Michael Saylor just pitched countries on creating Bitcoin backed digital banking systems and the concept is pretty wild.

Speaking in Abu Dhabi, Saylor laid out a vision where countries could use Bitcoin reserves and tokenized credit to offer regulated bank accounts that give way higher returns than traditional deposits. He pointed out that banks in Japan, Europe and Switzerland barely pay any interest while US money market funds are around 4%. People are basically disgusted with their bank accounts which is why corporate bonds exist.

His proposal involves structuring accounts with about 80% digital credit instruments, 20% regular currency, and an extra 10% buffer to reduce volatility. The digital credit layer would be backed by Bitcoin reserves with about 5 to 1 overcollateralization. Basically using Bitcoin as the ultimate collateral layer.

Saylor thinks a country that implements this could attract $20 to $50 trillion in deposits and become the digital banking capital of the world. Thats not a small claim.

However theres obvious skepticism here. Bitcoin is down 28% from its recent highs and dropped 9% over the past year. The volatility makes people question how you can build stable high yield products on top of it. One former bond trader called Saylors moves folly and said hiking rates to maintain a peg wont work when people want their money back during a panic.

Strategy already has a product called STRC that works somewhat like this - its grown to $2.9 billion but faces doubts about whether it can handle a real liquidity crunch.

The idea is innovative but feels like it requires Bitcoin to keep appreciating long term to actually work. What happens during extended bear markets?