Thread by @CaitlinLong_

1/ I’VE BEEN THINKING, while doing yard work, abt the #crypto crash & Fathers’ Day. They both relate to one of the biggest lessons my late dad taught me, which came from my grandpa (an 8th grade educated Iowa farmer who had a PhD in common sense). He scoffed at “paper wealth.”

2/ For context, my dad—his oldest child—was born just days after the 1929 stock mkt crash. Grandpa watched as some neighbors, who had leveraged their farms to play the roaring ‘20s stock mkt, lost them in the crash. Grandpa died before I was born but Dad passed his wisdom to me.

3/ That paternal nugget of common sense influenced my studies of finance & economics in school, in work, in reading history & in my journey of studying the whole range of economic schools of thought after the 2008 financial crisis. Applying it to today, what Grandpa observed…

4/ …was the dangers of the siren song of debauching one’s balance sheet to make a quick buck in rising financial mkts. There are debauched balance sheets all over #crypto right now (& in #tradfi too). It’s not just in leveraged lending, #rehypothecation, #nakedshorting, etc.

5/ It’s also in derivatives. Studying what happened with #stETH, that’s a complex derivative akin to a “loose cannon on the deck of the world, amid a tempest-tossed era” (Hoover’s quote from 1931).

The cleanse is painful but healthy. Satoshi didn’t gift humanity with #bitcoin…

6/ …only to see its trading mkts leveraged in the way they have been since ~2017. #Bitcoin is equity-based money that has no issuer, so it has no balance sheet to debauch (unlike debt-based money). That’s what makes it different—no counterparty, but ONLY if you self-custody it.

7/ What we learn in leverage flushes is that counterparty insolvencies were always there, but it’s usually not until a liquidity crunch comes that they’re revealed for all to see.

Be careful.

Happy Fathers’ Day to all the dads. Thanks for all you do & the wisdom you impart!🙏