Fink so
Is it curious that in the week following the virtual take-down of Binance in the US, a flurry of major US operators submit ETF applications? First we had BlackRock, followed 48 hours later by Fidelity (Cathie Wood’s ARK re-submitted their original application last month).
In an environment so clearly hostile to the sector, would you, as lawsuits fly, decide that now is absolutely the moment that you must press go on your application? I think not. I think the boardroom discussion would be along the lines of “shall we let the dust settle a bit” or “doesn’t seem like quite the right moment, Larry”.
The only way this happens is via agreement with the SEC. I suspect the arrangement is this:
SEC: “We need adults in the room. We will take out Binance and you will apply for an ETF.”
BlackRock: “Fine, we will, but please do not embarrass us by rejecting our application; it needs to be semi-pre-approved.”
SEC: “Understood, our process will have all the usual mock rigour before approval, but it will be approved.”
Now I’m sure they aren’t the actual conversations and there will be no email chain confirming any such thing but euphemistically, this will have happened. The nuanced language of Wall Street would no doubt have its way of saying things without saying them.
It’s also very much the American playbook; they do everything they can to look after their own local firms. There is no way they will let the market-leading provider of services be anything other than American owned. Hence Binance US is now tied in legal knots, at exactly the moment BlackRock and Fidelity enter the game. Coincidence?
As to the product itself, it is not an ETF in the strictest sense of the world. Rather than labour the detail I’ll point you in the direction of a profoundly negative article on all of this by Allen Farrington, author of Bitcoin is Venice.
Allen points out the legal possibility that bitcoins captured in the BlackRock ETF could be used as a Trojan horse to fork the network (which will fail but they might still try) and we will get “BlackRock Bitcoin” (very good says the government) and “everyone else Bitcoin” (very bad says the government). Indeed, the possibility of that exists even without the fork.
Personally, I am less concerned about that. I think the reality of these moves is that the Americans know they must put a stake in the ground somewhere around this sector. It will be BlackRock with Coinbase as their custodian. Two large, listed American firms which will not suffer the attacks Binance has. They will make lots of money and buy lots of bitcoin. America will be happy. There will be negative side effects, like chain surveillance, silly ideas about BlackRock forking bitcoin, etc. None of it matters. Bitcoin is an open source system, anybody can use it and do what they like with it. If BlackRock wants to wrap it in a semi-weird half ETF then good luck to them.
By the way, BlackRock has an approval ratio of 575 ETF applications submitted with just one rejection.
United Nations
I found two things this week. One I thought profoundly good, and the other profoundly bad. Starting with the latter, the United Nations (they still exist) launched a campaign against something called ‘disinformation’.
“The proliferation of hate & lies in the digital space is causing grave global harm. This clear & present global threat demands clear and coordinated global action. We don’t have a moment to lose.”
To address this concern the Secretary General (Antonio Gutteres) launched something called the “Common Agenda”. Included in his common agenda is lots of good stuff and also, again, the regulation of AI; something which was called for last week in the EU as well as lots of things about controlling the internet. Also, there is a section on biometrics and Digital IDs.
Is that much different from today? You can’t really send money now without spraying your passport photo 10 times across the internet. I suspect this is rather more disturbing though and your identity will be digitally embedded in the transaction itself. In the end, money is time. It represents how you spent your time earning it and to not be able to use your time without sharing your biometric data seems a fundamental breach of human rights.
Naturally there is a tech and crypto tax grab too.
“Consideration could also be given to measures to tax the value of the digital economy, taxation of financial technology innovations, including cryptocurrencies, and a digital development tax, whereby the companies that have benefited for decades from a free and open Internet contribute to the connectivity of the 3.8 billion people who are still offline and to a safer digital world”
“Companies that have benefited from a free and open internet”. What weasel words.Those companies built the internet. They took risks, they applied cutting edge knowledge. It took many years and many millions of hours of effort. They accelerated the path of humanity and the UN claims it was a free ride that must be taxed.
Before we go on, I do want to check in on how things have been going at the UN because they have been quiet for years. Updates can be found regarding child abuse by staff, 2000 allegations of sexual abuse by UN peacekeepers, and of course the Srebrenica massacre which their fully armed peacekeepers stood back and observed while 8,000 men and boys were shot in front of them. Common Agenda, Antonio? Please. It is a totally failed institution sustained only by its own momentum and the possibility of personal enrichment by those who choose to fund it.
Now to the profoundly good. A podcast with David Deutsch, author of the Fabric of Reality. The podcast is excellent although the subject matter, like the book, is complex. Deutsch explains how knowledge is created, how do we discover things in the theatre of ideas? I won’t ruin it, it’s here. I also benefited from the detailed show notes which are at the bottom of this page. The book, for ease of reference, is here.
He is profoundly optimistic about humanity. All problems are solvable, subject to the laws of physics, and we will solve them.
“Wealth is not a number. I don’t think it can be characterized very well by a number. It is the set of all transformations that you are capable of bringing about. That is your wealth. And if optimism is true, then there’s no limit to wealth.”
His reference to optimism is a specific form of optimism which is covered well in an article from 2018.
