The illusion of wealth in numbers
We equate money with wealth. A bigger number in the account is supposed to mean you are better off. Economists have a name for the mistake, money illusion: people reason in nominal units and quietly forget that the unit itself is moving.
The number is not the wealth. What the number can be exchanged for is the wealth, and that changes without the number changing at all. A hundred-dollar bill buys a dinner today. A century ago it bought considerably more than a dinner. Nothing happened to the bill.
I want to make an argument about this that is less comfortable than the usual one, because the usual one stops halfway, and the half it stops at is the half that flatters whoever is making it.
The unit really does move
Start with the uncontroversial part, because it is measurable.
The US consumer price index averaged 9.9 in 1913 on the 1982-84 base, and it is now above 300 (Federal Reserve Bank of Minneapolis; you can run any two years through the BLS calculator). That is a factor of more than thirty, which means a dollar from 1913 buys roughly three cents' worth of the 1913 basket today. Around 97 percent of it is gone, in a country that is held up as the example of monetary stability.
Where I grew up, the same process ran at a speed you could watch. In the twelve months to February 2024, Argentine consumer prices rose 276.2 percent (INDEC). Prices did not drift, they nearly quadrupled inside a year. Being a peso millionaire meant nothing in particular; it depended entirely on which Tuesday you were one.
My father's answer
My father worked this out long before I could follow the reasoning, and his solution was physical.
He inherited a piece of land in Córdoba with an old house on it. Rather than keep money in the bank, he converted whatever he earned into bricks. Not as a metaphor: actual bricks, laid into small rental units and extensions on that land, a few courses at a time as the money came in. Concrete does not care what the peso did last week.
He was right, and it cost him. In 2001 he lost his steady job, found a new one in Buenos Aires, and for two years lived apart from us during the week, travelling the roughly 700 kilometres home at weekends. We eventually moved to the city so the family could be in one place. The routine did not change: earn, convert immediately, put it into something that exists.
What I took from watching that is not that real estate is a good investment. It is that he was doing his accounting in a unit that would hold still long enough to be worth counting. The peso was not a store of value, so he refused to store value in it. The bricks were a worse asset in every conventional sense, illiquid and slow and impossible to divide, and they were still the better unit.
The obvious conclusion, and why it is not enough
The obvious conclusion is the one I held for years: find the hardest money available and count in that instead.
Bitcoin is the strongest candidate anyone has built. Its issuance follows a published schedule that nobody can amend on a Sunday night, and it sums to a fixed total; where the twenty-one million figure comes from is arithmetic, not a promise. Companies and one government have bought it explicitly as a reserve asset, which we covered at the time in the cases of MicroStrategy and El Salvador. If the problem is a unit that can be diluted by decision, this is a unit that cannot.
Here is the part that stopped me. The fallacy does not end at the border of the dollar. If counting your life in dollars is a mistake because the dollar's real value moves, then counting it in bitcoin is the same mistake in a different unit, and the unit has a much larger variance. Someone who watches a balance denominated in sats and feels wealthy on Tuesday and poor on Thursday has not escaped money illusion. They have re-based it onto a more volatile denominator and called the result clarity.
The honest escape is not a better currency. It is to stop using a currency as the measuring stick at all, and to measure in the thing you actually wanted: months of rent covered, years of school fees, hours of your own labour you no longer have to sell. Those are the units the wealth was for. Every currency, hard or soft, is a claim on them, and the claim is what fluctuates.
I did not arrive at this by thinking clearly. I arrived at it because a friend proposed something and I could not explain what was wrong with it until I did the arithmetic.
The scheme
He is a serious person and he holds bitcoin for serious reasons. His plan was to post his bitcoin as collateral, borrow dollars against it, and buy more bitcoin with the loan. In his framing this was not speculation at all, it was the logical consequence of his own conviction: if you genuinely believe the dollar loses value against bitcoin over time, borrowing dollars is borrowing something that shrinks.
That framing is the giveaway, and it took me a while to see it. He was reasoning entirely in bitcoin. In bitcoin terms his position only improves. The problem is that the loan is not denominated in bitcoin. It is denominated in the unit he has decided not to think in.
The arithmetic
Say bitcoin is at 100,000 dollars and he owns one.
He posts it as collateral and borrows 50,000 dollars, a loan-to-value ratio of 50 percent. He buys half a bitcoin with the loan and posts that as collateral too. He now holds 1.5 bitcoin, worth 150,000 dollars, against a 50,000 dollar debt. His equity is still 100,000 dollars. His exposure is one and a half times what it was.
Now the price falls 40 percent, to 60,000.
The collateral is worth 90,000. The debt is unchanged at 50,000, because debts do not fall in sympathy. His equity is 40,000 dollars. Held plainly, one bitcoin, he would have 60,000. A 40 percent fall in the price took 60 percent of his money.
Keep falling. At 45,000 dollars a coin the collateral is worth 67,500 against the same 50,000 loan, a loan-to-value of 74 percent, and his equity is 17,500. A 55 percent fall has cost him 82 percent. Every lender sets its own margin call level and its own liquidation threshold, and they are always reached well before the loan is actually underwater, so the real number is in the terms he agreed to and not in this paragraph. What is certain is that somewhere on that slide the platform stops asking and starts selling, into the worst market of the cycle, at a price he would never have chosen.
That is the asymmetry, and it is not the one people usually name. Leverage multiplies gains and losses alike. Only the losses are enforced by somebody else, on their schedule. Nobody has ever been force-closed out of a winning position.
The other half of the bill
The arithmetic is only the price risk. The scheme also requires handing the collateral to somebody.
That is a second, independent thing that can go wrong, and it is not hypothetical. The last time bitcoin fell far enough to trigger this kind of position at scale, the lenders went down with the borrowers. We wrote up Celsius halting withdrawals, Three Arrows Capital being ordered into liquidation and what an FTX balance turned out to legally be. Depositors in those cases did not lose money because they were wrong about the price. They lost it because the entity holding the collateral was insolvent, and their claim was a claim, not a coin.
So the trade requires being right about direction, right about timing, right about the depth of the drawdown, and right about a counterparty's balance sheet, in a business where being wrong about the last one has repeatedly been enough on its own.
What I actually told him
Not "don't use leverage". He is an adult and it is his money.
What I said was that his position was already the trade he wanted. Holding bitcoin instead of dollars is already a bet against the dollar. The loan does not add the bet, it adds a forced seller to it, and a forced seller is the thing that turns a drawdown into a permanent loss. The one property that makes an unleveraged holding survivable is that nobody can make you sell it.
And underneath that, the thing I found harder to say: the plan was money illusion wearing new clothes. It counted in bitcoin, so it saw only the upside, exactly as somebody counting in pesos sees only a rising balance. My father's discipline was never about picking the winning asset. It was about refusing to let the unit do his thinking.
Where that leaves it
Wealth is not the money. It is time, energy and judgement, stored in a form that will still be worth something when you need it, and money is the storage medium rather than the substance.
That makes the choice of medium worth taking seriously, and it makes bitcoin worth taking seriously, and it does not make the count of units a measure of anything. A person with more units of a melting currency is not richer. A person with more units of an appreciating one is not automatically richer either; they are exposed differently, and exposure is not the same as wealth.
The number is not the thing. Whatever the number is denominated in.