Global Macro Trading Journal

tsznecki said:
@Daal Are you sure you are getting > 10% on staked ETH? I have not staked yet because my understanding is that the staked rate is a variable rate not fixed rate at point of entry.

In which case, you can get the same rates in Defi staking ETH without an approximate 2 year lockup of your ETH.
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It will probably be less as I expect the ETH staked might reach its max at 10M (which will also remove that 10M from circulation, bullish for free ETH 1.0).

To me the lockup is a feature not a problem, thats how VCs and founders get rich, they CANT sell, even if they wanted to. I dont want the same thing that happened with my GLXY happen to my ETH.
Also, DeFi carries risk to depositors. They own the crypto, they can lend too much against too little collateral, even if they say they wont. The history of banking is the history of lending standards being loosened the longer good times last. I dont think crypto tech has suspended human nature. lender Cred went bankrupt last year, I'm sure many more will come

Also, in 1987 more than a dozen brokers went bankrupt when the market crashed, including some big names like EF Hutton. When crypto has its big crash (like all markets eventually do), I can assure you a lot of these DeFi houses are going under and I'm not taking their word that my ETH is safe

By staking on ETH2 I (and only I) own the withdraw keys. And if ETH 2 has a fatal bug, ETH is done for, whether I stake or not. The market will look for a different blockchain to run smart contracts on like EOS or Polkadot or something
 
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These Defi companies, as far as I know, they are open source. So I'm sure hackers are looking at their code trying to find bugs and sometimes they succeed (I heard of a case a couple months ago, I dont recall the name). That leads to a giant loss to the people that staked there. Also, how people know that their collateral policy (that they coded into the protocol) is enough?

You would need to know the future volatility of crypto, which is unknown. I wouldn't be surprised if/when crypto has an 1987 type situation (especially as more and more unregulated leverage gets added to the system, driven by people who think its all 'safe'). The liquidity will be hideous, I'm sure there will be a lot of losses to the people that staked as there is a feedback loop into this (liquidation of collateral leads to lower prices, which leads to liquidations, which leads to lower prices etc)

There are probably more risks that I dont know, this industry is much too new to trust. Unless I'm a ETH coder that understand everything that is written into these contracts, I cant dump all my coins there to pick up a few percent. On ETH2 I know that if the whole thing goes bust, I would have lost anyway as ETH1 will go down with the ship
 
Compound pays 0.07% a year for ETH staking and 0.07% for BTC (actually Wrapped BTC but its the same thing)

aave pays 0.31% for ETH and 0.02% for WBTC

So I'm not seeing these great DeFi yields. Places like BlockFi pay more because they are essentially banks (so CeFi), subject to all kinds of risks that smart contract type DeFi protocols aren't. I wouldn't deposit my crypto there
 
So the Friedman article I posted here about a month ago talked about how in the 19 century and before the understanding was that the role of government in the economy was to be very limited. Gov spending was around 10% of GDP and I dont recall many issues with that, in terms of society being mad at that or anything. Indeed the Boston Tea Party was about taxes and the US Constition is all about personal responsability and self-reliance (the same cannot be said about my country's 1988 constitution which is all about people having the 'rights' to housing, food, etc from the government). But WW1 and, especially, the Great Depression changed that. All of the sudden the role of government grew but more importantly society understanding changed.

Why? It might be that as people grew more dependent in government, they became less self-reliant, which caused more depedency, especially during recessions. This lesser degree of personal responsability (at the macro level) is then passed onto the next generation (since kids learn a lot from their parents). At the individual level there are exceptions but I believe at the macro level it holds. This leads to Congresses and Presidents that provides goodies to the electorate (and indeed the Republicans are as bad as the Democrats on this), which then creates depedency and so on. So its possible that WW1 and the Great Depression created a reflexive style loop of government spending leading to less self-reliance leading to more government spending and so on.

If that's so, this might be why the Blue Wave arrived in the last US election. The Georgia senate races were the final evidence of that. Its possible that those elections flipped because the electored sensed (and they are probably correct) that voting for the Democrats meant a $2000 check coming their way and voting for Republicans meant a $600 check.

