used to happen with GBP), but they do all have their own taxes. Some countries don't have any armed forces unless you count the police. And the force of law is enough of a threat to get people to hand over crypto keys when they're physically in the relevant jurisdictions and the law enforcement makes that demand.

> Countries don't all use their own currencies

Sure. I think this missed the point.

I didn't say/intend "a country / army needs to be backed by a unique currency"

I said, "For a token to be a currency, it needs to be backed by [at least one] army and [at least one country's] taxes".

e.g. The Euro happens to be backed by multi armies and at least Germany's taxes.

> Some countries don't have any armed forces unless you count the police.

Again, it isn't "their army" but it is "an army". e.g. Liechtenstein is backed by "Austria and Switzerland under an informal agreement among the three countries." https://en.wikipedia.org/wiki/List_of_countries_without_arme...

Anyways, if we disagree that is ok too. All of this is quite fuzzy really.

> a central authority doesn’t control the size of the bitcoin supply

What is the minimum number of natural persons required to fork Bitcoin to a larger supply? I’d wager it’s a number smaller than half of the Congress plus the President.

Well there are currently over 14k bitcoin nodes securing the network. Even if you deployed 20k new nodes, more than doubling the number of existing nodes, to run a fork that supports an increase in supply, it still wouldn’t work.

You would have to somehow take down the vast majority of nodes, many of which run on Tor.

Notably, neither miners alone nor the core Bitcoin devs could force an increase in supply without the support of the majority of nodes.

Note also, you can run a node on a Raspberry Pi so most node operators are regular folks securing the network for themselves. Bitcoin is run/secured by plebs, not whales.

In the Blockwars of 2017 many large miners and custodial exchanges tried to increase the block size but were thwarted because the majority of nodes didn’t agree with the change.

I think the 21 million cap is safe for the foreseeable future. If anything we may see a switch to Satoshis (Sats) as the default currency to replace Bitcoin. There are 1 Billion Sats per Bitcoin which should be more than enough for some time.

Re-reading your comment with a different lens, the minimum number of natural persons required to fork Bitcoin to a larger supply is actually 1.

That said, it would be a fork, responsible for producing its own hash power, and would not be recognized as Bitcoin since it wouldn’t be following the Bitcoin protocol.

If you wanted to modify the Bitcoin protocol to support a larger supply, see my previous comment.

Using an ultra deflationary token like bitcoin as a global currency would literally be the most stupid thing that ever happened in human history.

Basically people who held significant amounts of bitcoin from early on would become billionaires (if not trillionaires...) by having provided zero value to the economy. As awful and unfair what we have currently is it's still several magnitudes superior in almost any conceivable way than a global financial system based on bitcoin.

I can imagine some sort of a crypto currency possible becoming dominant in the future. But Bitcoin itself is pretty much the worst option I can imagine.

How do you know they provide negative value to economy?

Perhaps they would invest their bitcoins far better than the current status quo and create a star-trek style post scarcity economy.

Perhaps I'll start shitting out gold and we can go back to the gold standard.

> How do you know they provide negative value to economy?

Very basic understanding of modern economics and monetary systems would be more than enough to figure that out.

> post scarcity economy

In fact it would maximize scarcity (imagine the Fed hiking interest rates to + 20% while inflation becomes negative, say - 20%. What do you think would happen?)

I don't have a side in the whole crypto vs fiat war but I do wonder why HN is so anti-crypto (maybe it's just classic position speak). Re the "people who held significant amounts of bitcoin from early on would become billionaires by having provided zero value" - isn't that true to people who held Google stock very early on? what was their value?

Also, I would say inflationary token vs deflationary token is not clear what is better because it is actually highly depends on the time in history. lot's of things changed in the last 100 years and we might be entering a world where there is no need for inflationary token - For example let's say the earth is over-populated and there is going to be a decline in birth and total population - this on it's can mean we don't necessarily need an inflationary token as we don't need to build more infrastructure, buy more things and so on....

> I do wonder why HN is so anti-crypto

Some of it is regret from selling early (I'd be a billionaire... if I had held), some of it is FOMO, some of it is that crypto is used by criminals (see bitlocker hacks), some of it is seeing people loose everything due to security breaches, and some of it is the attitude of proponents that act like all of the above is an anomaly.

