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Fred Krueger

@dotkrueger

Jan 4

The way I see it, Gold has essentially failed as hard money, and it's being held by central banks as a vague defense mechanism to prop up their fiat currencies in the (likely) event of an eventual "run on the bank".

Bitcoin could play a much different "reserve role".

A 🧵 1/N

First, let's be clear: Gold has not been used as actual "money" for "transactions" in over 300 years.

- Certainly in the time of the Medici's (starting 1252) the gold florin was actually the main unit of exchange for large transactions.
- this got copied and pasted into the Ducat (1254), the British Noble (1344), the French Ecu (1377), The Spanish Escudo (1535), The French Louis d'Or (1640), The British Guinea (1663), the US Gold Eagle (1795) and finally the French Napolean (1803).

But starting in the min 1800s, banknotes replaced actual Gold coins.

These banknotes were initially Bank of England Pounds, US State Chartered Dollar bills, US Greenbacks starting in 1860, and then Federal Reserved backed dollars starting in 1913.

For almost 200 years we have used "gold backed paper" and not actual gold as money. And it has failed repeatedly

- Greenbacks were issued in 1860 as legal tender with no official backing
- The US officialy went on the Gold Standard in 1900, but off it in 1933 with EO 6102. The International redeemabilityy ended in 1971.
- Britain when on it in 1816, off of it during the Napoleanic wars (1797-1821), off during WW1, and finally off in 1831.

Similar patterns exist for France, Germany etc. The problem is the idea of "paper backed by gold" sounds good, but the reality is, it always fails. 2/N

So, if Gold has failed as hard money, why are there still so many "gold bugs"?

Clearly because people like the "idea of hard money". The "idea of gold", not actual gold.

And to be fair, as a pure investment, Gold has done quite well, starting back to 1971. Gold was $35 an ounce in 1971, its now $2600. Up 75x. The SP500 was $100, now it is $6,000 up 60x. With dividends, about the same.

So "hard assets" do well over time. But its not accurate to call it "money" 3/N

Read 7 tweets

Fred Krueger

@dotkrueger

Nov 7, 2024

Here's the real hard truth of where we are in America: 1/N

1. Over the last 24 years, we've increased Goverment Spending as a percentage of GDP from 17% to 24%. We're getting fatter, more bureaucratic and useless. @elon is right

We spend basically 7 hours a day now wasting time of the Internet. We have become vegetables. 2/N

Here's a breakdown of the 7 hours a day we currently spend in front of our screens. It's basically social media, Youtube and Netflix, and video games. 3/N

Read 9 tweets

Fred Krueger

@dotkrueger

Oct 14, 2024

The arb desk perspective on MSTR. Math, analysis and limitations of cloning.

A thread 1/N

On September 24, 2024 MSTR issued 875 Million .625% convertible senior notes, maturing on September 15, 2028.

At the time of issuance, the conversion price of $183.19 was approximately 19% above the estimated spot price of $154. For simplicity, let’s use 20% as the number.

MSTR’s actual volatility is around 80%.

A four year call option 20% out of the money is worth 58% at 80% vol.

Let’s assume for simplicity that all of the bond is purchased by an arb desk.

The delta is about 79%. So the arb desk will short 79% of the issue to stay delta neutral. If the arb desk does 875 Million of the issue, they will need to short 691 Million.

They can expect to make 58% of the issue price or $400 million. There will be friction, and volatility could drop, so let’s assume 350 million to be safe.

With slippage, and including the .625% coupon, they get to 42%

They of course have credit risk. In an extreme scenario, they might not be “money good”. But let’s just assume that they are OK with the credit.

They do need to come up with 875 Million. Their funding rate on that might be closer to 8%.

Over 4 years, that is 36% of the principal, compounded.

The difference of 42% to 36% is the arb desks net profit. Something like 6 points, or 52 million.

So what is needed to pull this off? Can others implement the MSTR strategy? 2/N

For the arb desk to be interested, they need three things:

1. volatility
2. a liquid share to short.
3. enough BTC in the vehicle to comfortably carry the debt.

At the beginning of 2024, MSTR has 154K BTC, valued at 5.8 Billion. BTC has gone up 50% since then, and MSTR has tapped the convert market for 2 Billion in debt.

Regarding point (1), all clones will have it. This is inherent to the Bitcoin backed strategy.

Point (2) really requires size. These convert arb guys wont be interested under 1 Billion market cap. Not deep enough.

Roughly speaking, per point (3), a rate of 5x BTC to new convert debt per year is probably doable.

So if a new clone company was created with 1 Billion in fresh BTC capital, it might be able to tap the market with 250MM in convertible debt in 2025.

How much accretion does this strategy bring? 3/N

Let's assume for the moment a multiple of 1.5x.
And lets say a company with 1 Billion in BTC does issue 25% of new converts in a year 20% out of the money.
And lets assume these new converts are all exercised.

The company starts out with 1 Billion in BTC at 60K,
or 16,666 BTC.

They start trading at 1.5 Billion.

Lets assume 10 Million shares. So this is $150 per share. They have 0.0016667 BTC per share.

They use this new money ($250MM) to buy 4,170 BTC. So now they have 20,836 BTC.

The shares are converted but at higher price of 180 per share. This is now 1.338 MM new shares, or a total of 11.338 Million shares.

On a BTC per share basis, they have 0.0018377 BTC per share.

This is a "Bitcoin Yield of 10%".

Read 5 tweets

Fred Krueger

@dotkrueger

Oct 6, 2024

Fresh look at the Power Law Data
Date: Oct 6, 2024
Monthly Data.

Observation 1: We're on track to hit BTC 1 Million (trend) in 10 years (1.4 in Log since Genesis)

Observation 2: Vol is estimated at 0.3. So 1 standard deviation is 100% from trend. 2 is 200% of trend.

So, depending on timing we could hit 1 million earlier if we are say at trend 250K and we are at 2 standard dev of this.

This could happen in June 2028 (4 years from now)

Observation 3: This thing is completely inevitable. To see this, average the log of price and plot them in log time space.

Read 4 tweets

Fred Krueger

@dotkrueger

Aug 10, 2024

Money Printing
The Last 100 Years
A short presentation

1/N

Central Banking In Place WorldWide by 1914

- Bank of England created in 1694
- Bank de France 1800
- State Bank of Russian Empire 1860
- German Reichsbank created in 1876
- Federal Reserve created in 1913

All major powers now have central banks, and the ability to print money and finance the first world war! 2/N

Once the war was over, Germany was saddled with “reparations”

- The newly created tech of “the money printer” was used to fund these payments
- The Reichsbank decides to print marks, buy Pounds and Francs.
- At first this is very successful. In 1920 there is a boom.
- By 1923 the economy was in shambles, paving the way for Hitler
3/N

Read 15 tweets

Fred Krueger

@dotkrueger

May 13, 2024

A little mathematical diversion on Poisson Densities,
as mentioned in the WhitePaper (p7)

@moneyordebt

If you have independent, identically distributed events, such as the number of phone calls you get in an hour, or, as Satoshi was modeling, the number of blocks you can mine in 10 min * z, where z is the amount of confirmations a receiver has been given in advance of a planned double spend.

If you let lambda = z * q / p

Then the probability of getting exactly k events (blocks) is

Now multiply that probability times the probability of ever catching up given k, and you get Satoshi's formula.

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