Some anecdotes on where the new money has come from to bid BTC from $10k-$18k. Retail inflows have been relatively muted. The crypto industry is at relatively low leverage. So where's the buying coming from? /1
2/ for most of this rally, we've seen a clear pattern of algorithmic style buying during US hours and flat activity during asia hours. Those are largely HNWs (high net worth individuals) buying large amounts facilitated by algos (or via an OTC desk that uses algos).
3/ while it took a bit longer than many of us expected, the trend of hedge fund managers like Paul Tudor Jones accumulating BTC both personally and for their hedge funds has been accelerating.
4/ I've been on a number of calls in the last few weeks with billionaire hedge fund managers discussing making their first $5m-$100m buy, as well as others upsizing their allocations from say 1% of their net worth to 5-10%.
5/ these buyers are only interested in BTC and they're buying on a monetary narrative. A blend of, "this hedge's inflation and fiat depreciation" and "it's an underowned SoV likely to appreciate by multiples even if only because other portfolios add a small %.
6/ things like Paypal support and recent sell-side research from the likes of JPM and Citi convinced them that BTC is here to stay. At this point it's just a matter of "touches." Maybe the third time a billionaire buddy recommends it, they buy.
7/ the most common questions: "will governments ban it if it gets big enough?" "we hear mining is concentrated in china, is that a risk?" "ok, so how can I actually buy $100m worth and how can I store it?"

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More from @AriDavidPaul

19 Nov
An educational thread on diversification, "the only free lunch" in investing. Diversification lets you get the same exact expected return, with lower risk. Read to the end for a direct discussion of diversification in cryptocurrency. /1
2/ Adding any asset with <100% correlation to your existing portfolio produces a diversification benefit. People often think of correlation as binary (i.e. is this correlated or uncorrelated), but that's wrong. You get a benefit even at 95% correlation, just a small one.
3/ the holy grail is to find assets with *negative* correlations to your portfolio with positive returns, but those are hard to find. Those assets simultaneously increase return and reduce risk. Usually we have to settle for just a moderate risk reduction from <100% correlation
Read 14 tweets
17 Nov
Hi @RayDalio! I'll try to address your concerns here. Happy to chat at greater length. 1: money usually follows a path of Sov->MoE->UoA. Bitcoin is not a very useful MoE today, you're right. It's also incredibly nascent though in all regards, that can come over time.
2/ yes BTC is volatile, but decreasingly with every ~4 year market cycle. Realized volatility has fallen from 300+ to 100 to now ~60. It's only an 11 year old asset. We expect volatility to continue falling over time as it shifts from an early stage speculative asset to maturity
3/ as for government regulation - every crypto bull run has brought it to the attention of a new level of government regulator. In 2013 it was the FBI. 2017 the SEC. This run I expect it to become worrisome to central banks and treasury departments, but as with
Read 5 tweets
3 Nov
This election is a symptom of broader social and economic conflict and loss of confidence in trusted institutions. I expect all of these things to continue worsening regardless of who's elected. I say this not to be gloomy, but to encourage us all to take a long-term mentality.
2/ both the right and left are reacting to angst over the economic effects of automation and leverage. In 1955, a 23 yo plumber could afford to buy a house and raise a family. Neither side properly identifies the sources of the problem, neither will fix it any time soon.
3/ both left and right react to the rising general perception of corruption. Corrupt police, corrupt media, corrupt "big tech", corrupt politicians. A complex topic lacking simple policy fixes. I think we'll need to see institutions "reborn" fresh. Don't know what that means.
Read 5 tweets
2 Nov
The "Laffer Curve" was the basis of Reaganomics, and kind of like the conservative version of MMT in the 1980s.
As a simple observation, it's a tautology. Beyond some point, higher tax rates will reduce government income, since people eventually work less. /1
2/ To be clear on the idea: if tax rates are 0%, obviously raising them will bring in more tax revenue. But if tax rates are 100%, no one bothers working. So there's some point above which raising taxes will reduce government tax revenue.
3/ conservatives loved this little drawing to support the idea that we could have our cake and eat it too - we could both cut taxes *and* increase government revenue to support the national budget. Almost too good to be true, right?
Read 10 tweets
2 Nov
Most resources are scarce (including our time.) Markets are the most efficient way to allocate resources. Markets allow for exchange, but equally importantly, they allow for *pricing* of scarce resources. Pricing requires a neutral unit of account. Fiat broke this. /1
2/ when goods and services are priced in fiat, we get "perverse" effects and rent seeking. Currently some large companies can effectively borrow USD for free (ex: Fed buying corporate bonds), while many smaller businesses are crowded out of lending markets. This causes large
3/ companies to rationally act as speculators, including by buying up assets and small companies. They don't ask, "is this the best use of capital", but rather, "we have this free capital, what can we do with it to earn a return with the Fed/Gov taking the risk?"
Read 6 tweets
17 Oct
Question: what are the sources of demand for crypto loans/borrowing? Here’s my list, but may be missing something. /1
2/ borrowing crypto to act as a market maker (on either CEXs or AMMs and other DEXs). Borrowing to yield farm airdrops (limited by new money willing to buy those airdrops from farmers).
3/ borrowing to collateralize speculative positions (like borrowing BTC to use as collateral on bitmex). Imo, this probably dwindles as stablecoins become accepted collateral.
Read 5 tweets

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