Shorting Fiat Currency

"Man is born free, and everywhere he is in chains"
-Jean-Jacques Rousseau

What is fiat and what is a short position? Skip two paragraphs if you understand these concepts already.

Fiat is defined as an arbitrary order or decree. By extension, fiat currency is government issued legal tender (paper or digits in a bank) backed by nothing i.e., the Australian Dollar, United States Dollar, Argentine Peso, etc.. These are printed and thus devalued over time to fund government spending.

When you short a stock, you borrow it from someone else, sell it immediately, then buy it back later and give the shares back to the original lender. When doing this, if the stock value went down after you originally sold it, and you bought it back at a cheaper price, you would profit. If it went up, you are still obligated to give the shares back to the lender so you must purchase them back at higher price, this loses you money. The scary thing is that the value of the asset that you owe the lender can increase in value infinitely. This means at some stage you are forced to purchase it back at a much higher price, losing you catastrophic amounts of money.

Due to potential infinite losses (in theory), I have never considered a short position until I realised I had made one without knowing it. What if the asset you borrowed had, historically speaking, always gone down in value? Hmm...

When have grocery prices come down in price over a 5 year period? Never. What about house prices? They generally trend up because the government loves spending money, they print more when taxes don't cover their bills. This is effectively a hidden tax. The government is able to extract economic value created through productivity by devaluing cash. This is far too tempting as the government can blame inflation on anything but themselves, and they seem to get away with it. They blame rising house, grocery, and entertainment prices on everything but themselves and claim to be the ones who will fix it. If the money was not broken, there would be little to no inflation. Who broke it? The government.

Luckily there is a non-government solution. It's called buying hard assets that are saleable over time. I.e., houses, ₿itcoin, public or private equity, collectables, or commodities like gold. These are all forms of property, usually referred to as capital in accounting, different from currency. Both can be considered money or an asset, but they are distinctly different from each other, legally and economically.

All assets have properties, they are what drive their valuations. Historically, the best capital has been homogeneous, fungible, hard to produce, transportable, productive, easily saleable and difficult to steal. These are what I call capital asset economic properties.

Object-oriented programming is analogous. Let me explain. Assets can be divided into classes with properties. A sub-class is essentially its base class with more caveats. The example below is not comprehensive but it gives you the idea, additionally, some of the properties are emergent due to market adoption, not intrinsic.

Our super-class is called Asset.

Asset:
- Is tradable
- Has economic value

These are sub-classes of Asset:

Fiat Currency:
- Is an Asset
- Is used to pay tax in its originating country
- Is issued by a central bank, run by a government
- Either backed by USD or nothing
- Unlimited supply

Capital Asset:
- Is an Asset
- Is subject to capital gains tax
- Is not printed by a central bank
- Can be personal or commercial property

These are sub-classes of Capital Asset:

Real Estate:
- Is a Capital Asset
- Is physical
- Exists in a single country
- Contains land and/or a building or is an apartment within a building
- Unmovable (unless portable)
- Subject to real estate law in its country
- Producible with investment
- Productive (leasable)
- Poor saleability (few buyers compared to global equity capital and crypto markets)
- Not stealable, is seizable
- Destructible
- Practically unlimited supply
- Heterogeneous

₿itcoin:
- Is a Capital Asset
- Is digital
- Teleportable to any location with internet connection
- Producible with investment
- Limited supply (21 million)
- Divisible by 100 million Satoshis
- Programmable
- Not stealable, not seizable
- Indestructible
- Extremely saleable
- Homogeneous - Every ₿itcoin is the same

Gold:
- Is a Capital Asset
- Has a purity level
- Is physical
- Requires physical security
- Costly to move large quantities
- Producible with investment
- Unlimited supply
- Stealable and seizable
- Indestructible
- Highly saleable
- Heterogeneous - Differing purity, mint location, etc. affects homogeneity

Public Equity:
- Is a Capital Asset
- Is listed on a stock exchange
- Is productive
- Has a CEO, BOD, etc.
- Can pay dividends
- Can issue stock
- Unlimited supply
- Not stealable, is seizable
- Destructible
- Highly saleable
- Homogeneous

In this model, each house in the real estate market is an instantiation of the Real Estate class, similarly, each ₿itcoin is an instantiation of the ₿itcoin class, etc.. Properties are defined by the class and when instantiated, the object has an instance of the properties. Not all objects of the same class will have the same properties though, e.g. not all houses will exist in the same country however, every house will exist in a country. The more guaranteed each instance is to share properties with the next instance of the same class, the more homogeneous and therefore, fungible it is.

Certain economic properties of asset classes make them good stores of value and thus, valuable. People have looked for capital assets with such properties for thousands of years; homogeneous, saleable, of limited supply, indestructible, etc.. Gold was the best answer for a long time as you can make it into coins that are extremely similar (homogeneity), there is a global market for it because of its economic properties (saleable), its supply grows slowly due to its rarity, and it's indestructible. These are the main reasons why it is valuable, not because it makes nice jewellery (although this does add some value). ₿itcoin has all these properties but in my opinion, beats them in every singe way. It is genuinely homogeneous, saleable in every currency 24/7, has an actual limit on its supply, and is indestructible too. In addition to this, it is highly transportable, incorruptible, private, and programmable. In my view, this makes it the apex capital asset.

A good physicist can tell you why water flows down hill, or why the Earth revolves around the Sun. Similarly, a good economist can tell you why money flows from assets with weak economic properties to assets with strong ones. ₿itcoin is the first incorruptible decentralised capital asset that has a limited supply. Everything else is flawed. I think the money will flow from gold and other softer monies to ₿itcoin over time and volatility will smooth as more people understand it.

The point of this article is to explain why I believe fiat currencies have weak economic properties and why ₿itcoin and other capital assets have stronger ones. In my own case, I think about this as being structurally 'short' fiat currency over the long term by preferring exposure to scarce assets. Time will tell if this works out, don't copy me, do your own thinking. Thanks for reading, let me know if you have any thoughts/disagreements.

P.S.
This is all from the dome but I've only come to these conclusions after reading the ₿itcoin Standard (2018 book by Saifedean Ammous) and listening to Michael Saylor talk for about a hundred hours. Make of that what you will. This is general information and personal opinion only and does not constitute financial product advice.