What would you say if I tried to sell you this company:
- Revenue: $3.3 trillion
- Enterprise value: $177 trillion
- Valuation: 53x revenue
- Revenue growth: negative
- Age: 244 years old
- Debt: at a 70 year high
The company is very well connected and uses different accounting rules to everyone else. It has massive unfunded liabilities mostly payable to its former staff in the form of pensions. These liabilities do not appear on balance sheet as they would for a normal company. We have adjusted for these in the above valuation.
The company’s largest bankers stopped lending to it about 7 years ago and have been gradually reducing their exposure to it ever since. New lenders cannot be found but the company has found some innovative ways to finance itself which we can share with you on signing an NDA.
The company has not made a profit for 20 years, there have been some unfortunate reasons for this like wars and plagues, otherwise the business is in sound order.
The company has a long history with a successful and happy workforce but this has recently broken down a bit. The cause is complex but a new management team could surely address this.
There are some legacy policies in the staff handbook that have also caused issues. In particular, the policy of executing team members for doing the wrong thing is under review with HR.
Yes. It’s the United States, but specifically US Treasury Bills. The “safest” asset on earth. The US Treasury just released its latest figures on which foreign governments own US treasuries.
The fascinating thing here is that in a year of record treasury issuance, foreign holders of US debt have not increased their holdings at all, staying flat at $4.1 trillion. China has reduced its holdings and continues to. Indeed, in local currency terms (because of the weaker dollar) almost everyone has reduced their holdings.
This need not be a crisis, since clearly there are willing takers inside America, including pension funds and banks etc. At some point though there has to be a limit to the amount of treasuries the world can consume, and America’s monetisation of its own debt will ratchet up a notch.
As you can imagine, a lot of reading goes on at ListedReserve about bitcoin and cryptocurrencies. The most interesting finds are the good arguments about weaknesses. The best one I have found recently regarding bitcoin is that it has “an ongoing energy requirement”.
To explain: gold is forged under pressure from the earth’s crust over millions of years. It is hard to forge as we know, but once it is gold it remains gold. No further pressure or natural energy forces are required.
Bitcoin is effectively forged by miners converting energy into computing power. It has the advantage that we know exactly how much energy at any point along the chain and that energy underpins the value. However, once you have a bitcoin, to retain its value, you require that the chain must continue. Energy needs to continue to pour into bitcoin not just to mint new coins and transaction fees but also to support existing assets. Gold does not have that problem.
The counter argument of course is that there is a large incentive (currently $US250,000 every 10 minutes) to keep pouring energy into the system and so people will. There is no similar incentive to engage with gold. Still. It’s one of the better arguments and a clear advantage to gold. Gold needs that advantage too because it doesn’t have many others.
Actually here is what happened:
1. At Block Height 666,833 two competing miners produced a block at exactly the same moment.
2. The blockchain now splits into two and it is the next block which effectively determines what happens to its predecessor, since whoever mines it will add to the chain that they are recognizing and that will become the longest chain.
3. In theory, bitcoins spent in the block that split the chain could be spent again, hoping that the next block will adopt the one in which they are not included. In so doing they are tricking recipients into believing they have received bitcoins on a chain that will not continue.
That is why all exchanges around the world require two confirmations before they accept your funds. For exactly this reason. Many require three of four. It all depends on the amount, for small amounts two is fine, for big sums you might want to wait a bit longer.
A lot of new institutions have come into bitcoin in the last 6 months and some of them were clearly alarmed that this was possible. It has always been possible though. These chain splits happen at least once a month and they were fully anticipated in the bitcoin white paper, where Satoshi Nakomoto laid out the probability of a double spend. If you wait six blocks, it is just about zero.
It demonstrates that very few of these new institutions have even the slightest idea how any of this works or indeed what they are buying when they buy bitcoin. One Canadian company even put out a statement explaining what they had done.
Fine to sell your bitcoin at a profit as they have, not fine to give a completely inaccurate explanation that demonstrates you don’t have a clue what you bought in the first place.
