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Understanding The Bitcoin Speculative Attack

Understanding The Bitcoin Speculative Attack

Feb 22, 2024
Bitcoin Basics

Understanding The Bitcoin Speculative Attack

A speculative attack on a currency occurs when investors borrow in a currency they deem to be weakening and invest in an asset they believe to be strengthening. In the context of Bitcoin, this concept has been gaining attention as individuals and entities borrow US dollars to purchase Bitcoin, anticipating that it will increase in value relative to the dollar.

Impact on Bitcoin and the US Dollar

When investors sell US government bonds to buy Bitcoin, it has a dual effect. It puts upward price pressure on Bitcoin due to increased demand and exerts downward pressure on the US dollar as the supply of bonds increases. This also affects interest rates, as the selling of bonds may lead to higher yields if demand does not keep pace.

The Federal Reserve's Response

To counteract these pressures, the Federal Reserve might have to step in as a buyer of last resort for the bonds, potentially printing additional US dollars to do so. This action can inadvertently boost Bitcoin further, as the increase in dollar supply can lead to a devaluation of the currency.

Speculative Attack Strategy

A speculative attack, as posited by Pierre Rochard in a seminal essay from 2014, involves borrowing US dollars, which banks can effectively create through loans, to purchase Bitcoin. This strategy exploits the fixed supply of Bitcoin (capped at 21 million coins) contrasted with the potentially infinite supply of fiat currency like the US dollar.

The Central Bank's Dilemma

To defend its currency against a speculative attack, a central bank would have to raise interest rates sufficiently to make borrowing costs unattractive compared to the potential returns of Bitcoin. However, significant rate hikes could have adverse effects on the banking system and the government's ability to service debt, as seen when even modest rate increases can strain financial institutions and government budgets.

Real-world Example: MicroStrategy's Approach

MicroStrategy, a business intelligence company, exemplified a speculative attack by borrowing millions at a low-interest rate to purchase Bitcoin, betting on the it's appreciation to strengthen their treasury reserves. This move demonstrates the concept of using debt-financed purchases of Bitcoin to potentially benefit from its increasing value.

Source: Reuters

Personal Finance Considerations

The idea extends to individual finances, where people might choose to invest in Bitcoin rather than paying down low-interest debts, effectively leveraging their investment. This approach is predicated on the belief that Bitcoin's expected return will outpace the cost of borrowing.

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Risks and Advice

While the strategy of borrowing to invest in Bitcoin can be tempting, it carries risks, such as margin calls or the inability to refinance loans. Moreover, it is crucial for individuals to ensure they can manage the interest payments to avoid financial distress.


The concept of a Bitcoin speculative attack draws on the interplay between the Bitcoin's limited supply and the expansive potential of fiat currencies. Pierre Rochard's essay on speculative attacks provides a detailed framework for understanding and potentially engaging in such strategies. It's essential for those considering such moves to conduct thorough research and consider the risks, possibly starting with the resources available at the Nakamoto Institute and from the thought leaders in the Bitcoin community.


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