Tether FUD (Fear-Uncertainty-Doubt) continues, most recently with highly respected commentators such as Grant Williams weighing in and ascribing a high likelihood of the stablecoin being under-reserved and possibly fraudulent.

In this note we’re going to look at the claims and try to evaluate what effect it could have on our crypto investments it if it turned out that Tether was, in fact, a complete scam.

Tether is the first “stablecoin”, which is a digital currency that endeavours to maintain parity (a peg) with its counter-party instrument: the US dollar.

1 Tether (USDT) should equal $1 USD. There is constantly varying degrees of slippage around this (and any other stablecoin)

Tether is the third largest digital currency by market cap, at around $63B USD. Note also that I keep calling Tether “a digital currency” and not a crypto currency. This is because there is no Tether blockchain and USDT’s are not mined, they’re “minted”.

Ostensibly, Tether receives USD from depositors and then “mints” a corresponding amount of USDT and puts that into their depositors’ account.

This is where everything gets funky.

The depositor then takes that USDT on whatever ecosystem they’re in (these days mostly Ethereum or TRON) and begins moving it around to where they want it to be. They can buy Bitcoin with it. Or Ethereum. They can stake that USDT into myriad Decentralized Exchanges (DEX)  platforms like Sushiswap, Aave, etc, or even stake it into more complex yield farms and liquidity pools like Yearn, Curve, Compound, et al.

And they can earn yield on that. More yield than can be earned out in the legacy world. 5%, 7%. With some of the more complex DeFi strategies you can get north of 10% and if you want to go full “degen” (short for “degenerate”) you can ostensibly bag APRs in the triple digits.

Contrary to Bitcoin or Ethereum, where we know the providence of every single unit, we don’t know anything about Tether.

Every BTC or ETH mined is accounted for and visible. Every single transaction they’ve ever been a party to is logged to a public blockchain that anybody can access. And it’s all executed using protocols laid out in open source software that anybody can download and read.

But nobody really knows for sure where these Tethers are coming from or what happens to the assets backing them from which they are ostensibly reserved. Nobody knows for sure if newly minted USDT have any backing at all.

For all we know, and what people like Crypto Anonymous, @Bitfinexed, Bennett Tomlin and George Noble are alleging, is that Tether just pulls this stuff out of thin air.

If Tether is just minting USTD out of thin air and then using it to buy up Bitcoin, Ethereum and any other assets they can, then that’s a problem (and it’s also an exact microcosm of what central banks have been doing with intensified zeal since 2008).

The original Crypto Anonymous article (linked above) plotted Tether issuance with the rise in the value of Bitcoin and it does look quite bang on

However it is worth noting some of the key moments in crypto as it plots against Tether’s market cap over the course of 2021 after the Bit Short came out.

Tether starts out the year with $21B USD market cap. By the time Bitcoin hits it’s all-time-high on April 14th, it’s more than doubled to $46B, while Bitcoin has also more than doubled, starting out the year at $30K USD and peaking on the eve of the Coinbase IPO a little north of $64K USD.

Then Bitcoin levels off and starts falling, while Tether issuance keeps right on going. What else keeps right on going over this same period?

Ethereum. The price of ETH was $730 USD coming into 2021, by April 14 when BTC peaked it was at $2,436 USD. Ethereum itself peaks out on May 10 at $4,168 USD, and then crashes all the way down to $2,109 on the 22nd.

At this point, Tether issuance levels right off and has been flat ever since, while the  cryptos have been trading down and sideways (although this may be in the process of ending, as we speak).

Tether continuing higher as Bitcoin enters a correction is a similar dynamic to what happened in 2018, after the cycle high in December 2017, as noted in the Schrödinger’s Coin note. This is the point when Tether’s banking relationships were being terminated, and so the thinking goes, USDT was never fully backed after that point (if it ever was). Tether issuance continued to climb higher while BTC entered a bear market.

Now, in today’s case, can $40B in Tether issuance, fraudulent or not be solely responsible for a half-trillion in market cap in the case of Bitcoin and another, call it $380 Billion in Ethereum over the course of the year?