If this theory is correct it appears to me that eventually a bond crisis/inflation crisis is inevitable in the US because this dynamic is really hard to reverse. Everyone knows somebody that is always blaming everyone else for their misfortunes, that is lazy, that loves help from other people but doesn't want to work hard to solve their problems. No matter how much one screams at them, they don't change. It takes them reaching rock bottom and them learning from that to change. And its hard to reach rock bottom when the Government is always there to cushion the fall...
 
So 2017 was a retail driven Crypto bull market, and a pretty good top indicator was when mainstream was going out of their way to talk about bitcoin. Like Kathy Perry and SNL bitcoin sketch. This time is a institution driven rally, so perhaps we ought to look at institutional contrarian indicators? I'm thinking of really dumb hedge fund managers or shitty endowments, or very bureacratic pension funds (the types that will say no to buying now but yes to buying at $80,000) to get a sense of how late in the cycle we are in. Right now I think we are in the stage where smart institutions are getting in, I havent seen any Whitney Tilson's type managers get in. Politicians also could present indicators, IIRC Trump got all interested (negatively) on Bitcoin at the top. If Biden starts to yap about it, it could be an indicator.
I think these sorts of indicators could potentially be much superior to randomly selling on the way up
 
And these early institutional investors, I believe, are much stronger hands than retail. Its not that hard to shake retail out. But institutions are run by professional investors, they are not the greatest thing since sliced bread but I would imagine they will do a better job at managing their positions than retail. So we are still resonably early in the 'crypto emotional cycle' and the hands holding these coins are stronger than in the past
 
So I decided to run some tests on the BTC Lightning Network to see how it is doing. This thing is insane, its so great I think its going to be outlawed in major police states (US, China, maybe EU).

I have a graphics card that I bought a few years back to play around with mining, I use NiceHash for that. NiceHash allows Lightning for withdraws. So what I did was to create a hot wallet with Wallet of Satoshi on Android. Then I clicked receive then Lightining. I got a lightning invoice. I put that on the NiceHash Lightning withdraw system. In less than 1 sec I had received the bitcoin I sent (at the cost of almost nothing, a regular BTC withdraw would have cost $3.5).

Then I went over to https://www.bitrefill.com/buy/, I purchased a Uber coupon and choose Lightning as the payment method. A QR code showed up on the screen, I scanned that with Wallet of Satoshi and clicked pay. In less than 1 second the payment was made and with less than 5 the uber code was on the screen. I redeemed the code sucessfuly on my uber app (this all took less than 1 minute).

In no moment I had to say who I was or provide any info about me. Bitrefill just asked me for my email, which I then provided a spam email I have. While my IP address was revelead to the site, I could just as easily used TOR leaving no trace. A tor like system is also used within the lightning network to increase anonimity (according to the book Mastering Bitcoin), the lightning network doesnt have a blockchain with a record of transactions. Uber knows who I am so there is some tracing but if I was just sending funds to another person on the Lightning network, there would be very little tracing. This transaction is not recorded in the blockchain.

I'm starting to get convinced BTC cannot be used for payments, its just too good. Governments are mostly friendly towards BTC because they dont understand it, once they realize what can be done with the Lightning Network they will outlaw it. BTC will remain this gold competitor where every transaction is recorded on the blockchain and KYC is done everywhere, with that they like it, because its like a bank where they see all transfers without a court order. But the things that can be done with Lightning are just so powerful, the second they realize it they will come after it. Central bank coins will be used for payments instead (hopefully, in a way as efficient as Lightning).

The big question is, can Lightning be stopped? All it takes are a few countries allowing it for all the nodes to be running there, and some people will run nodes in outlawed countries anyway (similar to sharing files on Bittorrent). As a long as there is internet, people can connect to these nodes and execute the payments. Its very hard to stop, but I'm sure they will try. If Lightning is ever used to finance terrorism/major drug trafficking or other crimes, its going to start a government counter attack on it. And that could be a catalyst for a big BTC price drop. Its something to watch for
 
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