Digital Tor-tress

With regards to renowned author Dan Brown

I have a long-running bit stating that Dan Brown predicted Satoshi Nakamoto in Digital Fortress, a largely incomprehensible novel about a man behind the mysterious screenname “Ensei Tankado” who creates an unbreakable encryption algorithm that the NSA attempts to insert a backdoor into before releasing to the public. (You might be surprised to find out that I’m quite the Dan Brown fan, but it’s due to the fact that his work is perhaps the best thing to read when you’re cripplingly hungover and can’t sleep, the literary equivalent of the Netflix “original” that idiot-checks you by repeating the same line 4 times every 5 minutes.)

I’ve been a bit hesitant to actually document the following theory of mine, but I’ve certainly alluded multiple times as to how I am fairly certain that Bitcoin is a US government project. Not because of personal security or anything, but mostly due to the fact that there’s so much going on right now, so what’s the value of adding another schizo theory to the marketplace?

Alas, there isn’t much to do other than wait for clarity (and play Balatro) so the market “resumes pumping”. Plus, all finance writing is fictional anyway, so I figure this is a good break from serious thinking.

For the longest time, I’ve been curious as to why Bitcoin got a bypass from regulatory scrutiny while every relevant agency went on a megalomaniacal quest to make everyone color inside ever-shifting, arbitrary lines. There’s really only one logical explanation: the call came from inside the house, like yet another call going the Kansas City Chiefs’ way, to not look deeply into it, as evidenced by the “institutional adoption” thesis playing out, where the decentralized money to buy drugs is now buoyed by Blackrock passive investment vehicles. (Don’t even start me on the MSTR insanity, one of the funniest financial perpetual motion machines I’ve ever seen. You sell stock to buy bitcoin and value the stock as the collateral against the bitcoin to sell more stock…)

I can’t tell if the idea of “Strategic Bitcoin Reserve” is that of a bunch of nakedly self-interested individuals or if they’re all in on the bit. But let’s backtrack a bit.

As with many other internet-savvy individuals from the 2000s, my introduction to Bitcoin (thank you, statute of limitations) was buying fake IDs in college. The fundamental value of “illicit transaction technology” was always there, but there was no actual underlying value, as one of the most famous reddit posts pointed out during the first “hype cycle” in 2017:

This blog talks a lot about liquidity-as-fundamental-value, but let me be clear: that’s fucking stupid at its core! I still agree with pretty much everything written here — the whole reason it took hundreds of blog posts to work it out coherently is that so much of it is facially nonsensical but for the fact that retail trading is what drives markets nowadays. I still prefer paying with an American Express card rather than a browser wallet. And, collectively, you are kind of seeing the market realize this year — at the end of the institutional adoption road — that all of the hype hasn’t amounted to any actual use cases beyond the originals: it’s a really good way to facilitate payments for drugs and gambling. As someone who spends way too much time playing macro analyst, I’ve generally used crypto inflows to approximate the black market economy cycles. (Indeed, one of my original BTC trading strats involved getting Russian-language news about banking crises and frontrunning the people who thought that it was hype-driven bid.)

Whenever I outline this type of thinking, I’m met with a (very reasonable) critique: why would you ever use a method of immutably transacting where everyone can see everyone’s transactions to launder money?

I never got into Narcos — I’m not a true crime fan, the world is a dark enough place without seeking out the bad stuff — but a famous story I remember hearing about was Pablo Escobar burning millions of US dollars as kindling while on the run, along with many many “search for buried treasure” type stories about where he might have buried pallets of cash. You see the inherent problem here — none of this money is taxable if it can’t be laundered.

Crypto very much solves this problem. This post’s title is, of course, a reference to Tor, the resulting product derivative of the invention of onion routing. If you view Bitcoin as onion routing for the black market economy, where capital gains allows for a convenient, highly liquid, scalable fiction as opposed to putting money into nail salons and dry cleaners, the regulatory bypass makes total sense. Just like the public must have access to Tor along with the government so every active node isn’t provably a government operator, criminals must have a relatively unfettered ability to transact and trade with regular individuals so they can quantify their gains and pay taxes. Certainly sounds appealing when you’re running the biggest deficit in history relative to GDP, right?

In my view, low rates persisted to put people onto this ecosystem. Back when I was an intern in an investment bank, Bitcoin mania was very much a function of the fact that actual capital markets were completely frozen (try explaining to someone who started trading post-2020 that there were multiple years where VIX would barely cross 13) and outsized bonuses are only made when there’s volatility and (concurrently) fiscal velocity. Of course, there would be imitators — the “dead chain” that is Ethereum breaks my heart, to some extent,

as the first smart contract application I ever designed myself in 2019 was based around “shares” in sports teams appreciating and depreciating relative to their position in the standings to circumvent securities regulations (yeah, I’ve been thinking about this stuff for that long) — but I think that the project “broke containment” due to the pandemic forcing everyone inside.

Traders seek volatility like moths to a flame, and when you have a bunch of rubes running around with more money than they know what to do with, it’s funnier if you don’t sell the coin whether or not it made any sense to buy it in the first place. Rising rates couldn’t kill the stickiness of “liquidity as fundamental value”, and as a result, I think the broader market cap of memecoins is a pretty accurate representation of how much excess money there is in the system (yes, I’m aware that market cap is in no way shape or form implicative of underlying liquidity.)

Unlike Strathmore from the novel, I think “Satoshi” has won. In the postmodern market state, things do not “go to zero”, as that would consume all the liquidity — they go illiquid. In the absolute dumbest possible way, this is actually how crypto markets work at this point:

Dead chain or not, everyone has been programmed and coerced to buy dips, whether it’s in TSLA, BTC, or LULU, and everything trades together so it’s essentially meaningless in the short term what vehicle you hold due to the fact that quantitative trading enforces correlation when there isn’t enough “true bid” in a ticker.

I have had more opportunities than I can count to get rich off of grifts, and even though this post is basically a story about how the grift will never end, I still won’t do it. It’s objectively stupid to not get long grifts at the right time if you have worked things out this way. But I fundamentally believe that if you make your money the wrong way, you get cut out of the high stakes tables that are the most fun. The only other option is to wait out the chaos — because it will definitely dampen in the next 3 months, even I’m struggling to keep pace with how much is happening and read between the lines — and I think that it’s quite healthy to keep <50% exposure to the market and toss money in a money market fund and log off for a while.

It’s interesting how life mimics random cultural touchstones. The current tech luminary running the world basically took Hitchhiker’s Guide at face value and said, “why don’t I do this?”. The parallels between a silly Dan Brown novel and a very logical interpretation of what Bitcoin actually was intended for is easily digestible. And, of course, need I say more about what a lab-leak pandemic where the government controls the supply of the cure and forces it on people evokes?

I’m convinced that, if I write enough believable fiction, it will self-perpetuate at a certain point, much like there is a “Trump tweet for everything”. The only way out is through, the only way to beat inflation is to buy dips correctly, without leverage, and not get caught up in the broader delusion. Crypto is not going to amount to more than this, but in the end, it got to exactly the place it needed to. The best applications of blockchain technology are not currency related, but rather that it enables a programmatic merging of law and finance, pushing past the corrupted human operating system that is “constitutionalism” (but more on this later). Anyway, it’s another day of my small cap trades getting crushed by the fact that every part of the market and global stability is tied to a longshot artificial intelligence bet and a chip stock, more at 11.