Now that $20,000 #Bitcoin is in view, perhaps it is time to revisit this thread from exactly a month ago (https://twitter.com/harrigan_pete/status/1318272524182958080). Oddly enough, it seems to have held up fairly well, even though there is a lot left to play out.

Anyway, here it is:

Are Michael Saylor and Jack Dorsey lighting the fuse for a #bitcoin melt-up? Will there be a feedback loop like the feedback loop that melted down real estate in 2008?

To clarify, a positive feedback loop can push things up or down. It is any process where the result of the process drives the process. …


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We were making progress toward equality. What changed?

At Grey Swan we welcome an honest discussion regarding inequality. If we wish to talk meaningfully about inequality, we can’t ignore changes to our monetary system, and how those changes inherently favor some of our population at the expense of others.

While recent events have shifted the country’s focus toward the very real challenges facing African Americans, we believe the largest source of economic disparity is being ignored. Sound money, return to American manufacturing, reducing regulation, can do more for solving inequality than political statements, but these changes would threaten the most powerful parts of society.

Progress Stopped in 1971

In 1947, the average black American income in the U.S. (Census Bureau uses the term “Black” Americans in its data reporting) was about half the average white income. By 1973, almost 40% of that gap had closed. …


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Volatility has shown no signs of slowing.

As Bitcoin heads into the halving, we enter a new phase. In the distant past (2011), mining could still take place on the desktops of a few hobbyists. They were smart, technically adept, and years ahead of most of us. But they did not need to plan for large scale spending and the attendant financial risks. Over the last decade, we have seen tremendous innovation in mining technology and methods.

But as the block reward is cut in half and as prices reach previously unseen levels, mining will require higher levels of capital and commitment. Whether in the form of new, well-capitalized players just entering the mining market or veterans whose budgets have grown through their block rewards, next phase miners will operate on a financial scale that calls for professional risk management. …


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Try to build here. I dare you.

Plan₿,@100trillionUSD on Twitter, (or PlanB, if you are an iPhone browser and can’t see the ₿) has announced his updated stock to flow model, transforming it into a cross asset model. For those not familiar Plan₿’s excellent and extensive work on stock to flow and its relationship to the price of Bitcoin over time, you can read his most recent article here. To simplify (or, more accurately, oversimplify), Mr. ₿ (or is it Mr. Plan?) proposes that there is a correlation between the market capitalization of Bitcoin and the ratio of existing Bitcoin to annual production of Bitcoin. …


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Really not real…. yet.

The President has put together a task force on re-opening our economy, and that’s obviously a step in the right direction. But it won’t be as easy to restart this engine as many believe.

In many cases, supply chains have been interrupted, bent if not broken altogether. In some cases, farmers are having trouble selling crops as restaurant demand has disappeared. At the same time, a major pork processor in the U.S. just shut, threatening consumers’ ability to buy meat.

Even when businesses do re-open, how ready will people who were so recently unemployed be to spend? …


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Can you figure out how to do it?

On March 25th, 2020, Pershing Square Management released a letter to investors. In that letter, they revealed that they had hedged themselves, quite effectively, against the decline the markets recently suffered. While many hedge funds were writing painful letters to investors, or avoiding writing letters at all, this one was probably fun to write.

The hedges put in place by Pershing had cost $27 million in premiums and commissions. At the date of the letter, Pershing had closed out the positions for a gain of approximately $2.6 billion. According to the investor letter, these gains offset all the losses Pershing’s portfolios had suffered. And, with a pile of new cash, the firm was able to acquire new investment at bargain basement prices. Not bad for a few weeks.

Knowledge and Access

The instruments Pershing employed in their hedge were, to put it mildly, sophisticated. They purchased protection on various credit indices, both investment grade and high yield. Is that something you or I can do?

Assuming you saw the danger to markets from the Coronavirus, could you protect yourself the way Ackman’s firm did? First, you would need the knowledge of how to execute such trades. You’d need to identify the indices he used and the time frame. Given the returns that were generated here, roughly 100–1, the credit protection purchased must have been relatively short-term. If not, the premiums paid would have been higher. So, the execution and timing must have been close to flawless.

