Bitcoin and Crypto Thread

[scorpion]

Interesting, if its impossible, why won't the Fed grant a master account? The Narrow bank and Custodia bank would be too unprofitable? Haha.

The short answer is that a "narrow bank" is not really a bank, and is not performing the same functions as a bank. In fact, they are basically just like stablecoin issuers, in that they accept deposits and then buy Treasuries with them 1:1. The entire power of the modern banking system (and it's very important to think about it as a system, and not just isolated individual banks) is its ability to create credit money through the issuance of debt. A "narrow bank" is basically just a pass-through entity for people to invest in Treasuries.

Bitcoin DOES HAVE A YIELD, just not in bitcoin but in dollars.

Okay, so now you're just making up your own terminology in the vein of Saylor. Why not go further and just say that Bitcoin adds +5 Strength or grants you +5 Mana? Like, what are we doing here? Words have meaning, and if you just arbitrarily redefine them to obfuscate your position then intelligent discussion becomes impossible. Yield, in the financial definition, specifically refers to the income generated by an investment. This is typically in the form of rents, dividends or interest payments. It has nothing to do with future price appreciation. Yield is expected to be regular and ongoing.

BITCOIN DOES NOT PRODUCE YIELD. Period. The only way to make money from Bitcoin is by selling it to someone else for more than you paid. Holding Bitcoin does not provide you more Bitcoin, nor does it provide you more dollars. The idea that Michael Saylor is "generating yield" from Bitcoin is fraudulent, at best illusory. In essence, he is taking $100 dollars from people, giving them $11 back a year later, and using the $89 to buy more Bitcoin. He has no means of generating dollar income except by selling more future dollar obligations. This is the exact mechanism of operation of a Ponzi scheme: paying off existing holders with money taken from new buyers.

 

[JayR]

This is the exact mechanism of operation of a Ponzi scheme: paying off existing holders with money taken from new buyers.

But Ponzi schemes are illegal. If STRC is a Ponzi, why did the SEC approve it?

 

[scorpion]

But Ponzi schemes are illegal. If STRC is a Ponzi, why did the SEC approve it?

Because Saylor is very cunning, and the scheme is technically legal due to the fine print of the issued securities (which most investors do not bother to read). For example, the dividends paid by STRC (and all of Strategy's other preferred offerings) are entirely discretionary, and can be discontinued at any time and with no notice by the Board of Directors. And since these are preferred shares and not debt, they have no obligation to return any principal. When it becomes impossible for the company to issue enough new stock to cover its existing obligations, they can simply say, "Lol, sorry guys, no more dividends." This will cause the price of the preferred shares to absolutely tank in value as investors run for the exits. The alternative is that the company dilutes its common shareholders into oblivion to meet its dividend obligations, which means the share price remains stagnant or will decline in perpetuity. The nuclear option is that Strategy is forced to sell its Bitcoin to meet its obligations, at which point the entire raison d'etre of the company goes up in smoke, along with the price of Bitcoin, as hundreds of thousands of BTC are dumped into a market which Strategy has been almost singlehandedly holding up.

The end result is pain either way, both for preferred and common shareholders. The bottom line is that this company does not make any money. The only money it has coming in is from issuing new shares. This is very different from most companies, even ones that also pay attractive dividends, because those dividends are paid via money the company earns through business activities. MSTR does not earn any money. The recent accounting change that allows it to book its unrealized Bitcoin appreciation as "earnings" is a total farce.

There is actually a decent case to be made that despite the technical legality of Strategy's ongoing scheme, that regulators could and should shut it down due to its blatant Ponzi nature (the argument being essentially that they are taking advantage of naive investors and misrepresenting the nature of both the securities and their business itself, i.e. saying that STRC is comparable to a savings account, and inventing nonsensical and misleading terms like "BTC yield" to obfuscate the fact that they don't actually earn any money from holding Bitcoin). Either way, the extremely crypto-friendly regulatory climate that Trump ushered in with his election in 2024 will evaporate completely if the Dems regain the White House in 2028. The fact that Bitcoin has had such unimpressive price action over the past couple of years despite having every conceivable political advantage behind it (to the extent that the POTUS and his sons openly shill for it), as well as having easy access to retail money via ETFs, should be cause for concern. The macro and regulatory environment for Bitcoin has never been more favorable, and yet its price languishes. Imagine what's going to happen when the tides turn against it.

