2023.40 - Outdated

My deepest sympathy for the countless people trapped in the jaws of violence. May we find the way to make war unprofitable. "All wars are bankers wars."

IMHO

Out of all the different moving parts in geopolitics, the sunset of the petrodollar is one of the most foundational dynamics being re-shaped. The clip below has a good intro to the petrodollar:

Recent moves by the China and Russia led BRICS coallition make it clear there is a strong desire for an alternative payment network not controlled by the USA

Following the money, it seems clear China has been following a "accumulate hard assets strategically in lieu of US government debt" for over a decade.

Given US bonds' recent performance this was a god call. The Fed's rushed pace of rate hikes —in a bid to tame inflation— made bond prices crash spectacularly.

Yet, fresh money keeps pouring into bonds.

How to explain it? One logical eplanation is 60/40 portfolios are being rebalanced. As prices crashed, the value of the bond portion of portfolios dropped below 40% and became "overweight" stocks.

Bear in mind the US needs to finance a LOT more debt in the very near future, so strong demand for USTs will be crucial, but might find headwinds as even some ally countries (Japan comes to mind) could find themselves needing to compete with The Fed to unload treasuries, because they need to defend their own currency, like Israel did.

The 60/40 portfolio is "mostly" dead. It's just taking time for people to realize it.

Complete

One common selling point for Ethereum is that it's smart contract capabilities are "Turing Complete" —meaning you can run any kind of program on it— whereas Bitcoin's scripting capabilities are (intentionally) "not Turing Complete".

There are good technical reasons for this as "too much flexibility" introduces a universe of potential problems that simply don't exist if you limit flexibility —kind of why your car is not also a boat.

One particularly important criterion was not "bloating" the main chain. Apparently a new method has been found to "bake" any kind of computation into a transaction thanks to Taproot functionality —think of it as "smart signatures".

Apparently the intensive computation requirements would need to take place off-chain and would not burden the Bitcoin blockchain unnecessarily.

Will altcoins become irrelevant?

No.

They always were ;-)

Patience

This has been a long (the longest) bear market, but the conditions are ripe for the next rally —whenever it comes— to be jaw-dropping.

Invalid Block

Marathon Mining produced an "invalid block", an unusual ocurrence in bitcoin, while testing new methods of forming blocks. The event is notable for both its rarity and the fact that Bitcoin simply kept on ticking.

Hiding Something?

Chainalysis is a private company that uses "heuristics" —essentialy "recipes" based on trial-and-error— to determine ownership of crypto assets. Thanks to the mandatory cooperation of exchanges they may start with somewhat solid data, like "these sats being transferred out of the exchange belong to Jonh Doe, we assume the wallet they're moving into also belongs to John Doe". But once sats start moving around there is more and more guesswork involved. By their own admission the process is less than scientific.

There are specific techniques (mixing, coinjoins, etc) specifically geared towards confounding these heuristics. The government seems to be ignoring the legitimate interest in financial privacy under the "someone is probably using it for evil" principle.

…the US government has, in essence, argued that the right to privacy does not exist when transacting on the blockchain. In the newly released court documents, the US government defines software developed to protect individual financial privacy on the blockchain, such as coinjoins, as “adversarial”, contending that the disclosure of Chainalysis training methods and techniques bears the reasonable expectation to enable “circumvention of the law.”

It'd be a shame if everyone started coinjoining and rendered this point moot.

Just Don't

If you're ever tempted to trade Bitcoin (which is bound to happen) please read this long tweet in its entirety first. Then read it again.

Accumulation and patience built through understanding are the name of the game.

SBF

SBF is on trial, and it's not going great for him. One of his co-founders (Gary Wang) confessed to a number of crimes and general malfeasance —If you want a more detailed breakdown of the FTX grift this tweet has a good summary.

Some of Wang's testimony showed the FTX team had an alarmingly relaxed attitude towards the truth and/or the law. Yet, the WSJ still has the gall to ask if SBF could have lost the $8B through "an honest mistake" (answer is "no" BTW).

The trial does produce ocassional gems

Sun

After acquiring Huobi (an exchange now called HTX), Justin Sun seems to be using an elaborate scam to drain $1.5 Billion of client-deposited stablecoins (USDT). Dylan LeClair details the proceedings in the long thread below.

This has not blown-up yet but HTX users could be in for a nasty surprise. I don't trust exchanges or stablecoins and I suggest you do the same.

"DeFi"

THORSwap had to be paused because the wrong person used it. This is BlOcKChAiN Kabuki (theater)

Ruh-Roh

The Ethereum Futures ETF launched to the roaring sound of crickets.

Also a reminder that however centralized (or not) you believe Ethereum to be currently, it's architecture makes it prone to further centralizing forces.

Oh, and Ethereum is also illustrating why privacy is difficult if you want to have a transparent monetary supply. A proposed improvement to Ethereum —touted as bringing "privacy to new heights"— could allow users to "burn ETH" (send it to a provably un-spendable address) and then remint it at a different address. Sounds cool, but if not implemented properly it could result in "people may mint infinite amount of ETH, collapsing the price of Ethereum"

No Brakes

The US is issuing new debt at a ridiculous clip. For context, the entire 2008 bailout (TARP program) was originally $250 Billion (it was later expanded to $475 Billion). The US just issued more that that in a single day.

Banking Woes

Will the UK implement something similar to the USA's BTFP program to prevent cascading failures?

Meanwile in the US, shares of  Blue Ridge regional bank has plummeted more than 50% in a few weeks.

Wrong Orange Pill

Why is orange juice outperforming hedge funds?

The Widowmaker

With the Yen under pressure, the BOJ may be forced to sell some of its substantial cache of US denominated assets —including Treasuries— to continue its defense of the Yen.

Silently Crashhing

Commercial Real Estate is in a rough spot, this NY building sold at a 80% loss, one more entry in the distressed property tales of horror.

The stress in Commercial Real Estate is likely to be transmitted to small regional banks —which own a disproportionate share of the market.

"Encrypted"

It turns out the Swiss leading encryption firm —which supplied most governments— was a CIA front that backdoored its devices.

Tough On ThoughtCrime

Canadian streaming services must now register with the government for permits to ensure their content is in line with what Great Leader considers "meaningful contributions".

Mining You

Your bank has zero business mining your data and moralizing to you (about anything). Recognize the darker side of these "friendly suggestions" and reject their overreach.

Surfing Bitcoin

Bitcoin has been holding up well, considering current turmoil. It manage to break out —and stay out— of Bedrock ($27.4k) level and is currently treading Water, it would need to rise above $28k to find (unusually "dry") Sand

Dip Fishing

Bitcoin briefly broke the $28k resistance, but quickly fell back under. Currently bouncing in the $27-$28k range.

Calm Chart

Improbably, Bitcoin closed modestly green (almost 4% up) in September. October has been historically good for Bitcoin's prices, we'll see if this year bucks the trend again.