Second, if you had the knowledge, would you have the access? These contracts are traded between financial organizations that have a signed ISDA master agreement in place. So, for most of us, no. There are other instruments out there for the rest of us. You could buy puts on ETFs or on stock index futures. (Personally, I made some well-timed if woefully inadequately sized put purchases.) But you most likely do not have access to the best instruments. And, if you are a small or medium sized business hoping to hedge against risks to the price of what you produce or sell, you’re pretty much out of luck.

A Practical Solution?

At Grey Swan, we have been developing a model that would bring the benefits of top level knowledge and access to everyone.

Our solution is highly intuitive. It is visual, employing the sort of drag-and-drop technology we are all familiar with after spending decades on the Internet. And it is incredibly simple.

It is bounded and safe. All solutions have a predetermined costs and end points.

It is easy for financial providers to launch trading in new indices. The tech is asset agnostic and does not care what you trade. So fields that have no options for price protection can be addressed easily and cheaply.

The Solution in Practice

Imagine you are a medium-sized business exporting a product. Let’s pick something simple for our example — call it steel. This is not to suggest steel production is simple, but at least I can visualize it.

You are concerned that the price might decline. This would represent a loss on all the inventory you own. Further, it would mean a reduction of future revenues, revenues you need to pay employees, rent, insurance, and any other of your firm’s fixed costs. …


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The novel Coronavirus has shown that our current system, that relies on experts at the top, lacks either the skill or the inclination to protect us — our jobs, our savings, our lives. Yet, we give this system approximately $4.9 trillion every year to do just this. For this money, it has missed obvious risks, over and over. And it continues to ignore future calamities.

How much longer do we lend legitimacy to this system of experts that don’t work for us?

What Color Are All These Swans?

Should we really blame this system of experts for a crazy black swan event like the Coronavirus? Well, if it were truly a Black Swan, probably not. But a Black Swan is not merely an unforeseen event, it is an unforeseeable event. This particular swan is, to use Nassim Taleb’s categorization, grey. That is to say, it is a risk we absolutely knew was out there. …


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Let down by a system of experts that had promised competence.

The novel Coronavirus has shown that our current system, that relies on experts at the top, lacks either the skill or the inclination to protect us — our jobs, our savings, our lives. Yet, we give this system approximately $4.9 trillion every year to do just this. For this money, it has missed obvious risks, over and over. And it continues to ignore future calamities.

How much longer do we lend legitimacy to this system of experts that doesn’t work for us?

What Color Are All These Swans?

Should we really blame this system of experts for a crazy black swan event like the Coronavirus? Well, if it were truly a Black Swan, probably not. But a Black Swan is not merely an unforeseen event, it is an unforeseeable event. This particular swan is, to use Nassim Taleb’s categorization, grey. That is to say, it is a risk we absolutely knew was out there. We did not know when it would hit, but we knew it would eventually. …


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Going from hard to easy

Think what Apple did for the “home computer”.

Before Apple, the industry made kits for hobbyists. Many believed these kits represented the future, somehow. But the average person had no idea how to use them and for what. After Apple, computers became accessible. Anyone could put their hand on a mouse, and do interesting and useful things on the screen. Uses flourished and users grew.

Coinbase started us down this “Apple path.” Buying or selling Bitcoin on Coinbase is very simple. But that’s kind of all. …


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Kraken chart showing the price of Bitcoin rallying to $12,000 then falling to $8,000 before returning to $10,300. Or maybe the other way around. No way of telling.

The magic candle

On September 13, 2019, a very strange bar appeared on the chart of the Bitcoin price on the Kraken exchange. It looked as though the price of Bitcoin had fallen, within the day, from around $10,250 all the way to $8,000, then rallied to $12,000, then returned to $10,250 or so. Or, perhaps, it went up first then came down. It was impossible to know because, as one began changing the time scale on the chart, from daily to hourly, from 5 minutes to 1 minute, the bar looked the same. The high was $12,000. The low was $8,000.

And that’s all we knew. There was no news out of the exchange. I, personally, saw some discussion on LinkedIn and Twitter, but nothing more came from Kraken all day. …

About

Peter Harrigan

CEO and co-founder, Grey Swan Digital. Co-founder, Sentient Technologies. Former trader at CME, Pacific Exchange.

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