It does make for strange bedfellows. Weird to see so much support for the traditional banking system and antipathy towards people advancing an alternative. Credit Suisse has a rap sheet a mile long.

I first heard about it at $250/btc, and I didn't invest then for the same reason I think it's bad now: the hype around it is exactly the same as every bubble I've heard about in history lessons, including the one in house prices and subprime mortgages leading up to the 2007 global financial crisis.

The fact that the current system has huge flaws doesn’t mean that any random alternative is superior to it. IMHO the current monetary/financial system is superior to everything that has ever been tried.

While it might be worth having a discussion about crypto using btc as a currency would be the digital equivalent of bottle caps in a post apocalyptic society. Dogecoin would make a better currency..

Early ownership of Google means you are investor in some way. They have money, because Google itself has money. If google fails without them selling, they have no money. As in, if you believe google is societal good, they gave it money by the beginning.

If you think it is just a company, then they are just winners in economy. There is no reason for any of us to lobby for them to get more money. And, none of us lobby for it.

> isn't that true to people who held Google stock very early on? what was their value?

You mean aside from capitalising one of the most powerful money making machines in the tech industry, and a global advertising powerhouse that hundreds of millions of people use to find stuff on the internet multiple times every day. Plus Android, gmail, etc, etc. All those took money to develop, which came from early investors.

Meanwhile how much actually useful economic activity has been enabled by Bitcoin? I suppose it depends if you count money laundering, drug trading and fraud as useful economic activity.

No one is (I hope!) suggesting we use Google stock as our general currency, so if bitcoin acts like google stock, that’s another reason not to use it to replace USD.

The people who got on Google identified a company with a profitable idea and provided it funds to realize that idea.

I don’t love cryptocurrency stuff, I mean it is a bit environmentally wasteful and stupid, but lots of things are wasteful and stupid so it doesn’t give me some visceral negative reaction. I think the folks who really hate it here are just annoyed that there’s all this vaguely tech-flavored scammy behavior going on that, shows up on their favorite news sites (because it is vaguely techy), maybe gets promoted to them, etc etc.

> isn't that true to people who held Google stock very early on? what was their value?

In theory, early investors allow Google to actually have the cash needed to make the products and services that brought in the real revenue.

An ex of mine would totally agree with you though.

I too think the unfairness is the problem here with the acceptability of Bitcoin as reserve currency. But not in the way the parent proposes. Bitcoin as reserve currency is such a zero sum outcome, unlike stock market investment gains, because the no coiners loose everything and the maxis gain everything that the others lost.

People who held google stock early actually provided a lot of value to society. By either investing in or working for a company that radically transformed how people use the Internet. You can argue early investors into Bitcoin are the same but in a much lesser way than if you aren’t Satoshi and didn’t contribute to the core development or advocacy of Bitcoin. Most hodlers just bought it and held on and did nothing.

The unfairness of this is so rankling that it’s hard to imagine that Bitcoin as reserve currency settles into an accepted equilibrium without significant violence on a global scale.

> is not clear what is better

Yes it is.

Imagine an economy with both ultra high interest rates and very high deflation at the same time. Let's say CPI growth somehow falls to - 20% and the Fed decides to hike interest rates to + 20%* (and has no way to tweak or stop this policy anymore) what do you think would happen?

> why HN is so anti-crypto

Because it would not work as a replacement for $/€/etc. due to very objective and clear reasons anyone with an even cursory understanding of modern economics would understand.

> let's say the earth is over-populated

Let's say a nuclear holocaust occurs and everybody starts using bottle-caps as currency. Of course you're suggesting we should start using bottle caps (a close 100% accurate physical equivalent of bitcoin in post-apocalyptic society which posses no mean to make more caps) before the nuclear holocaust for some reason...

Bitcoin is not deflationary. It just has a fixed supply.

People who held bitcoin from early on supported the growth of bitcoin by holding up it's value through the wild gut-wrenching rollercoaster ride that it has gone through. They should be rewarded for the risk they're taking on, having invested significant amount of their net worth in the face of harsh criticism such as yours.

