BlockFi is one of the main bagholders of Grayscale Bitcoin trust. They attracted Bitcoin deposits promising some yield, then subscribed to $GBTC in kind, hoping to dump their bags for cash six months later, rake in the Grayscale premium, buy back Bitcoins, and pay out depositors.
In doing so they acted like a plain legacy bank, borrowing for 5% and lending for 30%. And like a bank, they borrowed liquid assets and invested into illiquid assets. The prize was the liquidity premium.
The problem was that the $GBTC premium didn’t scale - you see that often in
... the real world, where hedge funds close their fund to new investors, or straight-out pay back all outside investors and just keep managing their own money (which they accumulated from management and performance fees). That’s because market inefficiencies exist as long as not
I received an email from my hosting service this morning, warning me I had committed some kind of copyright infringement on my blog.
Turns out it was my post "A day in the life of Stuart Hoegner, General Counsel for Tether". Actual complaint attached.
A few thoughts...
1. I'm thrilled someone from Tether (fingers crossed, Stu himself) took the time to read my piece, run a whois on the domain, go through the trouble to find how to file a complaint, etc. 2. It's amazing the time and resources Tether spends on hunting down and harassing critics.
3. The complaint has been filed over the weekend. I guess that plays in favour of their "weekend wires" story - the Tether team really do work (???) 24/7. 4. I will take the piece down, even though it's obviously satire, but I don't have time to play with this. I'm not Tether.
Cute how the crypto community tries to spin that exchange shutdowns are the equivalent of circuit breakers in real markets.
How come USDT exchanges didn't need to shut down? USD markets were overheating, but USDT markets weren't? How can you have bids in USDT but not in USD?
Real cash exchanges are indeed circuit breakers, but not for when markets overheat - it's when people try to cash out for real money. That's when the stablecoin/exchange cartel can no longer manipulate prices. The liquidity pool of USD, unlike that of USDT, is very shallow.
As long as traders trust stablecoins are legit, the cartel can pump prices up by printing USDT out of thin air, sending it to exchanges, and buying up everything on offer. Arbitrageurs on real money exchanges see Bitcoin go up against USDT, and rush to buy it against USD as well.
Note about Tether's reserves from someone who knows this shit.
It could all be legit. There's no way knowing, because we don't know who the issuer of the commercial paper they're holding is. If it's IBM, that's as good as cash. If it's Binance, lol. Same goes for corporate bonds.
Same goes for "secures loans". Who is the recipient of these loans, and what are they secured by? If these are loans to FTX secured by crypto, again, lol.
Fiduciary deposits should in theory be legit, although it's weird; I guess it's it's a consequence of offshore banking.
One big issue that puts a big question mark on everything is what accounting policies were used? Stu mentions "our accounting policies" but there's no such thing. Either you're using standards like IFRS, or you're making stuff up.
And finally, what's the total value of the pie???
Monaco owes its VIP status to one man. Not Prince Charles III who built the casino, or Prince Rainier III who brought Hollywood fame by marrying Grace Kelly, or Prince Albert II.
Monaco owes it all to Camille Blanc, the casino operator who made the Monte Carlo casino profitable.
Before Camille accepted the job, the casino of Monte Carlo was a joke. Days would go by without a single gambler coming in. It was a money pit.
Camille changed it all. He only accepted the job after Monaco agreed to pay him 90% of the casino's profits. NINETY F***ING PERCENT.
Still, once Camille did his magic, the remaining 10% was such a bonanza that it was enough for the monégasque government to stop collecting taxes from its citizens - a status Monaco still enjoys today.
How did Camille turn a nameless casino lost in the Alps into such a wonder?
I know Tether and Bitcoin are hard to understand for people who haven't spent 10 years looking at fraud in the face. Here's a more down-to-earth explanation.
Imagine Bitcoin is houses in the desert. The promoter advertised the spot as the New New York, where all the hedge funds
and the banks and the really important people will want to be. A lot of people bought in, but the vision never became real - hedge funds and banks stayed in New York. Nonetheless, the price of the houses rose for some reason.
As the price rose, more people bought in, ignoring the
fact that the promoter's vision didn't materialise. Surely there are other reasons for why the price is going up, other very important corporations who will want to set camp there.
Seeing prices go up, the promoter built more houses. People snapped them up as well.
It looks like the majority of crypto is OK now with USDTs being backed by crypto and not something tangible.
