Religions are a bubble that will prove to be “worthless”

John Paulson

Religions are a fraud

Paul Singer

Would you believe the above quotes were real if the person said his judgement is based only on intrinsic value? What about this:

As I dug into the actual underpinnings, it just became very clear that what was actually going on was cultlike behavior with no real understanding of the implications for the model that it was proposing

Mike Green

Is Green talking about religion or…cryptocurrencies?

cryptocurrency are a “jihadist call” against the dollar. What a crazy concept this is that we as a country embrace so many bright, young, talented people to come up with a replacement for our reserve currency.

Ken Griffin

I took this and the above quotes, where I replaced ‘cryptocurrencies’ with ‘religions’, from this article. In the Griffin case, I do not even have to alter what he said, he himself raise the affinity between some religion traits and crypto. Only he use ‘jihadist’ and not ‘crusade’ because from his vantage point Islam is bad while Christianity is good (I guess?). Even if there is no inherent difference, both are based on group beliefs.

I wrote some posts here on my opinion about Bitcoin. I found it silly before and I find it silly now. But I would definitely echo old pal Lloyd opinion on this:

This [Bitcoin] may be one of thousand things that I never in a million years thought would work, and it may work

Lloyd Blankfein

We live in a make-believe world

If I knock at your door and announce myself as the King of France you would most likely laugh at my face and then slam the door. If I knock at your door and announce myself as the King of France with 60 million French behind me I bet your would take me more seriously.

As weird this might sound, to become the King of France you just have to convince enough people that you are the King of France.

In the US, right now, there are millions that are legit convinced that Trump is still president, including Trump himself.

We live in a world where these fantasies are the norm more than the exception. I live in a country where there is an old lady celebrated as ‘the queen’; 500km down from here another group of people confronted the same situation and decided that some heads had to roll instead. If it was my decision, I would definitely side with the French on this…and yet here I am, paying taxes to subsidies the lifestyle of one particular family because the grandpa of the grandpa of the grandpa of the old lady once won a war and his family marketing strategy was better than the Louis XVI one.

Conor McGregor just travelled to Rome because he wanted an old guy to sprinkle some water on the forehead of his new born. And I only know this because during his travel he decided to punch in the face someone that once declared himself as ‘the Italian Steve Jobs‘. What’s make the old guy water so special? The fact that thousands of people crowd the square under his residence every Sunday to listen to him; and millions listen from they home; and billions did the same for the past centuries.

The only credible person in this post so far is actually Conor McGregor, a guy known for his ability to punch others…that somehow cannot restrain for remanding others about it.

THE religion

I have to admit the religion – crypto comparison is a slippery slope, because you can easily find someone that is convinced that “obviously no one centuries ago started to walk on water”, someone else that would die in the name of the contrary and all the possible variances in-between.

Think about the difference on how we define ‘religion’ and ‘cult’. It’s again the winners writing history. The reason why I think the Pope, as an institution, will not disappear anytime soon is because he has been there for so long, is so part of (some of us) culture that the simple reason why he will be there in the future is because he was there for so long in the past. But that is as well the theory that goldbugs use to justify gold price … and where is your gold now? This time is different are the four most expensive word in finance, until something really different happens.

I can understand if someone thinks Bitcoin will be worth zero. I cannot understand it if the reasons are the above ones, since the world is full of things that have value just because a group of people decided so; more so now that the group ‘advocating’ for Bitcoin is growing and growing. Earlier this week the first ETF related to Bitcoin (is linked to futures and not the physical coin) got listed in the US and in two days its AUM grew to more than 1 billion. Right or wrong, the world is hungry for digital coins, sticking your head in the sand will not change this reality.

And just to be clear, I do not think that going all-in in 2013 would have been the right call neither, exactly because the outcome of that call would have depended on the opinion of others and no one could have predicted that, luck aside obv. It is like if someone today would tell me they know who would be the top influencer in ten years AND on which platform…sure. Having said that, having ZERO exposure was a mistake. But even if you bought some, would you have resisted the volatility and the multiple 90% drawdowns?

Even the brightest minds that are heavily invested, from a financial and professional point of view, in crypto view Bitcoin in a mixed way. Clearly the idea was behind it was a brilliant one but now there are more elegant and efficient solutions out there. Listen to Patrick-InvestLikeTheBest interview to SBF (probably the most complicated name combo to ever sit down for a podcast as well). From a pure utility / functionality point of view, Bitcoin is closer to the ‘portable’ phone used by Michael Douglas in Wall Street while the rest of the world has an iPhone 12: how much would you value the OG simply because it was the OG?

