Good morning and God bless! Time to focus on the #NextPlay.
The @cz_binance-@SBF_FTX drama teaches our #Crypto friends three lessons:
1. Decentralization is a self-serving illusion
2. Macro > Micro when Macro is bad
3. USD liquidity trumps all until $ is not the reserve currency
The @cz_binance-@SBF_FTX drama teaches our #Crypto friends three lessons:
1. Decentralization is a self-serving illusion
2. Macro > Micro when Macro is bad
3. USD liquidity trumps all until $ is not the reserve currency
I spent dinner discussing the #FTX saga with my fiancé who knows as much about how global financial markets work as the average #Crypto bro. My explanation to her (and them) is as follows:
1. We live in a world where the price of every key asset in the world is in US dollars
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1. We live in a world where the price of every key asset in the world is in US dollars
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2. As a function of #1, we are all hyper obsessed with how many US dollars are available to price all the existing and future assets in the system
3. As a function of #2, we are also hyper obsessed with how fast that [unobservable] quantity of dollars is growing or shrinking
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3. As a function of #2, we are also hyper obsessed with how fast that [unobservable] quantity of dollars is growing or shrinking
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4. As a function of #3, we are hyper obsessed with tracking and predicting activity of the institutions most directly responsible for controlling the quantity of US dollars available in the system to see how much they are likely to add or subtract at various intervals
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5. Such institutions include the Fed, Congress, commercial banks, shadow banks, etc.
6. We really only care about the economy to the extent economic signals reflexively alter the behavior of these key institutions. In isolation from “$ counting”, the economy is largely moot.
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6. We really only care about the economy to the extent economic signals reflexively alter the behavior of these key institutions. In isolation from “$ counting”, the economy is largely moot.
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7. Again, we can’t ever truly observe how many US dollars are in the system that are available to investors to capitalize the existing and future stock of assets or how fast that quantity is growing. We have proxies derived from key economic signals like growth and inflation.
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8. But we care deeply about the stock and flow of US dollars in the system because equity-like investors want just enough more US dollars for the price of their assets to get bid up, but not so many more dollars that owners of new assets make them poor on a relative basis…
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… and bond-like investors want just enough more US dollars in the system to get their money back from borrowers with interest, but not so many more dollars that their principal and interest payments lose purchasing power for goods, services, or other assets over time.
End. 8/8
End. 8/8
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