The emerging consensus is "USDTs are so well collateralised after the bull run that there's zero risk. And, if Bitcoin falls, they can always print and pump it back up."
The minority of insiders see the writing on the wall, and are playing along while frantically trying to cash out behind the scenes (example: Coinbase).
But the majority actually believe this nonsense, and are confidently displaying their utter lack of understanding of finance.
The price of crypto today isn't priced in USD, it's priced in USDT, because nobody's trying to cash out into the real world. It 's true that USDTs are overcollateralised today.
However, if more than a few people try to cash out in USD, crypto will start being priced in USD.
Anyone who claims that Bitcoin can be a "global settlement layer" doesn't understand Bitcoin.
As is, Bitcoin can be "hacked" by someone who controls a lot of hashpower; by "hacked" I mean that person could cancel the transactions he wants, provided that they're not too old.
This is known as a "51% attack", and the principle is that you perform a big transaction (wire 10,000 BTC to an exchange, sell them & cash out), and use your own hashpower to build an alternative string of blocks, starting with the one containing the block with your transaction.
Once you've cashed out your transaction, you start propagating the blocks you've calculated in secret. If your string of blocks is longer than the string of blocks that has been produced organically by the network in the time it took you to cash out, your "hack" was successful.
Chainalysis is doing a tremendous job in convincing everyone crypto isn't being used by criminals.
Their "less than 1% of crypto transactions are criminal" claim has been relayed thousands of times in the crypto & mainstream media.
Of course, this claim is weapons-grade bullshit.
First, their numbers are based on "proprietary methodology". You basically need to trust a company 100% focused on crypto that crypto is legit.
Second, when they say that "x% of transfers are criminal", what they actually mean is "we managed to flag x% of transfers as criminal".
Chainalysis doesn't say what total percentage of transfers they manage to classify. So if they flag 1% as criminal but only manage to classify 2% of all transfers, that's really, really bad.
As a point of reference, in 2019 they classified $20B of transfers as "criminal" - ...
A lot of people, some of them extremely smart and knowledgeable in fields other than finance, believe that there isn’t much difference between Bitcoin and stocks or any other financial asset as an investment because “you need someone to buy it from you” in both cases. A thread.
When you buy a stock, the reasoning goes, you do it because you expect you’ll sell it to someone else at a higher price. It’s exactly the same as for Bitcoin. Hence, it’s the same game, right?
A stock is a share of ownership of a company. This company has assets.
This company has people working hard to generate profits that compound to its assets. Think of your stocks as a claim on a percentage of a bag in which the company’s employees are putting the money they earned for the company every quarter. The bag gets bigger and more valuable.
I woke up early this morning & stumbled upon Seetee's "letter to shareholders" and oh boy is it an alphabet soup of nonsensical Bitcoin memes.
To quote Wolfgang Pauli, "it's not even wrong"
I guess Nic Carter must have had a strong influence over whoever wrote it.
Let's dive in.
TL;DR: "I've watched Bitcoin go up tenfold in a year and that gave me confidence that it's very valuable so I jumped in".
Of the 19 advisors that were consulted, only one, Mike Green, is a critic, and also the only one who understands finance and doesn't have a vested interest.
Let's start with the "Bitcoin is like the early Internet" meme. The letter references Tim Berners Lee - maybe they should have talked to him. Since Tim said 6 years ago that Bitcoin was getting ahead of itself, the number of daily transactions has barely gone up threefold.
The meme of Bitcoin as a hedge against inflation and central bank money printing is stupid and perfectly tailored to stick in the brains of financially illiterate bagholders.
First, it seems intuitive that inflation should push Bitcoin up, as everything goes up with inflation.
Except Bitcoin isn't bacon or milk, it's a financial construct. Not all assets go up with inflation. Bonds go down with inflation as interest rates rise. Stocks can go down with inflation if input costs exceed the company's pricing power.
Bitcoin's input costs would rise.
Bitcoin costs money to exist - it needs ASICs and electricity, and those will definitely go up with inflation. Of course miners are free to reduce the hash power to counter-balance that, but then the security of the network will decline, so how is that good for the price?
Remember when Paul Tudor Jones invested in Bitcoin, in May 2020? In his letter to investors, he explained that Bitcoin would be a good "hedge against inflation and money printing", without going into much specifics.