“Bitcoin is inherently risky and only central banks should issue digital currencies”
“Investors must be cognizant that Bitcoin may well break down altogether, because the system becomes vulnerable to majority attacks as it gets close to its maximum supply of 21 million coins, BIS General Manager Agustin Carstens said in a speech for the Hoover Institution on Wednesday.”
Fascinating claims on many levels. Firstly, “only central banks should issue currency”. Since when? Says who? The history of central bank currencies is that they always fail, they are always debased. Even the USD. As soon as the US defaulted on the gold standard in 1971, the dollar had failed. It was no longer redeemable for gold and today simply shares a name with its predecessor, nothing else. $1 now is not what $1 used to be.
Perhaps his reference to bitcoin is more interesting though. Gloop has historically been in the camp of ‘bitcoin is backed by nothing and will not work’. His argument is now much more nuanced. Specifically, that a 51% attack (someone taking over the network) is more likely the closer bitcoin gets to 21 million coins.
This shows some real understanding of bitcoin, it also shows he doesn’t think it is just going to disappear. We should dwell on this point for a moment because it is significant, we are now past the dismissal stage for bitcoin. The central banker to the world’s central banks is now discussing bitcoin at the protocol level, weaknesses that might arise in 100 years time. This is actually what people who love bitcoin do all the time, effectively wargaming weaknesses and threats. It’s amazing he has been forced to enter the debate on that level.
Back to his claim, which is that as we approach 21 million coins the block reward (the incentive miners receive every 10 minutes for securing bitcoin) will fall and so the incentive to protect the network will decline, making 51% attacks on the network easier.
Unfortunately for Augustus, in the 12 years of bitcoin’s operation, the value of the block reward has risen steadily despite coin issuance falling. Also, the proportion of that reward made up be fees has risen steadily too. The market has demonstrated itself more than willing to support the security model and arguably bitcoin is vastly over-protected at this point because even state actors today couldn’t summon a 51% attack. When we do get to 21 million coins in 2140, the fee market is likely to be absolutely enormous and way in excess of the current USD 250,000 up for grabs every 10 minutes for securing the network.
His full speech can be found here. It’s actually very good and clearly enormous resource is going into this area from banks and governments across the globe. What is absolutely clear is that we will have Central Bank Digital Currencies (CBDCs) in the next year or so. They might have a profound effect on government policy too since in theory distribution of the money can now circumvent retail banks. The best chart he used was this one showing where the world is up to with their CBDCs. Of the developed countries, China and Sweden lead with full retail pilots underway but almost every meaningful economy is working on this.
Great news from Christine and the team at the ECB. Bank note counterfeiting was at “historically low levels in 2020”. Actually on closer reading, it’s historically low as a percentage of notes in circulation, which is at an all time high. Nothing wrong with giving the facts a bit of a polish I guess.
Anyway, ‘only’ 460,000 fake notes were taken out of circulation last year. Two thirds were €20’s and €50s, so we can assume the balance was mostly €100’s. Sadly, they got rid of the €500 Euro note a few years ago because it was so attractive to counterfeiters. That note has an amusing tale behind it. Nobody could agree what image should be on it, since each European country wanted its persons or buildings on the highest denomination. In the end, they put a sketch of “modern architecture” on there, basically a fake building because they couldn’t agree which country’s building would be used. So we had a fake building, on their highest denomination, which counterfeiters loved. It’s terrific stuff that only the ECB could manage.
Assuming the average value of the notes is €50, then €23 million of fake notes were taken out of play. It begs the question how much is out there if this much is being pulled out every year. Keep in mind that €23m would be an enormous bank robbery and this is happening annually. The largest robbery in history wasn’t much bigger – the Antwerp Diamond Heist, which was worth about €80m.
The highlight though was the claim that all euro bank notes can be verified by using the “feel, look and tilt method”. As opposed to digitally verifying against an immutable database of hundreds of thousands of independently hosted, synchronised copies. Forget that folks, just “feel, look and tilt”.