2021.19 -Drama
TLDR:
Fuck Elon. We have bigger fish to fry. Oh, and fuck Tether too.
THE STANCE
My personal opinion on where the ball might be heading.
The difference between a trader and a truly prescient investor is having the courage to let your winners run until you reach the logical conclusion of the investing thesis that prompted the initial investment. That requires not just tactical trading acumen, but a macro belief in a theme or regime that powers the asset’s long-term returns.
—Arthur Hayes, Grow Up or Blow Up
Elongated
I’m not sure what prompted Elon to get into Bitcoin in the first place but his brief affair started skidding on Wednesday, hit the wall hard and by Sunday had turned into a blazing fireball that would have put a malfunctioning Tesla to shame.
There’s no coming back from this one for Elon.
The first important thing to understand is not just that Elon’s take is wrong but that he knows it’s BS.
Like Andrew Tate points out, it would be ridiculous for Elon —as an electric car maker— to say “electricity for car good, electricity for money bad”
This was obviously not a concern when he prompted Tesla to invest $1B and since the “miners boiling the oceans” FUD has been around forever. There’s no way he /his team didn’t look closely at the claims while their due diligence for Tesla’s investment —it’s worth noting that he clarified Tesla was not selling their Bitcoin.
If he had really been concerned about Bitcoin’s energy usage, wouldn’t he have asked Michael Saylor?
Here’s an 8-min video with what Saylor would have responded:
The second important thing to consider is that Tesla relies heavily on government subsidies to stay afloat, and recently signaled an interest in entering the renewable credit market:
The third thing to understand is that this could have been a calculated move to make Bitcoin’s price dump before its next leg up.
The final straw came when Elon tweeted that he was working with Dogecoin developers (lol, there’s basically no such thing) and then posted a completely asinine take on how Dogecoin could become a real green, more efficient alternative to Bitcoin
His proposal is akin to saying that his rockets should be propelled by cow farts solving climate change and transportation to Mars in one go, and by the way, he’s working with his cousin on a great idea for bottling up cow farts.
It would be a cute take from a 10-year old but it betrays either malfeasance or blatant ignorance about the tradeoffs involved in a blockchain. Regardless of what his true intentions were, the effects were noticeable:
Needless to say, Bitcoiners were not pleased. Even Doge’s creator (Palmer Lucky) who has been largely absent from Twitter reemerged briefly to make it known he was not on board:
All of this was already bad. But it did not end there.
Peter McCormack wrote a solid thread calling Elon out with well though-out arguments, his response was that of a churlish child.
Around the same time Michael Saylor also tweeted at Elon cordially, inviting him to reconsider his position, but the “Technoking Imperator” responded with an attempt to demean Saylor.
We have wasted enough time on this: Fuck Elon.
Jack Mallers —the brilliant young man who is using Lightning to reshape the global financial landscape as we speak— chastised Elon in a phenomenal thread:
It’ll be interesting to see if Elon starts putting his billions to work pumping Doge or chooses to leave behind a destitute army of followers once he absconds to Mars.
In the meantime, Bitcoin is on sale and I suspect that it’s partly due to this week’s Tether news, read below in the CRYPTO WARS section.
LONG BITCOIN
Recent news that keeps me bullish on Bitcoin —"long / bullish" means you have the expectation something will rise in value.
Bitcoingram
MoneyGram is partnering up with Coins to offer its customers Bitcoin ATMs at some locations. An interesting start.
Fundamentals
Despite the bearish news this week, Bitcoin’s fundamental proposition remains unchanged and the clear signs of inflation only underscore the importance of having insurance against out-of-control monetary policies.
They say “be greedy when others are fearful.”
CRYPTO WARS
crypto- | ˈˌkrɪpˌtoʊ | concealed; secret.
The monopoly over fiat money will not be given up without a fight.
Joining the Club?
There’s always a stir when someone famous first jumps (or seems to jump) into Bitcoin. Often these stories have disappointing endings.
This week we saw two":
Facebook’s Mark Zuckerberg announced he had two goats named Bitcoin and Maxi respectively.
A lot of people tweeted excitedly about how Zuck would soon reveal a massive BTC position.
Me? I have an open $20 bet that he’s going to slaughter those goats himself (as he does) and feed them to some Bitcoiner acquaintance.
There was also Tom Brady going Laser Eyes™, but then he may also be doing an NFT thing? Happens all the time.
Tether Woes
I’d like to thank Alexander Cortes for bringing this to my attention. I’d glanced through Tether’s report and dismissed it, thinking mistakenly that Tether FUD had been buried for this cycle. I was wrong.
If you are already aware of Tether, skip ahead to “The Problem”
For those of you who tuned in after Bitcoin breached $20k, here’s a quick summary:
Tether is the largest “stablecoin” —a cryptocurrency that tries to retain a stable exchange rate, in this case 1 Tether = 1 USD.
There are multiple reasons why stablecoins are useful, speed and low regulatory friction being two important ones. Stablecoins allow traders to move virtual-USD between exchanges quickly even if those exchanges can’t accept USD directly (because they don’t meet the necessary regulatory requirements).
