iluxonchik

AI infrastructure is built on copper.

From a technical standpoint, copper is currently flipping a ≈20 year old resistance for support. On a monthly chart, copper is in a multi-year upwards channel, and it’s now close to the upper trend line of that channel. Copper is also at record lows when priced in terms of gold and silver.

From a fundamental, supply/demand perspective, copper is required for electrification, data centers, new buildings, electric vehicles, and electric appliances in general.

The tariffs imposed by the U.S. on the European countries are detrimental to USD's position as a reserve currency. A capital outflow out of the U.S. dollar creates positive price pressure on gold via increased demand.

This is true regardless of the U.S. Supreme Court's decision on whether President Trump can lawfully impose unilateral broad tariffs via executive order using the the International Emergency Economic Powers Act (IEEAP).

It summarizes down to increased pressure on swapping USD-denominated reserves for gold (and renminbi/Chinese Yen), and the disincentives for acquiring/rolling-over USD treasuries, bonds and notes.

The article goes into more detail.

https://illya.sh/ - My Homepage

https://illya.sh/threads/ - My Articles/Threads

https://illya.sh/thoughts/ - My Thoughts/Twitter-like feed

I write about finance, law and software engineering

On November 22nd 2005 the president of Russia stated:

- "I believe it's necessary for the Central Bank to pay more attention to precious metals within the territory of the Russian Federation when forming gold and foreign-currency reserves. Those reserves are even called 'gold and foreign-currency' reserves. There's nothing to be shy about here."

At the start of 2026, gold represents ≈43% of Bank of Russia's (BoR) international reserves. Back in 2005, gold accounted for a mere ≈3.5% of the same reserves account.

Since November 2005, gold is up ≈840%, i.e. almost 10 times. In the same period, S&P 500 TR increased ≈726%, or almost 9 times. This means that (anecdotally) Central Bank of Russia's strategy outperformed the U.S. stock market index by ≈14%

Currently, gold trades at ≈$4400/oz (when you're reading this it's probably much higher ). This means there is about $4400-$1910=$2490 of margin on each ounce of refined gold. Almost all of this margin on the sale of an ounce of gold is pocketed by gold miners.

Since 1997 Bulgaria has operated under a currency board arrangement (CBA), which is an exchange rate regime where a country commits to keep its local currency to a fixed exchange rate against an anchor currency. For Bulgaria, that anchor currency is the Euro.

Given this, any discourse about how Bulgaria's entry into the Eurozone implies a dramatic change to its monetary sovereignty is likely unfounded. It didn't happen overnight - it's been an almost 30 year long process. Joining the Eurozone does, however, remove the pegging frictions for Bulgaria, and allows them to fully integrate into the monetary union.

Child articles mentioned in the post:

- MSTR’s business model, describing how the company operates as a "Bitcoin treasury" and what does it mean for its solvency. You can read it here: https://illya.sh/threads/microstrategy-is-dependent-on-refin...

- Why MicroStrategy can’t replay its debt using equity/stock. You can read it here: https://illya.sh/threads/microstrategy-cant-repay-its-debt-i...

- How Strategy pays for its interest, which currently accounts to ≈$40M/year. You can read it here: https://illya.sh/threads/how-microstrategy-pays-interest-on-...

- How Strategy's marketing is misleading regarding MSTR’s risk, liquidity and solvency. You can read it here: https://illya.sh/threads/strategy-invents-financial-metrics-...

Gold as a percentage of balance sheet size in Central Banks (ranked):

+ Japan (MoF + BoJ): ≈2.4%

+ China (PBoC): ≈4.5%

+ U.S. (Fed gold certificates): ≈15.9%

+ European Union (ECB + Eurosystem): ≈19.4%

+ Russia (BoR): ≈36.1%

Conclusions you can take from here:

- China's current gold reserves are small relative to its central bank balance sheet and ambitions for the renminbi, so the PBoC is likely to keep buying gold for years to move closer to a gold-backed reserve-currency profile.

- Russia has accumulated large reserves that will allow a strong expansion of ruble credit once trade normalizes, likely triggering a rally in Russian capital markets.

- The EU is relatively well-positioned but should both grow its gold reserves and deepen its capital markets (e.g., via CMU) to strengthen the euro’s appeal as a reserve currency.

The short answer is that MSTR finances its debt service via a mixture of:

- Software business cashflow

- Existing reserves & short-term investments

- Capital market instruments, such as issuing new equity or debt

- Asset liquidation (Bitcoin sales)

A longer answer is in the article.