Bitcoin and "crypto" are completely different beasts. Cryptos are unregistered securities masquerading as Bitcoin 2.0.

A fixed supply with growing markets is deflationary. Cryptocurrency advocates wrongly insist thid is a good thing out of motivated reasoning.

When describing the currency itself, bitcoin is strictly not deflationary as the supply of it is never reduced, it's actually inflationary for the next hundred years or so until the full 21 million is mined. It might create a deflationary economy in that everything gets cheaper over time, priced in bitcoin. What is so wrong with that? Why can't you expect to purchase more goods in the future than today with the same amount of bitcoin?

There never has been a fixed supply world reserve asset, even gold has always been inflationary. I think it will usher in a "Golden" age for humanity where goods and services consistently increase in quality and value, while constantly reducing in cost. I'm very excited to step into the bold orange world.

P.S. I'm a bitcoiner not a cryptocurrency advocate.

> It might create a deflationary economy in that everything gets cheaper over time, priced in bitcoin. What is so wrong with that?

Because then investment ceases to be about trying to capture a share of the growing pie, and more a zero sum game which the small minority of people holding most of the financial wealth have little incentive to participate in, and so the mechanism by which stuff gets cheaper over time, priced in Bitcoin, isn't economic growth but just increasing desperation of people without Bitcoin to obtain it.

So all the worst parts of capitalism and none of the actual good parts, though I appreciate the idea is more appealing to people who imagine themselves as being the minority of idle rich.

For related reasons, the world would not adopt a deflationary currency for very long...

> What is so wrong with that?

Imagine an economy with both ultra high interest rates and very high deflation at the same time. Let's say CPI growth somehow falls to - 20% and the Fed decides to hike interest rates to + 20%* what do you think would happen? Well take the Great Depression and multiple it by N (no idea, I'd assume N >= 20 though).

Sound great?

How does close to zero capital investment into the economy sound? No loans, no VCs, no new factories/offices/shops/etc. no new anything... Investing into anything would be both very risky and likely still have a negative return compared to just hoarding money.

> I think it will usher in a "Golden" age

I think it would usher societal collapse and the end of human civilization (I seriously do.. of course I'm close to 100% certain that it can never happen, then again I'm not great at predicting the future).

*I would assume the numbers would be higher with btc.. but whatever

> No loans, no VCs

I don't think so. There will definitely be companies and startups that yield better returns than bitcoin. Especially when bitcoin stabilizes at a very high value, holders will start speculating.

This has little effects. Inflationary systems where promoted by governments so that they can inflate their debt away and print money as needed.

You can have a deflationary system and the effects will be the same. People will always be looking for a stable store of value and a yield with variable risk. Instead of increasing/decreasing the money supply through interest rate, the price of Bitcoin goes up and down.

Solving a stable store of value problem (through Bitcoin, completely decentralized) is a 100bn/1Trillion market. And also will be a legitimate use case for Bitcoin and Cryptocurrencies.

Something like that is really not avoidable if btc replaces $/€/etc.

> debt away and print money as needed.

Which on balance has been a positive development compared to the system that preceded this (permanent boom and bust cycles prior to 1930 accompanied by extreme price swings in either direction)

Look at the 'USD inflation since 1800' chart. Would you really prefer the worth of your saving to swing up and down by 10% or more every few years compared to the relatively stable inflation after 1980s?

https://www.officialdata.org/us/inflation/1800?amount=1#:~:t....

You got it wrong. The interest rate is used to manage the supply based on the rate/velocity of the economy. Not the other way around. If people want to build businesses, get married, have kids, build products, buy/sell, speculate, etc... having an interest rate, bitcoin, paper or gold, it simply doesn't matter. Places where the financial system is broken will use alternative means of payments.

Bitcoin is flexible. If there is a certain demand or necessity, people can build on top of it.

> If people want to build businesses, get married, have kids, build products, buy/sell, speculate, etc

Yes. 2-10000x (or whatever, depending on how rich you are) less than they do now. If hoarding money always provides a better return than investing or borrowing it why do anything else besides spending the bare minimum?

> Bitcoin is flexible

How exactly? AFAIK it has close to zero flexibility compared to Fiat money.

