Bitcoin And The Bond Market

Government bonds have been the world’s primary safe haven for decades. In times of uncertainty, investors move to bonds. The assumption: governments will honour their debts, and the purchasing power will be preserved.

That assumption has been tested.

Global government debt has reached extraordinary levels — over $100 trillion globally. The US debt-to-GDP ratio has crossed 120%. Debt servicing costs are consuming growing proportions of government budgets. At some point, the math of how this debt gets resolved becomes important.

There are a few ways it can go. Genuine growth that outpaces the debt. Austerity that reduces spending. Outright default. Or inflation — printing money to make the nominal debt smaller in real terms. History is pretty clear about which option governments facing a debt problem tend to choose.

For investors who think inflation is the likely path, traditional safe havens — government bonds — are precisely the wrong place to be. A bond yielding 4% in a 6% inflation environment is losing purchasing power every year. The safe haven is failing at its primary job.

This logic leads toward assets whose supply can’t be inflated away: real estate, gold, and increasingly Bitcoin. Assets the government can’t print more of.

Bonds are still valuable and liquid and serve real portfolio functions. The point isn’t that they’re useless. The point is that the conditions that have historically made them reliable stores of value — careful spending, stable money supply, genuine inflation control — are not reliably present right now.

Bitcoin’s fixed supply is the direct answer to that specific concern.

Tomorrow: what happens when Bitcoin is in retirement accounts.

— The Daily Bit