But he did one very weird thing. He didn't buy Bitcoin.
Instead, he bought Bitcoin futures. That's very, very weird for one reason - Bitcoin futures have a very negative carry as their term structure is in contango. A Bitcoin future a few months out costs much more than Bitcoin spot, and PTJ was willing to give up that spread. Why?
Some said that it was "easier than buying Bitcoin", but come on - a multibillion dollar hedge fund can figure out how to buy Bitcoin and store it in a wallet.
I can tell you that in funds like those, an army of PhDs spends their days figuring out the best way to make every bet.
Nic Carter still tries to spin Bitcoin's mind-numbingly stupid energy and cash burn as a "debate". It's not a debate: Bitcoin's energy energy and cash burn is mind-numbingly stupid.
Let's dissect the desperation of a hypocrite who's backed into a corner. coindesk.com/frustrating-ma…
The opening salvo sets the tone.
Nobody's debating if it's worth to spend "any" energy on Bitcoin. Sane people are simply saying that it's stupid to spend 100+ TWh/year because it's an insanely large amount and much more efficient systems could be set up to the same effect.
Then there's the assumption that Bitcoin is, or enables, "a non-state monetary system" and "sound money". It's not, and it doesn't. Bitcoin, in itself, is just a database - a distributed ledger, like tens of thousands of other databases, only much slower and more expensive.
Michael Saylor's stated strategy to load up $MSTR with debt to buy Bitcoin is a mathematical guarantee of bankruptcy.
Remember $XIV, the "short volatility" ETF that went bust when the VIX jumped 100%? HSBC had written in the prospectus of the fund that was going to happen.
In the case of $XIV, you knew that an event where the VIX goes up by 100% in a single day is very unlikely, however, over a very long period of time, it's a certainty. Let's say the probability of that happening on any given day was only 0.1%. This means that the probability...
of it NOT happening is 99.9%, on any single day. But if you intend to hold your ETF for longer periods, the probability of the ETF not going bust over 10 days is down to 99% (99.9% ^ 10), over 100 days - down to 90.5% (99.9% ^ 100), and over 1000 days - down to 37%.
I've been ranting about this for almost 2 months now.
To answer all those who are asking "how can I arbitrage this", the answer is, you can't.
Because the SEC doesn't want a Bitcoin ETF, it only allowed $GBTC to exist with one huge caveat: it's a closed-end fund.
A consequence of that is that $GBTC can't redeem shares. They never got that "exemptive relief" from the SEC (excerpt from their IPO prospectus below). Which means that you can buy $GBTC at a discount to NAV feeling smug, but what are you going to do if the discount goes to -30%?
The only way to milk a discount is to buy a very large stake in $GBTC, and then vote to liquidate the trust in the next shareholder GA - you'll then get your bags of Bitcoin. But then the market will know that you got a crapload of Bitcoin that you probably intend to sell.
Grayscale Bitcoin Trust premium cratering, now trading over 4% below net asset value. Tens of billions of $$$ are trapped and can’t get out. No buyers.
You can manipulate prices on unregulated exchanges with scam stablecoins. On real markets where you need real USD, not so much.
Grayscale Bitcoin Trust premium -5.2%.
Getting uglier every day.
FYI Grayscale stands for half of all "institutional money" in Bitcoin, as per Goldman's research. And now those institutions are getting buttrekt. How will this attract more bagholders? It won't.
Now the $GBTC premium is -7%. Barry Silbert managed to leverage mild retail buying into a “smart money” stampede by selling them the idea of arbitrage - buy at NAV, sell to retail suckers at a premium. It worked well until people tried to cash out - a recurrent theme in crypto.
Crazy how Tether Leaks stopped overnight.
Originally, I had 3 theories: 1. They are legit. 2. They are fake, produced for the lols. 3. They are fake, produced by Tether to discredit Tether Truthers.
We can rule out 2 because of how messy they were. If I had to fabricate emails,
I wouldn’t chose as a recipient a little-known “Nancy” that hasn’t worked at Deltec since 2017. I would pick someone high up the food chain.
This leaves “legit” and “fake, to discredit Tether Truthers”.
Are they legit? The leakers said that they want to talk to a journalist.
But every journalist I know passed. They didn’t have any inside information - everything they published could have been found online.
This leaves us with one source for the fake leaks: Tether itself.
They’ve already used fake accounts before, to discredit @Bitfinexed.