How to short Jesus

The most interesting, and if you want revealing, part of the article I linked is the fact that, despite their opinions, no one of those guys is short (except the anonymous one, which is also quite significant).

If beating the benchmark going long is very hard, making money on the short side is even harder. If you manage someone else money, either you know, either you got fired. A profitable short trade needs the right name AND the right timing. You can pull the trigger only once you find the right catalyst; if you are too early, the market can stay dumb longer than you can stay solvent, as the GME lads used to say. Look at Tesla, how many smart people said the stock was overvalued? Even Elon himself said it! Still up there…

So what’s the catalyst here? Well, it is really hard to say because the asset has no intrinsic value. China banning it was irrelevant. Even if other countries follow, it is highly unlikely the whole world will agree on this and illegality never stopped streaming or online gambling anyway. The only possible catalyst is more holders decide to sell than new/existing one want to buy. Selling that snowball into panic selling. But even that, we already had few occasions in the past where the price crashed…and then recovered. Paulson, Singer & co do not have laser eyes but do have have salami slices in front of their eyes neither (an Italian way to say your are not stupid). Going short here requires the same clairvoyance powers (wink wink) those guys who went long a decade ago had, with the difference that to make billions you have to risk millions, not thousands like the longs had to.

The Big Short was possible because Paulson was shorting securities that in the very best scenario were paying a fixed coupon, say 3% a year. Your maximum loss was clearly written on the security prospectus. Using leverage? Higher possible loss but still evident to everyone involved. In the Bitcoin case, the price can (will? eheheheh) go to the moon bringing your losses to infinite. Einhorn shorted Lehman and made a fair amount of money, Chanos can short stocks too. I am not saying the risk profile alone makes the trade impossible but in those cases the short seller could rely on the company data, not exactly that same as going into @Apompliano stan minds and see what’s up there.

Going on record, while anonymously, stating that you are short accomplish two goals:

  • no one can attack you like WSB and other hedge funds did to the GME shorts
  • if you are wrong, no one can flood your Twitter page with stupid memes

Personally I would stick to a classic: picture or did not happen.

Leverage

Michael Burry raises a good point about leverage in the crypto world. A while ago Josh Brown said that the next recession will probably start from a financial-excess type of crisis, à la 2008, and I understand where he is coming from. I am not sure there is anyone in the world right now that can say how much leverage there is in the ‘crypto monetary system’, for a lack of a better term. I understand where the high interest in some stable coins come from, the cash and carry trade and the returns behind staking; but when you start to dive into the DeFi tokens and so on, I lose you.

I read jokes on Twitter on ways to take a leverage position that is further levered and levered to end up with some absurd returns. Buy this token, stake it, use it as a margin, buy another token, margin and go on. Are they jokes or there is someone out there doing it for real? I am not talking about a platform that gives you a 1:100 plain leverage on Bitcoin, which is nuts but can be at least controlled. Something deeper.

If financial history taught us anything is that sometimes people think to know all the possible consequences and ramifications of risk…until they do not. And most of past financial crisis happened under an (imperfect) regulatory system. Here we are in the farthest of the west. Past 80% to 90% drawdowns washed out all those levered speculators and the whole system survived. But the system is growing and getting more complex. You see idiots getting rich and think “why not me? Let’s take a ride!”.

There is a huge amount of wealth out there that saw crypto exploding and could not participate. Financial advisors cannot talk about crypto to their clients because the company they work for prohibits them. There are no proper custody solutions. An insurance company cannot buy crypto like Twitter did because the regulator does not allow them to. If these guys get access to the table, the shift will be massive. How much of it is already priced in? Will the leveraged players see their wealth explode even more, sucking in even more naive participants?

I do not know how the floor price on NFTs works but I guess that ultimately should be a function of the question “is out there anyone willing to pay that price for this piece of code?”. In 2008 lot of real estate investors thought that the floor price of their properties could just increase, only to realise that the real floor was the akin to the -10 level of a car park. If those NTFs are owned by a rich lad that bought it instead of choosing his 10th Rolex, then writing off that value would not create a big issue; if someone bought it to finance their pension, the ramifications might be different.

What I am reading now:

talking about nonsense around us, this book explains really well what is going on in the US healthcare system, especially for non Americans (I cannot really comment because I decided to live in a place where people think is fine to move away from the decimal system just because…their ancestors were not using it. I wonder when we will be allowed to eat only fish&chips).

Follow me on Twitter @nprotasoni

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