Base Bitcoin and Broad Bitcoin
I've been hodling since the ATH in 2017 and I'm bullish Bitcoin, so please don't dismiss my thoughts as nocoiner FUD.
In the fiat system there is base money (M0 -bank reserves) and broad money (M1 - what we see in our checking accounts). When the money printer goes brrr, the Fed is actually crediting banks' federal reserve accounts with M0 bank reserves in exchange for securities. Jeff Snider says this M0 (he calls them laundry tokens) mostly just sits there and the Fed is actually desperate to create some of the M1 inflation we fear. Banks don't and can't lend out these M0 reserves, when you take out a mortgage they don't give you a duffel bag of cash and they don't credit your federal reserve account because you don't have one. Banks create M1 out of thin air when they extend loans, that is the money printer that matters and right now that press is not running. (This is fiscal policy, monetary policy like the stimulus checks actually does result in M1.)
Anyway, Bitcoin is unique in that it is all M0. Holding your private keys would be the equivalent of having a federal reserve account. But as Bitcoin increases in popularity, there is going to be a significant portion of users who are unwilling or (effectively) unable to hold their own private keys. Not even on a nice wallet app, they'll want something like how you can buy Bitcoin on the cash app. They'll want the sound money features of Bitcoin but they'll want someone to be responsible for custody. It's possible that eventually cash app, venmo, zelle and whatever else will allow you to send "Bitcoin" to other people on and across these platforms. These transfers won't occur on the main chain, it would be like a centralized, trust-reliant 2nd layer. And these apps will hold real Bitcoin, but just like banks, they'll catch on that they only need to hold onto about 5-10% of their bitcoin liabilities to be liquid. They would transfer more "Bitcoin" then they actually held and this "Bitcoin" would be the M1 and it would extend beyond the 21M cap. There could be 21,000,000 M0 Bitcoin and another (gulp) 200,000,000 or so M1 Bitcoin.
Before the Fed, banks issued their own banknotes and their worth varied based on the perception of how many reserves each bank held. So I think if such a Bitcoin M1 emerged, it's worth would have to depend on how much actual Bitcoin these apps held.
(Note, I'm not talking about 2nd layer solutions like the lightning network, that is still M0 Bitcoin programmed to have 100% reserve requirements.)
Does anyone else have thoughts on a Bitcoin M1 emerging?
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from Bitcoin - The Currency of the Internet https://ift.tt/30SNsBr
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