Granted, the free-float for Bitcoin and Ethereum are smaller than the circulating supply, and I’ve seen estimates as low as 2 million for BTC. Could a net 34 Billion inflow of Tether generate a lift somewhere north of 60B worth of the increased price of  BTC and some comparable lift in Ethereum?

The correlation is apparent. However could it also be plausible that Tether is running a similar market dynamic as cryptos in general? As enthusiasm and exuberance built over Q1 2021 did institutional depositors go into Tether more as did others into cryptos in general? Is Tether’s sideways motion it’s equivalent of a “bear market” which doesn’t manifest in a falling market cap because of that ostensible (albeit possibly fake) peg to the USD?

This is a separate question from whether it’s all a scam or not. Here we’re trying to tease out whether Tether is driving the crypto bull markets or a beneficiary of it.

From the Crypto Anonymous note:

“it still didn’t prove that Tether issuance was causing Bitcoin’s price increases. It was still possible that retail demand for Bitcoin was driving real USD into Tether Ltd. through some unknown mechanism; that Tether Ltd. was issuing Tethers in exchange for those dollars; and that those issued Tethers were then being used to buy Bitcoin. Under that scenario, Tether’s rise was being caused by Bitcoin’s demand, and Tether might be fully backed by dollars after all.”

This speaks to the two different questions. Where Crypto Anonymous seems to believe it’s either/or (Tether is fully backed and a beneficiary of the bull market, or it’s a fraud and driving it). But it seems possible to me that both could be true: Tether’s rise could be part of an overall crypto secular bull market and Tether could still be fraudulently padding their accounts by minting new, unbacked USDT. Perhaps aggressively so.

Grant williams enters the picture

Grant Williams was a co-founder of Real Vision who eventually parted ways with the company and it was taken over by Raoul Pal, the latter of which has gone “all in” on crypto. Williams, not so much.

Williams is a highly respected investment and finance commentator, who puts out a high signal, high quality premium letter called Things That Make You Go Hmmm to which I’m a subscriber. He does a fantastic podcast with Bill Fleckenstein called “The End Game”. Fleck and Williams are both crypto skeptics but I find it refreshing and useful to pay attention to well-reasoned skeptics. People who can put forth coherent arguments around why they don’t believe the crypto thesis, as opposed to shrill hysterics who are blinded by their own ideological biases.

The most recent newsletter edition titled Schrödinger’s Coin was a deep dive into the Tether phenomenon specifically. TTMYGH is behind a paywall, but he released this one publicly.

The note synthesizes the work done by Tether skeptics such as @Bitfinexed, Bennett Tomlin, George Nobel among others. The research these people have done on Tether, and its non-arm’s length “partner in crime” Bitfinex is formidable. From a smaller group of activists, I’d say it rivals the output, at least in terms of signal and quality, of the $TSLAQ collective (note that Williams is also a Tesla skeptic, as am I).

The problem, in a nutshell, and my own less intensive examinations around this arrive in the same place is that “Tether is a $60 Billion pile of liquidity that collateralizes a whole bunch of futures and leverage embedded in the crypto currency system”.

In the course of researching this, I’ve come to a slightly different conclusion that the case for Tether being a fraud may be essentially correct, and the ramifications of that culminating in a Tether Crisis would be significant and non-trivial, but they are not existential.

After the newsletter came out, Williams hosted a podcast with Bennett Tomlin and George Nobel to discuss. I came away from it persuaded that Tether could very well be a scam. I make little use of stablecoins but when I do I prefer Circle’s USDC instead, which is going public in the US soon and theoretically running a more transparent and regulatory kosher operation.

