Crypto Macro Trends for 2022

[johnarb]

I agree that out of this, a stronger crypto market will be born, but I'm not sure I understand your rationale.

An exchange shouldn't lose anything just because a person decides to take their coins into cold storage. Perhaps you mean the defi projects where people are earning yield? If this, then for sure that is the case. At the same time though, if the only reason to hold crypto was for the yield, then I can see more selling as the only use case for these people was the yield.

Bitcoin of course doesn't really offer any yield, its just an asset, but other coins that you can either get yield on, or staking benefits, then this of course qualifies.

But I fully agree that once the flush out happens, the crypto will be in stronger hands.

Yea, mainly the crypto firms offering yield and doing rehypothetication and the cryptos are borrowed by traders to short on exchanges via futures

It's actually a good business model and gives value for cryptos to be used as collateral to buy a house or a car. I used BlockFi to get a loan before and my experience was positive

But in times of stress such as the one we're currently in, duration mismatch (thanks MrMuppet) is catastrophic

When the cryptos depositors expect to withdraw their assets 24/7 to their local wallets in a few minutes, and the borrowers can simply hold on to the cryptos as long as they want per their terms, there's just no possible time agreement between the 2 parties and the centralized platform is forced to become insolvent

Add to that the exposure to overleveraged traders like 3AC...

Anyway, maybe a future version of BlockFi or Celsius would be ones where depositors' withdrawals of crypto assets will take 10 business days and the borrowers are compelled to return the cryptos assets within 5 business days upon demand. This would be similar in the past to requesting stock certificates to prevent the stock from being shorted

But in general, more cryptos in local wallets mean less circulating supplies for sale in exchanges and help the price to be stable or have an up bias

 

[NoahA]

OK; Lets see if there is anything we can agree upon.
Will we need a fiat currency in the future? If we don't have a fiat how will you assign a value to bitcoin?

Good question. I think for the foreseeable future, governments will be issuing their own currency. But what is to stop them from printing too much? The current peg for them seems to be inflation. They printed and printed for years and the inflation seemed to be ok, so they kept doing it. Now all of a sudden inflation hit hard. When inflation was hitting real estate nobody cared, but now that its gone to energy and food, its a big deal.

If the government tries to print more now, inflation should get worse, but if they never print, how will anyone pay down their debt? Its a problem that cannot be escaped. Clearly though, the only way out of this mess is still inflation, but not at such a high rate. This is that so called soft landing.

But I think that once we reach some critical mass of people learning about inflation, the move to crypto should be easier. The governments might even try and go for some sort of peg to either BTC, or just put some on their books, much the same way all central banks own currencies of other countries and also gold.

But certainly this means that the need to hold dollars will be less and less if there is a peg, and you can just as easily hold this pristine asset.

The only reason for a country to issue their own currency has always been as a show of strength. If you have a weak, unproductive country, then your currency is weak. The idea though that the government create its own currency and regulates how much it can print is quickly reaching the end of its usefulness. Much like there was a separation of church and state, there will probably be a separation of state and money creation.

There is a great youtuber who is an engineer that worked heavily in the mobile network explosion. He feels the future or money is global, and much like we don't have different protocols these days for the internet and mobile phones for each different country, we won't have money that stops working at the borders. It will be a new global form of money. I think it makes a lot of sense.

https://www.youtube.com/c/CTOLARSSON/videos

 

[NoahA]

Yea, mainly the crypto firms offering yield and doing rehypothetication and the cryptos are borrowed by traders to short on exchanges via futures

It's actually a good business model and gives value for cryptos to be used as collateral to buy a house or a car. I used BlockFi to get a loan before and my experience was positive

But in times of stress such as the one we're currently in, duration mismatch (thanks MrMuppet) is catastrophic

When the cryptos depositors expect to withdraw their assets 24/7 to their local wallets in a few minutes, and the borrowers can simply hold on to the cryptos as long as they want per their terms, there's just no possible time agreement between the 2 parties and the centralized platform is forced to become insolvent

Add to that the exposure to overleveraged traders like 3AC...

Anyway, maybe a future version of BlockFi or Celsius would be ones where depositors' withdrawals of crypto assets will take 10 business days and the borrowers are compelled to return the cryptos assets within 5 business days upon demand. This would be similar in the past to requesting stock certificates to prevent the stock from being shorted

But in general, more cryptos in local wallets mean less circulating supplies for sale in exchanges and help the price to be stable or have an up bias

Yes, this is a very insightful analysis. I remember when you made a comment about how these companies can offer such crazy yields, and your answer made sense then, as it does now. You said the banking sector steals all of these profits, or something like this. When you look at all the branches, all the employees, all the profits they make, its easy to imagine the regular guy who is putting up the collateral should be able to get 10% if he doesn't have any of these expenses. And I think this is still true today, even during this crypto collapse. The financial space is extremely inefficient, and if you eliminate all the middle men, you unlock a huge amount of value for the holder of the money to be lent.

