Unfortunately, it appears there is an impasse: X is terrible for writing in the style I do for these posts, but Substack is throttled to the point where nobody on X is exposed to this style of mine. I’ve been writing a lot more fluidly there on a lot of random things, but I figure there’s some email readers who don’t see some relevant threads that I simply didn’t write about (and also would prefer distilled content rather than manic rambling.) So here are some I’ve written recently that could be of potential interest. Of course, if you happen to use the site, you can always follow me here. Feel free to email discussion on any of these topics I should elaborate on more clearly!
The discount likely won’t ever go exactly to zero because there is much more friction/risk arbing BTC to an “asset” that tracks it (+ fees). (Compare this to SPY/ES arbitrage and how frictionless it is.) If you really think about it, you should be able to invalidate the “stock-based delta hedging” model from observing this.
As noted earlier, it’s plainly obvious that GBTC is the winner here (and was obviously the proxy legal edge long for the ETF approval trade) as I wrote in Nov 2022
You can already see the effects after its initial surge this morning (~ed: first day of trading.) It’s going to become part of the levered beta complex, which is going to kill the true reason to trade BTC.
On the BTC complex post-ETF:
Liquidity event with enforced selling pressure was obviously going to change the mechanics. This is what trading as part of a tradfi complex will be, and why GBTC was the most risk-free long. It's likely impossible for BTC to crash due to circuit breakers/corr beta. But this is why you don't want this if you just wanted the number to go up. (3,3) is a good intuitive way to understand how unlevered longs pay big. The real thing to watch is whether alts decouple from any BTC corr. The fun part is if BTC becomes its own complex, this could be one of the most bullish catalysts for alts that we've seen. But just being long isn't the same thing as raising money for building a product, which is the real fear if you are long the industry rather than a coin.
On whether a viral meme is insider trading:
It is insider trading, but it’s not illegal (if I’m being serious). You generally have to have an obligation to disclose to actually be prevented on trading from something you know that others don’t. (Or if you’re planning on kicking back some of the profits from the trade, it’s probably prosecutable as insider trading — see tipper-tippee liability.) “Liquidity Theory” describes the friction between theory and reality. You can discriminate but it can’t look like discrimination (Brown v Board). “Trading is all about information edge but you can’t do it with this type of info.” Minimizing that friction creates optimal outcomes. (see the end of year post for more re: the philosophy of insider trading.)
On plane doors flying off:
From a tail probability point of view, the fact that a completely different issue torpedoed a brand new plane is horrifying. I would absolutely not fly on one of these. Perhaps something in the design process threw the old standard construction process out of whack. One point of failure, well, anything can happen n=1. But this is indicative that we can’t even form a distribution to expect what will happen. The system can’t be controlled, so don’t get on the plane. Someone severely fucked up and the system is so complicated to build the plane, it will 100% be impossible to determine the cause to the degree of certainty to get pilots to fly passengers again at this point. Even if it’s “just a shitty weld” — how do you predict where those ended up? Which part of the process is actually responsible for it? How do you fix it? And then there’s the fake parts scandal. This is why every time I fly it’s marvelously terrifying. Stepping into a bajillion part steel tube and a billion lines of code guiding it along gravity’s rainbow. Man should never have gotten this far, it’s really a leap of faith to travel nonstop.
Note: I have a lot of thoughts on Boeing, but a not-insignificant cause is that, while investors may see the stock price goes up, the business still requires maintaining margins. So if spending proliferates in the company (changing hiring practices or spending more on corporate training or whatnot) and the stock keeps going up and the top level execs are fine, the middle managers who still have to make the margins work have their jobs on the line to deal with the increased spend, so they might cut corners, increase labor outsourcing, or just leave. Margins cannot be created out of thin air! This is the danger of artificially low interest rates inflating stocks — good business simply doesn’t get rewarded in the same way. But we’ve talked about postmodern markets before. (For a similar finance point of view, see the post on Credit Suisse and its waning reputation.)
On wealth planning and saving:
The only purpose of properly contributing to an IRA/401(k) is to hand down wealth tax free, and inevitably in the next 10-15 years the government will have to invalidate the tax protections. The proper min/max is cash on hand + a living trust backstopped by social security. Just pay the tax now and invest. Ensconce it in a trust if you have to. 401k match is worth it for now but I’m skeptical of the idea that the govt won’t run out of taxable money. Everyone knows social security cannot continue at its run rate + needs more funding, and everyone knows IRA/401k is the personal tax exemption from excess earnings and investments. Necessarily both cannot exist. The govt will get its hands on assets it deems taxable. (note: they’re already doing this, monitor SECURE act/2.0 and related legislation closely.) Trusts and foundations are much, much harder to attack because it’s where actual HNW passes down their assets. Even for UMC income, a living trust is available as long as you have an asset to place in the trust (say, a family home.) It’s not gated entry as one would think. Just nobody hears about it. Same with prenups: though it is distasteful (imo) to start a marriage with an agreed upon put, it does make divorce much easier. The only people who win when couples split are lawyers. So many times it’s people eroding the pot to stick it to their former SO. Don’t do that! Pre-split the Beanie Babies. Don’t take your wife’s Birkin or your husband’s basset just to spite them. Only the lawyers ever win. A marriage is a contract, a prenup is just a knock-in schmuck insurance option.
(con. on wealth taxes etc.)
Apart from the fact that none of these dolts understand that "wealth" is an illiquid calculation, this is precisely why 401k/IRA tax rules are going to change in the next decade to allow taxation of formerly protected assets. There's too much money sitting in passive funds. A vast majority of people in NGOs, think tanks, and academia quite literally think money grows on trees. There is no "wealth" unless there is a liquidity event. Mark-to-market "valuations" have been an absolute disaster in how they're thought about. Most real-time stock prices are an illusion as well. Go look at lit book depth and see if any of those orders get hit during intraday drift. There is a reason trading clusters around the open and the close and why less trading hours, not more, are a better idea. The entire point of dark pools, private deals, block trades, is because everyone is deathly afraid of hitting the tape when they actually need to transact in size. If you mandate this, it would be an unmitigated disaster. This is also why USO had to change their rollover schedule (illegally) to avoid being knocked out and frontrun. This is why XIV blew up. These are not complicated things to figure out. When everyone knows how you have to trade, it’s like playing poker with your cards face up. The shift towards majority passive/basket markets has totally corrupted them. I once again beg people to think about the theoretical scenario where underlying liquidity is needed but there’s nobody providing it.
More to come soon — I think the GBTC discount/BTC complex is worth observing a bit longer before I start writing on it, but I expect it to silo off from the rest of the market. After all…
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