In the interview George Nobel used a “Bitcoin casino” analogy where participants used chips (Tethers) to go gamble in the crypto casino and then realize that when it comes time to cash out the value earned won at the gaming tables, the underlying chips themselves are worthless:

“Imagine we go to a casino, we go to Grant Williams’ casino and we want to play the game. So Bennet and I go to the Grant Williams casino and we go and buy a thousand dollars worth of chips. And then, we’d go play the games. We go play Bitcoin and Dogecoin and whatever coin. And at the end of the night, we have whatever we have. Let’s say we broke even. We have $1,000 worth of chips. And we go back to the window, and Mr. Williams is behind the window, and we say, “Can we please have our fiat back. Can we have our dollars back.” And they’re like, “Hmm, slight problem.” “What do you mean?” “Well, we don’t have the dollars.” And so then everyone on the casino floor realizes that they think they’ve got whatever, how many chips they have in their pockets, they think that’s real money. Well, turns out it’s not good for anything. So that’s really the simplest analogy I can give.”

That analogy is flawed because it assumes that the only egress out of the crypto casino is via the cashing out the worthless chips (Tether). But that isn’t the case at all. People wanting to convert the value held in Bitcoin or Ethereum into other instruments have a plethora of ways to do that – they can go into another crypto, some other stablecoin, or settle directly into cash on an exchange.

However, think about the following. Let’s pretend nobody is worried about Tether right now but that someday people become worried about another instrument that is seemingly printed at will out of thin air with no backing in increasing volumes. Let’s call that instrument a “dollar”.

Now imagine people trying to convert their dollars into anything non-dollar by putting it into cryptos, real estate, the stock market and then one day (“gradually, then suddenly”) confidence in the dollar collapses entirely and it becomes close to worthless.

What happens to the value of the assets that everybody bought using those dollars while they still held any value?

Will they also collapse to zero? No, in fact probably the opposite.

In the same conversation, Tomlin was talking about the idea promulgated by some that a collapse in Tether would actually raise the price of Bitcoin, as participants frantically attempted to dump Tether and move into something else:

“The people who say Bitcoin would go up as people try to get out of Tether might be partially right on the Tether exchanges. So what I would expect you would see in those cases is a huge premium open up between the price of Bitcoin on exchanges that primarily denominate in Tether, and the price of Bitcoin on exchanges that primarily nominate in US dollars. So on an exchange like Binance, where a lot of the pairs are against Tether, you might see people willing to trade absurd amounts of Tether for one Bitcoin, 10 million Tethers, 20 million Tethers, whatever, because everyone’s aware there is some risk of Tether.” 

Tomlin is describing the dynamics of a hyperinflation, perhaps without intending to. Again, substitute the word “Tether” with “Dollar”, and what are we looking at? A currency collapse.

What if it’s true?

Now, what if all that said, Tether is a complete fraud, and intrinsically worthless. There’s no collateral there to hold the peg, it’s all been spent on villas and yachts. Then what?

Tether is now in excess of $60 Billion and at least some of it is being used as collateral in various staking, collaterization and liquidity pools.

Right now there is $55 Billion Total Value Locked (TVL) into DeFi smart contracts on Ethereum, down from a record $90B back near the highs in May. While as much as 20% of Tether is locked in DeFi smart contracts on Ethereum, it’s estimated as much as 70% of Tether is sitting in centralized exchanges.

If a Tether Crisis occurs, it would set off a cascading failure of myriad DeFi applications as instruments collaterized in part by USDT would vapourize, causing a chain-reaction. An even larger liquidity shock would completely seize up the centralized exchanges, especially the ones with high levels of USTD reserves.

It would look like what happened across the entire space during the May crypto crash, except it might drag out for days or even weeks, if it turns out that Tether is more embedded into the crypto economy than most people thought.

However I think the ramifications of it being true that Tether could be a total zero are contrary to those who think it would mean the death knell for cryptos.

A Tether Crisis won’t kill cryptos. The crypto economy would take a hit, possibly a big one, and then it’s going to rebuild itself and keep moving forward. Ironically, that will all happen without any bailouts or regulatory interventions. Everyone involved is going to take full ownership for their own losses.  Imagine that.

In the end I think what Tether shows us are the dangers of being able to print value ex-nihilo and be able to use that as collateral or even currency.