Some think that they define a single rate - namely the overnight lending rate - i.e. the rate at which the banks lend to each other overnight.

In reality, the Fed steers the prevailing interest rates in the economy by explicitly setting the following set of interest rates:

the FED sets a target interest rate range and 4 main explicit interest rates:

1. Overnight Reverse Repo Rate (ON RRP)

2. Interest on Reserve Balances (IORB)

3. Discount Rate - also known as Lending Rate

4. Standing Repo Facility (SRF)

The article explains how each one operates and how together they define a "corridor" for the target federal funds rate.

MicroStrategy Is Dependent On Refinancing Capacity, Not Bitcoin Price

MSTR won't have to sell Bitcoin if BTC price goes down, they'll have to sell Bitcoin if they're unable to acquire funding along the maturity of their debt wall.

MicroStrategy is essentially a leveraged trade on Bitcoin, based on the following cycle:

1. Acquire funding via debt or equity

2. Buy Bitcoin

3. Repeat

This cycle works for as long as MSTR is able to obtain funding. Once funding becomes unavailable (i.e. market isn't willing to lend at favorable interest rates), funding must come from asset liquidation (i.e. the sale of Bitcoin).

$90B is a lot of gold for sure! :D

But the total amount of gold seized worldwide is much smaller than Bitcoin (using today's spot prices). There is a popular argument that Bitcoin is better than gold because it's harder/impossible to seize, which is simply not true.

Also, I meant to share this article, not the one linked by this post: https://illya.sh/threads/multiple-governments-have-seized-bi...

It's on the same topic, but more detail.

I meant to post this link: https://illya.sh/threads/multiple-governments-have-seized-bi...

Okay, I don't think there is way to change it now

If you think that Bitcoin is harder to seize than gold, you are probably wrong. At least according to the data. In the history of Bitcoin's existence, much much more Bitcoin has been seized than Gold. You don't need to compromise cryptographic primitives to seize Bitcoin.

In the past 10 years, ≈$90B in Bitcoin has been seized vs ≈$3B for gold (using today's market prices)

I miscopied the URL. I'm trying to delete this, but don't think I can.

If you think that Bitcoin is harder to seize than gold, you are probably wrong. At least according to the data.

In the history of Bitcoin's existence, much much more Bitcoin has been seized than Gold. You don't need to compromise cryptographic primitives to seize Bitcoin.

In the past 10 years, ≈$90B in Bitcoin has been siezed vs ≈$3B for gold (using today's market prices)

How would you suggesting restructuring the legal system so that currency becomes fully a central bank liability?

And how would such a restructuring help to improve the current model?

And very importantly - what is the practical next step? You can't make all of the U.S. dollar a direct liability of the central bank overnight without collapsing the global financial and geopolitical structure?

FedNow is a real-time payment system for interbank transfers - it doesn't replace commercial banks.

Commercial banks are credit, lending, deposit-taking and risk management institutions. FedNow focuses on settlement. Replacing commercial banks would require public access to central bank accounts, which isn't allowed under virtually all jurisdictions.

Regarding fraud - automation won't remove fraud. Banks themselves heavily rely on automation.

Regarding bank failure handling - same question as above

> The public and central banks ultimately hold all the liability anyway

All the liability on what? Central bank liability is both a legal, and a financial concept

Commercial banks can be easily replaced? How so?

This is not just about efficiency, but how the financial market infrastructure works. Central banks aren't just about adding a label - they're a core entity behind currencies that we use for day to day payments

I'm not sure what you mean by "We've been buying stuff without using currency for decades". Unless you're purchasing with gold - you're likely using currencies

Looks like the comment was updated? I see a different one now.

To reply to

> Both of these have been in place for a very long time.

> Ever use a debit card to buy something?

No they haven't. Debit card balance isn't a deposit at the central bank - it's commercial bank money (i.e. a liability of the commercial bank, not the central bank).

Retail CBDC is digital central bank money held by the public (retail). So it would be the public holding a central bank liability

What do you mean?

CBDCs are development phase

TL;DR:

There's two types of central bank digital currencies (CBDC): retail CBDC and wholesale CBDC

1. retail CBDC = used for ordinary transactions. digital version of the cash

2. wholesale CBDC = used for interbank/financial institution settlement. tokenized central bank reserves