It’s massively uplifting that people like this exist because there is just overwhelming noise from bureaucrats who dominate the airwaves with utter nonsense about regulation of things they do not understand or even partially understand.
Why do I draw the parallel between the UN and David Deutsch when apparently there is none? David Deutsch has made the case in the past that if we let people get on with their lives, progress accelerates. The Enlightenment being the very best example.
Throughout history there have alway been institutions attempting to maintain the status quo and essentially hinder the process of knowledge creation. He believes without these hindrances you and I might already be immortal and be exploring the stars.
He further believes we should take it personally. We should be saying something when an institution we did not vote for decides it wants to put our DNA on a transaction, we should particularly be saying so when that institution is so obviously rotten.
The end of the petro-dollar
Before we begin then, I acknowledge the Dollar will be around for ages, the rest of our lives for sure. It will be dominant in international trade and I’m not saying it will die, but …
The absolute dominance of the Dollar ended the moment countries dared to trade oil in anything other than USD and didn’t get killed. You will recall up to that point that anyone who tried it risked execution by the US. When Saudi Arabia declared they would sell oil to China in Renminbi last year, America complained loudly but they won’t be doing anything militarily about it.
The trend here is quite clear. Eventually the BRICS countries will settle their international trade in something other than (or as well as, USD). It’s happening and the wild decline of USD as part of international reserves is proof.
The chart is somewhat misleading because if the USD is down 19% then where did the rest of the money go?. The answer is firstly gold and secondly the Chinese stopped hoarding dollars and simply spent them building airports and railways across Africa and increased their general spread across other currencies.
The reality of the decline isn’t lost on the IMF either. Their boss (Kristalina Georgieva) admitted as much, claiming the USD is down from over 70% of international reserves last year to slightly below 60%. It’s not even that big a deal but earlier this year the IMF was claiming there was no de-dollarization, now there is and it’s ‘a small change and will not be rapid’.
It’s not a small change though. Pax Americana is over. Frankly, there was all that much Pax either was there? A new war every couple of years which, despite overwhelming advantages, America contrived to lose in nearly every case. Turns out losing wars is even more expensive than starting them in the first place because it is the root cause of the lack of faith.
Georgieva went on to make an interesting point about what might replace the USD, calling out specifically the Australian Dollar as one of the beneficiaries. The AUD is remarkable in that it is the fourth most traded currency pair in the world. That’s despite Australia having 0.3% of the world’s population. Being relatively stable, resource rich and out of the way are profoundly helpful characteristics for a currency. It’s also highly unlikely that Australia will start a war (although it conceivably could be on the receiving end). The AUD ought to perform well over the next decade.
What will the new major reserve currency be though? The most obvious choice is China’s but they have their own issues; lack of transparency is one but there is another less discussed problem.
The Chinese population is set to halve before the end of the century. Their economy will at some point start shrinking and be significantly less vibrant. Maintaining a vigorous military presence is also incredibly difficult in the face of a collapsing population.
The very fact that those considerations are relevant makes the case strongly for things like gold. The ideal reserve asset is apolitical, not the liability of someone else (as all fiat currencies are), has limited supply and is durable. We know that gold fits that bill and we know Russia and China have been buying a lot of it.
The question is who will be the first to add bitcoin to their reserves at scale? We have two minor countries on the list but should a major country do so that is an entirely different matter. My favourite candidates are Hong Kong and also the UK which seems prone to eccentric financial behaviour at the moment. It seems laughably unlikely though, does it not?
A quiet fade
Remember SBF, the CEO of FTX who somehow managed to lose $8 billion of customer money. It seems the US government has now dropped some of the charges against him on technical grounds.
It’s all quietly, quietly and not much in the news about it. I am intensely suspicious of all this.
His original bail bond was $250 million, which was somehow satisfied by his parents’ $2 million home. Next, investigators claim to have recovered $7 billion in assets that SBF had torched on yachts, houses, planes and orgies. I find that odd and unlikely. Certainly users of FTX haven’t seen any value for the recovery.
Now, charges are quietly being shelved. I won’t write the words but I very much doubt that Sam’s only employer was FTX.
Euro-Trash
Chief Euro Economist Big Phil did some slides this week.
They tell a story of trouble brewing. Here we have the trending flow of assets into and out of Europe. I have absolutely no idea what the slide means, I just looked at it and thought, oh looks a bit 2008-ish.
Throughout the deck that trend is apparent even though most of the slides are monstrously confusing such that they are probably meaningless. This next one I did understand. Forward industrial orders are down 10%, which is huge and has happened because Germany ran out of power. Barely warranted a comment underneath though.
The occasion of the slides is a conversation he had with an economist who won a prize in Germany last year. “Background slides by Philip R. Lane, Member of the Executive Board of the ECB, for dialogue with Matteo Maggiori on the occasion of the award of the Germán Bernácer Prize” as the ECB website puts it. No speech to go with it, no explanations given. The slides do tell a horrendous story but nobody seems too worried and I suppose holiday time approaches, so cheese and sunshine it is.
Laggers was out and about too, increasing interest rates. Her patronising tone reached DEFCON 1 last week. If you can tolerate it, here she is lecturing Europeans on why they should endure more pain because she’s an imbecile.