Bitcoin maxi’s say that Bitcoin derives its value from the economic tradeoff involved in the energy needed to mine it, Ethereum is the same for now but after it moves to proof-of-stake one could posit the value is derived from the community and the market inertia of the ecosystem.

Even printing a digital currency out of thin air at whim and with no supply cap would be fine (in the sense of legal) but probably close to worthless. See: Safemoon.

But “minting” a stablecoin that is claimed to be pegged to some other asset, without being adequately reserved against it, would be fraud.

What is interesting to note is that if Tether is a complete fraud and what they are doing is essentially counterfeiting a fake currency peg, pay attention to what exactly is being counterfeit: they’re not pretending to mint Bitcoin because they can’t. Nobody can, which is entirely the point of crypto currency.

They’re pretending to mint a peg to fiat dollars, which are themselves backed by nothing and can be created at will, and using it to buy what? Cryptos.

Said differently, Tether tells us more about the flaws inherent in fiat currencies than it does about cryptos. Tether could be viewed as a microcosmic example of the USD being played out in fast-forward. When and if Tether implodes, we should watch carefully for hints of what could happen in a full blown USD (or any other fiat currency) crisis.

If / when Tether implodes and goes to zero, we may face yet another body blow that over time, cryptos will surmount and recover from. How much and how long depends on where we are in the cycle.

We deal mainly with crypto stocks which generally track the market, but for our readers who hold cryptos directly, we’ll review the defensive posturing so that we never get mangled in a liquidity crisis:

• • Don’t trade on margin (neither cryptos nor stocks)
  • Never leave your coins on an exchange.
  • Aside from speculative YOLO funds, avoid complex DeFi strategies that collaterize or rehypothecate your assets
  • Don’t hold any value in Tether. If you have to trade into USDT to get out of some exotic or thinly traded alt coin pair, immediately get out of it and move to some other asset.
  • If you have to make use of a stablecoin, use USDC or DAI.
  • I would specifically avoid Bitfinex and, Binance for different reasons, noting that Binance is also having regulatory issues in multiple jurisdictions
  • When using exchanges, use a known exchange in your own country. This is how I prefer it so (God forbid) should the exchange implode you are at least on home turf for any legal proceedings.    

What many crypto skeptics fail to appreciate is that increasingly more funds flowing into the crypto economy are intentionally on a one-way trip. They are going there with the intention of never being converted back into fiat. I see all of these weak points we just enumerated as indicative of the fiat world we are cashing out of of, not the crypto world we’re moving into.

When I really think about the effect a Tether implosion would have on cryptos, I suspect it will mostly depend on whether cryptos overall are already in a bullish or bearish cycle at the time it happens.

That is the nature of crypto, and markets in general. You can tell you’re in a bear/sideways correction when good news doesn’t do anything for the asset, and you can tell that you’re in a bull move when bad news is shrugged off.

Either way, the societal shift into crypto continues apace.

(This post was an excerpt from the premium version of The Crypto Capitalist Letter, which covers the global, revolutionary shift into the crypto economy with a tactical focus on garnering exposure via publicly traded crypto stocks. You can get a copy of the The Crypto Capitalist Investment Thesis for free when you subscribe to the Bombthrower mailing list, or cut straight to our trial offer of The Crypto Capitalist Letter).

]]> https://bombthrower.com/what-effect-would-tether-being-a-complete-fraud-have-on-cryptos/feed/ 2 https://bombthrower.com/were-in-a-bubble-thats-too-big-to-fail/ https://bombthrower.com/were-in-a-bubble-thats-too-big-to-fail/#comments Sat, 13 Mar 2021 22:27:19 +0000 https://bombthrower.com/?p=1997

I’ve been hearing the phrase “Everything Bubble” come up more often lately. This isn’t a new phrase, Graham Summers was among the first to coin it in his 2017 book “The Everything Bubble: The Endgame for Central Bank Policy”:

“The Everything Bubble chronicles the creation and evolution of the US financial system, starting with the founding of the US Federal Reserve in 1913 and leading up to the present era of serial bubbles: the Tech Bubble of the ‘90s, the Housing Bubble of the early ‘00s and the current bubble in US sovereign bonds, which are also called Treasuries.

