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Lyn Alden Profile picture
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18 Jan, 9 tweets, 3 min read
My recent article on Ethereum provoked a lot of responses in favor and against, which is good.
lynalden.com/ethereum-analy…

One of my goals is to identify what is an institutional-grade blockchain, and what is not yet one.
For example, when I bought BTC in April 2020 at $6.9k, this ended up being right ahead of a wall of institutional money that came into BTC throughout the year.

The risk/reward ratio was very strong. Not the highest absolute return (could have bought TSLA yolo calls), but great.
More importantly, I like the BTC project, the ecosystem, what it enables, and the options that it gives to people around the world.

Permissionless payments and self-custody stores of value are important for the world to have.
From there, we'll see what else works in the ecosystem over time if anything. There was an ICO boom/bust, and there is currently a DeFi boom.

Certainly one thing here to stay for a while is stablecoins of various types.
Ethereum itself is in rapid development on the base layer, figuring out how to scale, shifting from PoW to PoS, etc. Institutions are hesitant to put billions into a project like that; a small side bet perhaps.

Hence my 80/20, 90/10, or 100/0 BTC/ETH description in the article.
If you're deep into development of Ethereum and bullish on it, then consider my critiques a good thing. Because if you solve various problems, then institutional money may follow.

On the other hand, I want to make sure folks are aware of risks, to not lose money on altcoins.
I chatted with the folks at @BanklessHQ last week about macro, and we touched on DeFi:
And a couple months ago, I chatted with @AlexSaundersAU about macro, Bitcoin, etc:
In any one cycle, all sorts of malinvestments can happen.

Over the course of multiple cycles, through bull and bear markets, we see what creates persistent market demand, and what solves genuine problems in a sustainable way.

May the best projects succeed.

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Lyn Alden Profile picture
9 Jan
There’s an old Zen koan that goes, “if you meet the Buddha, kill him.”

In other words, when something is self-verifiable or self-iterating, looking too heavily towards the originator can be a distraction along the path. Results speak for themselves.
Some folks have applied that to Bitcoin as well.


For example, sometimes there are debates about Satoshi Nakamoto’s original intent. Should block sizes be increased to facilitate “e-cash” or should block sizes be kept small for any user to run a node?
This is the type of problem encountered by engineers all the time: trade-offs.

A project can iterate or stay the same depending on what the market says.
Read 15 tweets
Lyn Alden Profile picture
8 Jan
Imagine a thought experiment:

The Federal Reserve Act gets changed, and the Fed is able to print dollars to buy Treasuries directly from the Treasury, rather than on the secondary market.
Congress says “awesome!”, and decides to send everyone $5k stimulus checks. They sell the Treasuries directly to the Fed, and the Fed buys them with electronically-printed money. No banks as intermediaries, no secondary market purchases.
The stimulus checks get deposited by the Treasury into everyone’s bank account. Their banks then get the cash as an asset, and have new deposit liabilities to their depositors in equal amount. The money is freely spendable by the consumers.
Read 6 tweets
Lyn Alden Profile picture
7 Jan
This article assumes banks are reserve constrained, but they're usually not reserve constrained.

In 2020, bank holdings of Treasuries, MBS, cash at the Fed, and loans, *all* went up.
When the government runs large fiscal deficits, and the Fed buys the Treasuries on the secondary market, it sends bank deposits (M2) up a lot, which increases their capital base to buy even more Treasuries or make more loans.

No deflationary "crowding out" effect.

Reflationary.
More about the mechanics of this here:
lynalden.com/money-printing/
Read 5 tweets
Lyn Alden Profile picture
3 Jan
When interest rates hit zero for the first time in decades, interesting things happen.

Here's the 100-year chart of total debt to GDP in blue on the left axis, vs interest rates in orange on the right axis. Total debt includes public and private debt.
Another way of looking at it is total debt as a % of M2.

With this metric, we can see the big changes since 2008 in particular. The ratio dropped from 700% to 400% in 12 years.
If we separate out federal debt vs nonfederal debt as a percentage of GDP, it also provides more clarity.

In each long-term cycle, the first stage was a private debt bubble and banking crisis, while the second stage was a public debt bubble and massive M2 increase.
Read 5 tweets
Lyn Alden Profile picture
20 Dec 20
This cycle of dollar strength was created by the end of QE in mid-2014, and the initiation of QT in early 2018, all of which made US monetary policy relatively tight vs peers.

The cycle of strength is seemingly ending, on the cessation of QT into indefinite QE, from late 2019.
The US runs persistent current account deficits (weak FX), while Europe and Japan run current account surpluses (strong FX).

The dollar's strength, therefore, mainly comes from tight monetary policy, along with the global offshore USD debt that represents persistent demand.
So, when fiscal and monetary policy in the US become loose, the USD historically has plenty of room to fall.

USD demand remains relatively steady year-to-year, while USD supply rapidly shifted from tightening to loosening over the past 16 months.
Read 4 tweets
Lyn Alden Profile picture
17 Oct 20
New Treasury holders report out yesterday. The foreign sector slightly reduced U.S. Treasury holdings in Aug, from July, despite ongoing large issuance.

YTD through August, the foreign sector only bought about 5% of net new Treasury issuance.
We know from Fed custody data, which is incomplete but faster-updating, that going into October, the foreign sector still isn't really buying Treasuries in size:
About 2/3rds of net new U.S. Treasury issuance this year was bought by the combo of the Fed and U.S. banking system.

There's very little foreign demand. There's moderate non-bank domestic demand, but not enough vs the massive issuance (at least at current prices).
Read 4 tweets

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