I'm sorry but overall I really don't understand what are you trying to say. Supply of money in relation to economic growth matters and it matters a lot. It's not just about 'means of payments' that is the easiest part.

> If there is a certain demand or necessity

Well there is no way to increase the supply of bitcoin? Is there?

> Bitcoin is not deflationary. It just has a fixed supply.

Theoretically, yes, albeit with spherical cows in a vacuum models of how economies actually function.

Practically, keys get lost, so it's deflationary even if it totally replaced existing currency and everything else became steady state.

> They should be rewarded for the risk they're taking on, having invested significant amount of their net worth in the face of harsh criticism such as yours.

If "harsh criticism" was sufficient reason to deserve money, I'd still use my Twitter account to have angry conversations about things that don't matter.

If you assume the economy is non stagnant it's always deflationary from the CPI perspective.

To nitpick, Bitcoin doesn’t currently have a fixed supply. It has a supply cap that takes effect sometime in 2140. Bitcoin currently inflates by 6.25 BTC every ~10 minutes.

For the record, I agree that early Bitcoiners took an incredible risk on a highly volatile asset and they should be rewarded for such.

As I see it, this latest banking crisis is showing the world that there is more than one type of risk. Bitcoin has market risk but not counter-party risk.

As for bank deposits, while they have minimal market risk, they have significant counter-party risk.

The world is waking up to the fact that bank deposits are an unsecured loan to a risky counter-party that uses those deposits for highly leveraged speculative bets.

Agreed, self-custodied bitcoin is the best way to mitigate third party risk. If some of these start-ups held a small amount of their reserves in bitcoin, they would not have had to panic to make payroll.

Haven’t they already been rewarded for it? The magic Internet money is worth more than 20k USD, whereas it started out at 0.

They have and they deserve it. As bitcoin continues it's journey higher, all bitcoiners will be well rewarded (new or old).

The big revelation is that deposits in a bank have two risks actually: A counter-party risk as you mentioned, but also a market risk. Inflation was/is in the double digit across the Euro and US economies. And that's for the government (CPI) numbers.

People never considered these risks before. A bank is a bank is a bank. And in the developed world, inflation is low. Now you have a situation where both narratives are being challenged. The system is under lots of strain.

Is there though? I mean now all deposits seem to be covered 100% with no limit. That makes the less risky than they were 2 weeks ago, doesn’t it?

> Bitcoin is not deflationary. It just has a fixed supply.

Exactly. As the economy grows BitCoin will increase in value because its supply is fixed (not even gold or silver were even remotely as bad and when they were used as currencies).

Imagine a financial system with huge * huge interests rates * and and * huge deflation *. You can't because no central bank is run by people who are stupid and insane enough to try that? Well...

Something like that is 100% guarantee is btc becaomes a global currencies.

> They should be rewarded for the risk they're taking on, having invested significant amount of their net worth in the face of harsh criticism such as yours.

No they shouldn't. They contributed nothing to the society or economic growth. Even people investing in Credit Suisse should better rewarded than them from that perspective. Of course if there are other people willing to pay them huge amounts of money (yes money, not bitcoin) for their token well... it's their business).

> Bitcoin and "crypto" are completely different beasts. Cryptos are unregistered securities masquerading as Bitcoin 2.0.

Many other cryptos, well pretty much every one that doesen't have a fixed supply, like DogeCoin for instance would make much, much better global currencies than bitcoin.

We’d effectively be replacing a shit system with an even worse one.

We really need to crack down on amassing wealth.

No pyramids, only huts.

I never really understood this reasoning, is it just simple envy?

Ok, so a few folks will amass a lot of wealth based on luck and not merit. Those already exist in current financial system, both locally and globally. Plenty of dictators have control over natural resources worth trillions.

There are numerous issues with bitcoin replacing USD, I'm just surprised why you think that few nerds becoming billionaires is a major one.

I'm sorry but I really I can't tell if you're being sarcastic or not, but I'll assume that you're not...