Because these bonds serve as the foundation of our current financial system, when they are in a bubble, it means that all risk assets (truly EVERYTHING), are in a bubble, hence our title, The Everything Bubble. In this sense, the Everything Bubble represents the proverbial end game for central bank policy: the final speculative frenzy induced by Federal Reserve overreach.”

Most recently the idea of the Everything Bubble came up on Coindesk’s Breakdown with NLW edition about NFT’s and the record setting sale of Beeple’s The First Five Thousand Days for $69 million USD. I say this as a guy who has been into crypto since 2013 and is getting even more involved today: I don’t get NFTs. Or rather, it only makes sense why they’re selling for such excessive valuations when you consider it to be a phenomenon occurring within the dynamics of an Everything Bubble.

Endgame is another theme asserting itself, that’s what Grant Williams and Bill Fleckenstein call their podcast (it recently went premium, but the first bunch of episodes are widely available across all major platforms). In Grant Williams’ February newsletter (“Let Them Eat Risk”), he afforded a lot of coverage to Bitcoin, including a piece by Ray Dalio and Rana Faroohar’s “Bitcoin’s Rise Reflects America’s Decline” (originally an op ed for the Financial Times).

What struck me about her piece, and to a similar extent, Dalio’s, was this recognition that even if they hadn’t themselves embraced the idea of crypto, it would be a mistake to dismiss crypto-currencies as merely a speculative bubble. Said differently, even Bitcoin skeptics are beginning to understand that Bitcoin’s rise means something. It portends a shift. A big one:

“A little over 100 years ago, there was a bubble asset that rose and fell wildly over the course of a decade. People who held it would have lost 100 per cent of their money five different times. They would have, at various points, made huge fortunes, or seen the value of their asset destroyed by hyperinflation.

The asset I’m referring to is gold priced in Weimar marks. If this reminds you of bitcoin, you are not alone. In his newsletter Tree Rings, analyst Luke Gromen looked at the startling similarities in the volatility of gold in Weimar Germany and bitcoin today. His conclusion? Bitcoin isn’t so much a bubble as “the last functioning fire alarm” warning us of some very big geopolitical changes ahead.” (emphasis added)

The entire piece is quite good and I recommend reading it, she concludes:

“None of this makes me want to buy bitcoin. But I also don’t see it as a normal bubble. It was unclear at the beginning of the 20th century which of the hundreds of automakers would win the race to replace the horse and buggy. Now, who knows whether bitcoin, ethereum, or diem, or some yet-to-be-invented digital currency will win out long term. For now, the bitcoin boom may best be viewed as a canary in the coal mine…”

This resonated with me and reminded me of a comment left on my “This Time is Different: What Bitcoin Isn’t“ piece when it ran on Zerohedge back in 2017 (the ZH copy is behind their premium archive now).

“Bitcoin is a hole …in a burning building

I had the thought that Bitcoin is like a hole in the wall of a burning building. The burning building is the petrodollar. The Bitcoin hole in the wall doesn’t meet any standard definition of a door. It wouldn’t pass a building inspection and it may not last long. It will most certainly be replaced by something else in the long run. But in the short term, no one inside that burning building really cares about any of that and the ones that first smelled smoke are already pouring through it. Many more will follow and some, sadly, will die in the fire. There are other exits from the building too, some may be safer than others, but the most important thing is getting out of the burning building as quickly as possible.”

I’ve been pulling together numerous threads so far from disparate sources, many of whom are Bitcoin and crypto-currency skeptics, all of whom are people I think are worth following anyway because they’re super smart and put out extremely high signal content.

The last one I’ll pull in is where the title for today’s post came from. I heard Diego Parrilla say this phrase on the Macro Voices podcast, in an almost off-the-cuff manner. My brain did a sort of physical convulsion that is hard to describe but has only happened maybe a half-dozen times in my life. Maybe that’s where the expression “mind blown” originates.