But yes, there is a huge liquidity imbalance. Its really a shame that there couldn't be an unlimited buyer for bitcoin at 30k. You see the FED do this, and I keep reading about how much Japan is doing this right now. Every central bank is spending unlimited amounts of money they just print to prop up a failed system, and yet people complain about a crypto bloodbath that would have happened to the legacy financial system if it were not for the magical powers given to central banks. It seems so obvious to me.

 

[deaddog]

It will be a new global form of money. I think it makes a lot of sense.

At that point you would be paid in bitcoin, merchandise will be priced in bitcoin and you pay your taxes in bitcoin. With a limited number of bit coin the minute you start to lend it at interest where does the coin come from to pay the interest?

 

[NoahA]

At that point you would be paid in bitcoin, merchandise will be priced in bitcoin and you pay your taxes in bitcoin. With a limited number of bit coin the minute you start to lend it at interest where does the coin come from to pay the interest?

The market will have to come to some sort of balance. Right now, bitcoin is still inflationary since new coins are added every 10 minutes. The government can either use their resources to mine it, or use taxes to collect it.

Jeff Booth has an excellent book called The Price of Tomorrow. The main thesis is that technology allows for a deflationary world, but the current debt based system we are stuck in is highly inflationary. Lots of smart people can see this system is not sustainable. A debt based fiat system always collapses. As a general worked, I want to see my work not lose value, so I want it prices in an asset that cannot be printed at will but has to be worked for. There is a reason why gold backed the dollar and it worked great for a long time.

You can now see why bitcoin can easily be a multi million dollar asset.

 

[NoahA]

where does the coin come from to pay the interest?

And more specifically, interest rates are an interesting thing. We have no idea what a proper interest rate should be because the price of money today is all messed up. When the governments sets the rates at random, and they print unlimited money, what is the value of dollars or an interest rate? We know that if interest rates were 20%, houses wouldn't cost millions. And isn't that ok?

So I don't have the answers, but I'm sure the market will figure it out.

 

[deaddog]

You can now see why bitcoin can easily be a multi million dollar asset.

21 million bitcoin eventually. Maximium!
So at 10 cents per coin thats 2.1 million. Thats multi million
Once you get to 1000 per coin you now have a multi billion
So I hope you're not right about multi million.

 

[NoahA]

21 million bitcoin eventually. Maximium!
So at 10 cents per coin thats 2.1 million. Thats multi million
Once you get to 1000 per coin you now have a multi billion
So I hope you're not right about multi million.

I don't follow your math but its ok since I'm sure your intent is to make fun of it.

 

[deaddog]

I don't follow your math but its ok since I'm sure your intent is to make fun of it.

Yup that was the reason for the smiley face.
Bitcoin is already a multibillion dollar asset if you add all the coins in existance. I hope for your sake that it doesn't become a multimillion dollar assset.

 

[savoir]

Thanks savoir. This is the first bear market that is shared between stocks and cryptos other than a short period around March 2020. The most difficult thing about a bear market for me is the feeling of helplessness

I'm sorry about the loss of your friend, Sandy... Life is too short. I ran into a Twitter thread about an odd subject of quantifying life's moments and I saved it. I collect odd things because I am odd at times

Anecdotally, the math made sense to me. In college, used to go out of town with a large group of friends, fishing and hiking at least once a year, and with small number of high school friends, we had a tradition to watch, drink and smoke out for Superbowl

The former I haven't done in over 10 years, while the latter only twice in the last 10 years and before Covid

Just sharing the Twitter thread if it's of interest

https://twitter.com/x/status/1507787390114488322

I can understand the feeling of helplessness while holding. Committing to a large fractal trade while experiencing the shorter term gyrations can bring out such feelings.

My friend is highly confident about her 401k. She’s in her late 40s so who knows, she may end up being rewarded for her confidence. Since the account is unlevered, it’s not going to zero.

I think of Bitcoin similarly. It is highly unlikely an unlevered position will go to zero. I think Bitcoin will always have some value, the question is how much. I can see it functioning as digital gold with easy convertibility into fiat for transactions.

For purchases while traveling abroad, credit card companies gouge customers. Opening a bank account outside the US to hold cash is cumbersome for a US person because of compliance requirements. I can definitely see crypto filling this need.

The infrastructure is being put into place. Of course the price has to stabilize. It probably will eventually. The question is at what price.

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I’m at the stage in life where I’m attending a lot more funerals than weddings. This one doesn’t involve leaving minor children behind so it’s not a sad situation. It’s a good time to re-examine priorities in my own life and to take a “do not wait” approach to things I’ve been thinking of doing.

Thanks for the link. I lived near SoHo when I was younger and had a lot of friends in Manhattan. New York was a great place to live as a young single person focused on a career and enjoying life.