Tether also became a practical tool for people who wanted to skirt various regulations in different countries. So there’s always been an air of opacity and shadiness around Tether.
Theoretically, Tether’s promise was that they would always have full backing —which means $1USD in the bank for every Tether printed.
Early on, this promise came into question. Skeptics rightfully pointed out that there was no way to verify wether Tether’s “fully backed” claim was true and there was at least one instance in which it became clear that Tether was not fully backed.
Eventually Tether and its parent company Bitfinex came under investigation by the NY Attorney General over allegations that they’d tried to cover up $850 million in losses.
“These companies obscured the true risk investors faced and were operated by unlicensed and unregulated individuals and entities dealing in the darkest corners of the financial system.”
— New York Attorney General Letitia James
The two-year investigation was settled in February of this year with Tether admitting no wrongdoing and agreeing to an $18.5 million payment and to issuing quarterly transparency reports.
The Problem
Is Tether being created out of the blue to pump the price of Bitcoin?
If Tether is not backed 100% by cash, what is it backed by?
The first of these questions became a furious debate back in 2020, before Bitcoin breached $20k and Michael Saylor started his campaign to drive institutional adoption. The short answer appears to be a rather definitive NO, Tether is not created out of thin air to pump Bitcoin. A lot has been written about this, Dan Held offers a good summary in his piece: Don’t Fear Tether.
The second question gets more interesting. Unfortunately, the short answer is No, Tether is NOT fully backed by cash.
Tether released their first Reserve Breakdown and —beyond the Elon drama— it could be a big part of why Bitcoin has been dumping these past few days:
This is the reserve breakdown that Tether published. Click on the image to go to the original link.
In their amateurish, 2-pie-chart report, Tether offers a “Cash & Cash Equivalents” category, representing 75% of their reserves. Which means Tether is 75% backed at best. Drilling down we find that actual cash is less than 3% of reserves with another 2.2% from the T-bills portion. If you are feeling generous you can also add the 10% from “Corporate Bonds, Funds and Precious Metals” to conclude that Tether’s backing consists of 15% “real money” and 75% is backed by “sumthin sumthin”. Nocoiners rejoiced at the news:
Tether’s situation is doubly unfortunate because it could have been easily avoided if discipline had been able to supersede greed.
Caitlin Long (an industry treasure) explains why it’s both inappropriate and stupid for Tether to have introduced credit risk into the reserves that were supposed to back its peg. And she drives home the point that —not only does the market already have access to other stablecoins than Tether— thanks to Wyoming’s forward-looking legislators, the market will soon have access to stablecoins issued within a legal framework that will make it impossible for them to be anything other than 100% backed.
Greg Foss —who should be in your radar given his broad experience and insight in the bond markets— responded thoughtfully to Caitlin’s thread.
I interpret his thoughts thusly:
Tether risk is tied to fiat risk, your bank is probably in worse shape than Tether. If credit risk starts to spread (contagion) with corporations defaulting and causing others to default, your only insurance option will be Bitcoin. So some of the very conditions that could drive Tether to fail would drive Bitcoin to thrive.
In conclusion: Tether remains a shady operation operating cowboy style and is best avoided, it’s likely the current dump is due in part to the market discounting Tether risk, but Tether does not represent an existential threat to Bitcoin. Anyone using Tether today is cognizant that it comes with risks.
There are already other stablecoins that are less risky than Tether and the number and quality of competitors will only improve with time.
SHORT FIAT
Recent news that makes me bearish on the legacy financial system —"short / bearish" means betting it will go down in value.
Surprised?
The Fed was surprised by high inflation numbers.
Really? Maybe it’s just me, but it seems they should get out more.
The Setting Sun
It’s no secret that the USD’s tenure as the world’s reserve currency is not guaranteed to be permanent. Indeed the increasing cracks in its foundation are increasingly visible. Here’s Druckenmiller’s take on it:
PRICE DISCOVERY
This is the section where I talk about price with an updated weekly price chart. If this is your first time here, there’s a “how to interpret” guide below the chart.
Falling off the Board
Bitcoin fell off the board, this week will be about seeing it struggle to get back on or possibly fall further.
How to interpret the Bitcoin Surfing chart:
Think of Bitcoin's price-action as a kite-surfer:
Bitcoin uses its board to stay above water and wants to catch some air.
When it catches air, it tends to keep rising but if it rises too fast (it's feet no longer touch the board) it can stumble.
If it falls off the board, it tends to keep falling until it regains its footing (may need to touch water or sand for that).
Water and sand arrest the fall and help it push itself back up.
If it goes up so much that it gets close to (or into) the Stratosphere, it will probably crash down all the way into the sand and may need to tap the bedrock level before pushing up again.
Dip Fishing
I thought I’d already retire my “Dip Fishing” chart from a month ago, but it’s still proving useful, I added the 200 day Moving Average (rising blue wave). Previous bull runs have had several “touches” of the 200MA, we've yet to see one this cycle.
People often complain that “Bitcoin is too expensive” and say they would buy if it were cheaper.
This is that moment. Bitcoin is on sale right now.
Are you loading up?
Each candle in the chart represents one day.
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