He said “we’re in an everything bubble that’s too big to fail”.

It’s not an institution, it’s not an asset class, it’s not a political ideology, a social media platform or a monetary regime. It is everything. 

When you consider that, it explains why policy makers are behaving in the way they are. We’ve painted ourselves not into a corner, but into a bubble. There are no soft-landing scenarios out of which we can extricate ourselves from this bubble, and under no circumstances can this bubble be allowed to deflate, let alone pop.

I’ve been treating the rise of Bitcoin and gold as a flight out of fiat for some time. I’ve known that policy makers were motivated to keep the system on the rails for as long as humanly possible. None of this is new to me. But what really got me was that particular phrasing all of us being in a bubble that’s too big to fail.

It means in all of the language and trial balloons around The New Normal, the Great Reset, Build Back Better, the backdrop of desperation that seems to permeate it came into clearer focus for me.

Some kind of Great Reset is, in policy makers’ minds, the only way forward to get out of The Bubble. I looks like they want to do it in a way in which they get to  keep living like they’re inside The Bubble and still run the show, while everybody else has to get used to living life under a drastically reduced standard of living and submit to rapidly emerging social credit systems.

In other words, it almost looks like the plan to softly deflate The Bubble is to kick everybody who isn’t part of the establishment elite and its support systems, out of it.

It’s The Great Bifurcation, pulled forward about 20 or 50 years by a virus that would have otherwise been somewhere between a nothingburger and SARS…

“Even in the worst-case horrendous scenario, COVID-19 will kill far fewer people than the Great Plagues, including the Black Deaths, or World War II did… [but] changes that would have seemed inconceivable before the pandemic struck, such as new forms of monetary policy like helicopter money (already a given), the reconsideration/recalibration of some of our social priorities and augmented search for the common good as a policy objective, the notion of fairness acquiring political potency, radical welfare and taxation measures, and drastic geopolitical realignments.

The broader point is this: the possibilities for change and the resulting new order are now unlimited and only bound by our imagination, for better or for worse. “

— Klaus Schwab, experiencing near-fatal orgasm whilst pontificating in his COVID-19: The Great Reset

The escape valves from The Everything Bubble

But there are escape valves from The Everything Bubble, ones that can be used by normal everyday people who aren’t elites, who don’t get invited to Davos every year to “reimagine” everybody else’s lives, who don’t take private jets to work, who just want to be able to mind their own business, live their own lives and preserve the wealth they’ve worked hard and fairly to build up over their lives.

Those valves are to move out of the fiat money system and into “stuff” like commodities, real estate, agriculture, like gold and precious metals. And crypto. This is why all of these things are blasting off (Gold is less than 20% off of its all time highs. Crypto can dump more than that overnight. These two asset classes are not mutually exclusive, they are just on different wavelengths).

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Announcement: On March 17th the Crypto Capitalist Letter will launch. The focus is on navigating the New Normal with a focus on actionable items lincluding investing in crypto stocks.

With all due respect to the people arguing this one way or the other – many of whom are super intelligent. This argument is a self-defeating doom loop that can only be resolved via an act of faith.

Introducing your Economic Apocalypse Toolkit

With both Bitcoin and gold (and stonks, for that matter) at or recently off of all time highs the age old debate of whether gold is better than Bitcoin or vice versa is everywhere. I finally sat down and mapped out the Economic Apocalypse Toolkit after listening to Grant Williams and Bill Fleckenstein’s End Game podcast episode with Fred Hickey, who writes The High Tech Strategist.

In it they hit on the perennial question of “gold vs Bitcoin” and Hickey laid out his objections to it. I’ve been a subscriber of The HTS for several years now and think it’s absolutely fantastic, and of course I also subscribe to Grant Williams TTMYGH and Fleck’s newsletter as well. All great stuff, well written, from extremely intelligent people. I do get the sense that Williams is somewhat open to Bitcoin and he wants to talk about it and explore the idea that it may be something more than the usual tropes: a ponzi, based on nothing, Tulipmania, etc, but maybe he’s hesitant at prospect of taking heat for suggesting it.

