This week, CNBC host Jim Cramer announced that he had sold half of his bitcoin to pay off a mortgage. “It was like phony money paying for real money,” he said. “I think I won.”
While Cramer, the well-known host of “Mad Money,” has quite an impressive background having graduated from Harvard University and later running his own hedge fund, his choice to sell bitcoin to pay down a mortgage is a classic example of a misunderstanding of monetary economics, and the dynamics of currency competition.
This piece isn’t meant to focus solely on Cramer, but rather to provide analysis as to why this is an example of a shortsighted investment decision that will prove to be quite costly in hindsight.
Good Money Drives Out Bad
While Cramer serves as the example, more broadly, economic calculation using bitcoin as the measure for opportunity cost is a must if one wishes to maintain purchasing power into the future. This is because money is always in direct competition with all other forms of money/currency. The money with the most sound monetary properties will outcompete those with inferior monetary properties and assurances, and this dynamic will be reflected in the pair’s exchange rate. Decisions and economic calculation do not exist in a vacuum. Thus, it is imperative that the most sound monetary medium is used to measure opportunity cost and to make economic calculations. By using bitcoin as a unit of account over a medium-to-long-term time horizon, the opportunity cost is quite clear.
What many (potentially including Cramer) fail to understand is that nearly everyone is a leveraged bitcoin holder. While holding bitcoin as an asset on the left side of one’s balance sheet, any liabilities an individual holds mean that this particular person is a leveraged bitcoin holder/investor.
“On the liability side of the Bitcoiner’s balance sheet there are mortgages, student loans, car loans, credit cards, etc. Everyone admonishes people to not borrow in order to buy…