Sound Money

A short personal reflection on leverage. TLDR: I’ve grappled with the hypocrisy of a sound money activist utilising debt and decided to leverage my ideas through bitcoin [6 minute read]

I am not a fan of debt.

Why? Because unsound money, low interest rates and easy debt have numerous negative consequences on society, including inequality, weak economic growth, overvalued asset classes and an uncertain future. Knowing that debt causes these problems creates my bias against it.

I do not hate debt. I understand it is a useful tool. I just prefer savings, investment, and conservative financial strategies. But…thinking through my bitcoin conviction in recent months caused me to reassess.

All-consuming potential

Bitcoin has tremendous potential to change society with large upside return potential as a result. I am so convinced of the potential that I have already invested most of my capital and energies. Capital, research, writing, presentations, meet-ups, etc. You name it, I’m there!

My wife calls me the “bitcoin evangelist”.

As conviction solidifies further, I find new ways to capitalize.

Rather than buy bitcoin with leftover capital I invest all my income directly into bitcoin. I prefer to drawdown my bitcoin holdings to pay for bills rather than wait to see what’s leftover.

But I do not want to sell my bitcoin too early in the cycle, if I don’t have to. And there are now applications which allow me to use my bitcoin as collateral for USD loans. So, I utilize this functionality to remain exposed to bitcoin upside, while still being able to pay my USD expenses.

In other words, I am leveraged long on bitcoin.

Is this wrong or immoral? Am I being hypocritical?

Good questions…

I have always maintained that debt is a useful tool. I merely encourage people to invest wisely, enhance productivity and improve their prospects, rather than merely use debt to consume.

I guess that is how I am viewing my decision to take a leverage long exposure in bitcoin - productivity enhancing. In many ways, bitcoin is the culmination of my thinking for the last 10 years of my working life. Reading economic theory, understanding central banking and how these variables interact with financial markets and human outcomes. I feel obligated to capitalize on this technology to the greatest degree possible. If that involves utilizing leverage to build long-term wealth, then so be it.

Greedy?

Well, yes, to some extent. I am obviously trying to maximize returns. But I’m also trying to manage this prudently. Hedging is part of my strategy for the next 6 to 9 months to manage the risk appropriately.

Does leverage make me part of the problem or the solution?

A bit of both…

Greater fiat debt exacerbates unsound money and the negative consequences on the real economy. This does not fill me with joy - at all! But remember, these USD loans are fully backed with bitcoin collateral so I haven’t created money out of think air. I am, however, “greedily” holding onto bitcoin longer than I could otherwise, which contributes towards upside bitcoin price volatility (and potentially downside when the leverage unwinds).

But the primary cause of volatility is the unsound money and declining value of fiat currency. That trend is firmly intact. Its accelerating under our eyes, whether I like it or not. Governments, corporates, households and individuals are leveraging up to the hilt at the lowest yields on record! The only thing I am able to do in response is… buy bitcoin.

I wrote recently that bitcoin has bitcoin my political vehicle. Bitcoin is a potential solution. It has not forced central banks into a change in policy, yet. But as more people adopt bitcoin, the negative consequences on those bitcoin holders is negated.

I am trying to get everyone I know into the bitcoin life raft with me. But I can only do so much. I can only have so much influence.

Leveraging my ideas, and time

Debt allows me to leverage my ideas, creating greater financial impact. Rather than being forced to take some average job, I plan to expend bitcoin winnings on investing my time in something more meaningful. More time for bitcoin education, more time for a business that adds value to clients, more time for family, more time for relationships. I believe that my financial and investment strategy will produce in the desired result; greater productivity and more leverage to create better outcomes. Time will tell though, as will my relationships with you.

Feel free to comment and let me know what you think.

Disclaimer: This is a personal reflection. I do not advise this strategy for others because leverage obviously includes risks. Everyone must manage the risks of their situation given their knowledge and skill set. If you would like to talk to me more about it, send through an email.