I just find the entire debate pointless because people who invest in either asset class are doing so for the same reasons. They are reacting to the same threat, they see the same unsustainability, they are preparing for the same End Game, if you will.

Given that many of the people who see the underlying issues are of a capital allocator, long term mindset, why is this being thought of in terms of either/or and not in terms of probabilities and scenarios?

If the job at hand is to protect one’s wealth from systemically rigged and disintegrating monetary regime, arguing for one over the other feels like trying to defend against it with only half the available toolkit. Is there a mechanic who wouldn’t be caught dead with a screwdriver in his toolbox because he can give you a list of reasons why every problem can be solved with a wrench? “Screwdrivers for suckers!”

The entire gold vs crypto argument goes away when one realizes that there is more overlap in the objectives of each asset than there are differences. And if you can get your own biases out of the way, then even the differences when looked at objectively seem to have uncanny parallels

Gold has a 5,000 year track record, and has never failed to hold its value, which is quite impressive and has to count for something….
Bitcoin has broken out of nowhere and taken the world by storm in an astonishingly small amount of time, which is quite impressive and has to count for something…

Bitcoin is backed by nothing.
Gold is just a shiny rock.

Without electricity, Bitcoin is useless.
You can’t eat gold.

Quantum computing will eventually destroy Bitcoin’s encryption.
Asteroid mining will eventually make gold abundant and cheap.

Bitcoin is a ponzi.
What’s the definition of a gold mine? A hole in the ground with a liar standing beside it.

I could go on….

Since the future is unknowable and certainty elusive, aligning with one aspect of the above over the other has to be a choice not a fact. It’s an act of faith. So why not embrace agnosticism and make use of both sets of tools in your financial survival toolkit?

The Toolkit

Let’s just step briefly through some of the items in the mindmap. We have metals on one side, cryptos on the other.

On the cryptos side, I just think Bitcoin is the crypto-reserve currency and will continue to be for the foreseeable future. My preferred way to accumulate BTC is to earn it via my businesses. easyDNS has been accepting Bitcoin since 2013 and we’re developing a payments service for clients that will be based on BTCPayserver.

I put Litecoin and alts in there to trigger the maximalists. As per the Supersuckers song, “I like it all man. (All or nothin’ I’m all in even when I’m bluffin’)”.

Ethereum is different animal, I think the Bitcoin vs Ethereum schism is every bit as fucking stupid as Gold vs Bitcoin. They do different things, and while they overlap in some aspects, that doesn’t mean there should only be one path forward.

The way I think about it, Bitcoin is the value, Ethereum is the execution. When I hear people dismiss Bitcoin because “there is as yet no ‘killer app’ that anybody has come up with for Bitcoin” I like to ask them “what is the killer app for the money in your wallet?”. Do you want to be able to play video games on your money? Collaborate on a document with your coworkers before you spend it? Dollars or  euros aren’t dismissed as useless because nobody has come up with a compelling use case for them. You just spend it. That’s the use case.

Ethereum on the other hand, well that’s a whole different ball game. Smart contracts, DeFi, even Dao’s (despite early setbacks) will completely transform our lives. Ethereum, and other projects like it (Cardano, EOS, and even Ravencoin, which is actually a Bitcoin fork)  are going to provide ways to code parameters and instructions around value and wealth that will be guaranteed to execute and can outrun government overreach.

We’re now coming out of that “Trough of Disillusionment” I wrote about back in 2018 and we have actual companies, actual businesses and ways to derive income now in crypto. We can invest in miners, in crypto based publicly traded companies, we can stake our assets or lend them and earn a return on them. Multiple income streams available here so we actually have some ability to compound whatever wealth we’ve managed to port to the crypto-economy separate from any nominal gains garnered in fiat terms.

And of course, with crypto we have the ability to move capital, in figurative terms, simply by thinking about it. If Actual Communism comes to your habitat and the best you can manage is to get out with your skin and some pass phrases you’ve remembered in your head, you can retrieve some of your assets wherever you come up for air (read “We The Living”. Take it to heart. This is the fate we seek to avoid, and large chunks of the world are barreling straight at it).