 

[Australia Sucks]

First of all, the dollar was not on the gold standard in 1971 as far as domestic use goes (i.e. people were not taking dollars to the bank and demanding gold in exchange).

I was well aware of that is why I said partial gold standard rather than classical gold standard. These are the terms that are used by economists to refer to those two systems.

Yes domestically people could not redeem for gold but the fact that foreign governments and central banks could still asserted a certain minimum level of discipline upon the spending levels of the U.S. government and upon the credit creation process overall.

As for your arguments about crony capitalism and immigration yes they contributed to the decline but they were not the main factor. There have been previous periods in history where crony capitalism was rampant as well as previous periods of mass immigration and yet standard of living didn’t fall at the same rate it did post 1971 because there was a partial or classical gold standard in prior periods.

Even just the basic fact that you look at the 19th century and the 20th century overall averaged around the same percentage rate of real GDP growth despite far more technological progress in the 20th century. With the amount of technological progress (mass adoption of telephones, mass adoption of cars, TVs, medical advancements, etc) that occurred during the 20th century growth rates should have been way higher than the 19th century. Why was it like this? Because the 19th century mostly operated on the classical gold standard (compared to a partial gold standard followed by a fiat standard in the 20th century) which produces lower levels of income inequality and higher economic growth (all other things being equal).

 

[Australia Sucks]

Interesting, if its impossible, why won't the Fed grant a master account? The Narrow bank and Custodia bank would be too unprofitable? Haha.

It isn't a Ponzi, It is more akin to a carry trade, like the Yen carry trade that has gone for the last 30 years or so. Borrow at low interest in a weak currency, buy currency with better yield, arbitrage the difference. Bitcoin DOES HAVE A YIELD, just not in bitcoin but in dollars. Bitcoin's dollar yield is on average, many multiples of 11%...but some people want a guarantee, and not an average. That is the product -- a dollar yield that is predictable.

They have to pay 11% dividends...11% forever. Guess how many dollars are available for that payment: an infinite amount.

As people pull their money from demand deposits, CDs and money markets, guess what the Fed must do? "inject liquidity"/brrrrrrr, then bitcoin $1million

I mostly agree with what you are saying although it’s fair to note that Bitcoin doesn’t have a “yield” in the technical sense of the term as it doesn’t produce cash flow or pay a dividend. Bitcoin produces capital growth which goes in fits and starts so if you are using a bitcoin backed debt instrument you have to smooth out the returns of Bitcoin to pay the yield. But yes as long as over time Bitcoin capital growth is a multiple of 11% as it has historically been the the instruments are sustainable. And if it ever gets to the point where Bitcoin returns slow down and are no longer at least 11% long term then Bitcoin prices will already be in the multiple millions per coin by then and a small amount of bitcoin can be sold to pay out all of those debt instruments.

 

[Australia Sucks]

You pay them money in exchange for promise of a dividend, they use that money to buy Bitcoin (which generates no yield) and pay off the dividends. If new money stops coming in, the entire schemes collapses and they will be forced to liquidate their Bitcoin. It is a mathematical certainty that this will happen, the only question is when.

As chance pointed out it’s a carry trade as long as bitcoin returns more than 11% annualised (in terms of price appreciation) in the long term then it’s sustainable if it doesn’t do at least 11% then the scheme comes crashing down.

It’s like the same thing if you buy a piece of vacant land in a highly desirable location and borrow against it (to buy more land) and pay out say a 4% annualised dividend to your investors. As long as the land price appreciates at say 6 - 7% annualised in the long term then it works out because you can just keep refinancing the loans and the loan to value ratio (LVR will go down over time). You could do the same the same thing with a non dividend paying growth stock or gold etc. although obviously not at an 11% interest rate like you could do with bitcoin.