> so a few folks will amass a lot of wealth based on luck and not merit

You severely underestimate how concentrated bitcoin ownership is. A couple of hundred people would control a significant proportion of the global economy just because they were lucky. Why would you want some random people controlling the majority of the global economy? I mean things are very far from perfect now in my opinion but at least most billionaires have earned their wealth through actual work in one way or the other and can be generally expected to behave rationally.

The main issue in this case though is that bitcoin is deflationary. Obviously it's flawed but with Fiat money you're forced to either spend or invest your money returning it into the economy (also it's simply not physically feasible to hoard several billion (let alone trillion) of $ i a vault...).

If you don't utilize your money somehow it will lose value continuously due to inflation. Bitcoin on the other hand will increase in value when the economy is growing (which is why using a commodity like gold which is still a magnitude or so so superior to bitcoin in this regard is and was a bad idea unless there are no stable governments). So hoarding money will become the safest and relatively best investment This means that these few folks will remain billionaires for ever and their wealth will keep increasing without them actually doing anything...

There would be no or very few bank loans given out (imagine HUGE INTEREST RATES + HUGE DEFLATION, obviously not something that can exist now as long the people charger are not more than mildly insane...) venture capital, really any investment, which to be fair makes my last point moat cause there would be very little (or like negative) growth anyway in a such an economy.

> I'm just surprised why you think that few nerds becoming billionaires is a major one

So you want to take one of the biggest flaws of the current system and dial it up to 1000? Great idea...

> You severely underestimate how concentrated bitcoin ownership is. A couple of hundred people would control a significant proportion of the global economy just because they were lucky

Why don't you share the numbers then, what is significant in your mind? I can make the exact same claim about the current state of affairs.

As far as I know, there are no privately owned wallets holding more than 0.5% of BTC.

> Why don't you share the numbers then, what is significant in your mind

IIRC there are no numbers. Because nobody really knows who owns what. Also if you had huge amounts of bitcoin why on earth would you hold all of it in single wallet? Makes no sense...

> privately owned wallets holding more than 0.5% of BTC.

Which is an astronomically huge amount for a private individual to own in case BTC replaces dollars. Even if we only count actual dollars bills in circulation that 0.5% of that would be 10.5 billion. What private person could have that much cash stored somewhere? And most importantly why?

If we include entire M1 supply (bills + deposits) 0.5% would be equal to 100 BILLION dollars. That's not an amount that can exist in a single place in USD, no single person does or ever did own such an amount in liquid assets which he could sell transfer the proceeds to someone in a short period of time. That's not really possible.

> no single person does or ever did own such an amount in liquid assets which he could sell transfer the proceeds to someone in a short period of time

You seem to be confusing three similar, but fundamentally different things: physical cash, liquid assets, and being able to transfer in short period of time.

Just because billionaire's assets are illiquid, it doesn't mean they can't transfer $10B in a short period of time. It simply means that portion of value will be lost during that transfer.

> What private person could have that much cash stored somewhere? And most importantly why?

Elon had $20B in cash (i.e. liquid assets) after selling 10% of his Tesla shares. He lost some value in the process, but afterwards he had $20B of liquid assets, which debunks your statement.

Arguably, same will happen to $10B of BTC, given that such transaction(s) would be public and will raise concerns.

And that's just Elon Musk, we're not even talking about western adversaries, like Putin or Xi, who have access to even more assets.

And if we're thinking of BTC simply replacing physical cash, then you can even build fractional reserve system on top of it.

Also, we seem to be discussing a magical world where BTC became the major currency overnight, with no time for financial system to adapt. If we go back to the real world, I could totally entertain a thought experiment of BTC replacing USD. Not that I support it, but again, few lucky billionaires is the least of my concerns, given that we already have those in the current system.

> Also, we seem to be discussing a magical world where BTC became the major currency overnight

True that the thing. Bitcoing is so fundamentally unfit to be a currency that any attempt to make it such would fail long before any of these issues would become relevant.

> again, few lucky billionaires is the least of my concerns, given that we already have those in the current system

So take one of the biggest issues with the current system, make it 10+ times worse and see what happens...

I don't think anyone (that I ever talked to about it) wondered why one would be dissatisfied with the traditional banking system. The skepticism about Bitcoin is that it might be even worse. Events of the past year in the cryptocurrency space have not been all that reassuring.

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