On the precious metals side you have your physical metals which, if all goes well, you simply keep vaulted in various places and your currency never collapses and you teach your kids that they should preserve the hoard and only use it in extreme emergencies down the road. And to teach their kids the same. You have junk silver in case there is a currency crisis and you don’t want to have to carve off a piece of a Krugerrand in order to buy some food at the market.

You have some gold tucked away in international vaults like Bullionvault and Goldmoney. My cousins run TrustableGold.com which rates these places.

All of this stuff, especially on the crypto side, has to be set up in advance, and you have to know how to navigate these systems before TSHTF. When a mob of mostly peaceful democratic socialists are tearing through your town and burning down your homes and businesses, or when the government is hanging both goldbugs and HODL-ers from lamposts, you do not want to be learning how to set up a Monero wallet and frantically converting as much as you can into it, nor do you want to be just then opening your Goldmoney account and trying to wire in some funds.

It has to be ready now, so  when the inevitable Financial Repressions intensifies, or God forbid, the Financial Tyranny occurs, you can focus on executing your exit plans and coming out on the other end with enough capital and wealth to rebuild.

The missing link

What we really need are bridges between crypto-currencies and gold. Not metaphorical “can’t we all be friends” bridges, I mean gateways, tokenized/staked storage and transfer of precious metals. Conversion into or out of crypto from metals. This is not easy.

There have been attempts in the past, Roger Ver, in Sal the Agorist’s recent “Gold vs Bitcoin” podcast mentioned e-gold. easyDNS was the only domain registrar to accept e-gold back in the day and that’s how we amassed our physical gold which remains on our balance sheet even now. But contrary to Ver’s assertion that the government’s shutdown of E-gold speaks to gold’s inferiority to Bitcoin – that’s not entirely accurate. E-gold turned a blind eye to governance and it really was a wild west of ponzi schemes and criminal activity. Contrast with other DGCs of the day, like Pecunix or Goldmoney, the latter of which still exists. Goldmoney had far more stringent KYC and governance protocols, self-enforced, and here they are – still up and running.

In fact it was Goldmoney who had one of the more recent attempts at Bitcoin to vaulted gold convertability under their incarnation as Bitgold. They’ve since discontinued this precisely because of the governance hurdles.

I won’t trivialize how hard this is, but for people droning on about the need for a ‘killer app’, this one would probably do well.

It’s all about optionality

Both metals and crypto tribes look at the financial system and our legacy institutions as entering some form of breakdown and decline. Because the future is inherently unknowable, what makes more sense?

A) Betting on one half of a toolbox that may pay off huge in some scenarios but be worthless in others, or

B) Having a full toolbox that can give you some good outcomes under most imaginable circumstances?

If you’re a goldbug, would it kill you to have a fraction of your liquidity in Bitcoin, knowing that from past events crypto superspikes tend to 10X or 100X or more with stubborn repetitiveness and increasing magnitude?

If you’re into Bitcoin, buying the right gold miners now with a fraction of your capital may very well set you up with an increasingly fat, cushy dividend stream in a few years that you can use for living expenses while you continue to HODL.

Now there are many End Gamer luminaries out there who are invested in both even though they prefer one or the other.

But there are too many out there who are not only completely dismissing the other side, they are going even further and acting under an assumption that their preferred asset will prevail so totally that it will in the fullness of time become the world reserve asset.

In part 2 I’ll discuss why the odds of that happening in either case are near infinitesimal. For anybody paying attention to how governments actually function, it is not even desirable.

If your thesis is one that of these assets will form the basis of a new global statist monetary system and you’re an extreme skeptic of gold or Bitcoin, you should be hoping that the other guy’s favourite asset is the one that gets used.

Get on the list or follow me on Twitter if you want to know when Part 2: Careful What You Wish For, is available.

Further Reading:

• Gold vs Bitcoin Part 2: Careful what you wish for