I'm pretty new to the finer points of economics and cryptos, though trying to educate myself as fast as I can. Your articles have been a great help!
Question, though, if Bitcoin became the new gold, how would that jive with digital currencies, which seem to be the direction most countries want to go in?
Hey Donna, I'm glad the articles help. The short answer to your question is that I can't answer it. The reaction will vary from country to country. For example, UK has been vocal in setting up a clear regulatory regime for crypto and they're saying they want to be a crypto friendly nation/incubator. The EU is a bit more negative on crypto, the US is who the hell knows what. So it remains to be seen how Bitcoin will jive with government issued currencies. Suffice to say, it's going to be a very eventful decade.
How can you offer an asset (Treasuries) that you do not own, as collateral for a loan? How could one T bill/bond act as security on multiple loans? If I offered a property as security for a bank loan, and wasn't the legal owner, it would be fraudulent misrepresentation?
Well for one thing, property is not fungible. Every property is unique, whereas t-bills are the same. So there's that. But zooming out a bit, the Eurodollar market by definition operates offshore from the United States and is as I've come to see it, a largely self-regulating mechanism. It is based on trust and collateral, not so much regulations. So if institutions want to rehypothecate assets, and everyone agrees to that, then it's OK.
If you're interested in this and want to geek out, I found this paper. Here's one key quote, "In general, hedge funds pay less for the services of the prime broker if their collateral is allowed to be rehypothecated." So there can be a financial incentive for this to go on.
Haha man, you don't have to tell me... I have an irrational obsession with the Eurodollar market. I have no clue if learning all this will ever meaningfully benefit me, but I just get such a kick out it.
I'm pretty new to the finer points of economics and cryptos, though trying to educate myself as fast as I can. Your articles have been a great help!
Question, though, if Bitcoin became the new gold, how would that jive with digital currencies, which seem to be the direction most countries want to go in?
Hey Donna, I'm glad the articles help. The short answer to your question is that I can't answer it. The reaction will vary from country to country. For example, UK has been vocal in setting up a clear regulatory regime for crypto and they're saying they want to be a crypto friendly nation/incubator. The EU is a bit more negative on crypto, the US is who the hell knows what. So it remains to be seen how Bitcoin will jive with government issued currencies. Suffice to say, it's going to be a very eventful decade.
How can you offer an asset (Treasuries) that you do not own, as collateral for a loan? How could one T bill/bond act as security on multiple loans? If I offered a property as security for a bank loan, and wasn't the legal owner, it would be fraudulent misrepresentation?
Well for one thing, property is not fungible. Every property is unique, whereas t-bills are the same. So there's that. But zooming out a bit, the Eurodollar market by definition operates offshore from the United States and is as I've come to see it, a largely self-regulating mechanism. It is based on trust and collateral, not so much regulations. So if institutions want to rehypothecate assets, and everyone agrees to that, then it's OK.
If you're interested in this and want to geek out, I found this paper. Here's one key quote, "In general, hedge funds pay less for the services of the prime broker if their collateral is allowed to be rehypothecated." So there can be a financial incentive for this to go on.
https://www.imf.org/external/pubs/ft/wp/2010/wp10172.pdf
Thanks for the link - fascinating !
Haha man, you don't have to tell me... I have an irrational obsession with the Eurodollar market. I have no clue if learning all this will ever meaningfully benefit me, but I just get such a kick out it.
Cheers