The ListedReserve Bitcoin Fund is met with skepticism when we first meet clients and fund managers, despite its stellar performance. I can’t help thinking we are held to a rather higher standard than some others looking to raise money. For example, WeWork’s IPO lays bare the full extent of the money merry-go-round in listed equities. Some highlights from the pre-filings:
WeWork has rebranded as “We”; fortunately the founder, Adam Neumann, had trademarked that name earlier and was paid $5m for his idea. Phew, well done Adam.
Furthermore Adam, who doesn’t mind taking a lend of the company every now and then, has borrowed close to half billion dollars from WeWork, one of the loans at 0.64%.
If you do participate in the IPO, your shares will have 1/20th of the voting power of Adam’s shares (side note that 0.05 basically rounds down to zero).
Finally, WeWork lost $900m in the first half this year and $1.9 billion last year, so the company is valued at $50 billion, obviously.
Overall, its a great deal for Adam and the people who lend WeWork money (of which they need a lot). They happen to be the same people who lend Adam money personally for the bits of the business that you won’t actually own, so it’s a great big long lunch for everyone (but not you, please bring a sandwich).
Our funds returned over 60% last year, slightly better than lending money to Adam, but it’s up to you.
Do yields matter?
Bored of the yield curve discussion yet? The traditional view is it’s the harbinger of recession as the chart shows. There may be an alternative view though…..
This is is the first meaningful inversion since monetary policy went mad in 2008, so it’s not obvious that anyone understands what is happening. It may be a predictor of recession but equally, it may be that enough central banks around the world are buying bonds, so it makes sense for investors to buy them first. The longer the maturity the more time for a central bank to buy them at some crazy price. Hey presto, more demand at the longer end, there’s your inversion. I’m advised this is an oversimplification, maybe, but it happens to be exactly what is happening and exactly the reason so many people want to buy bonds.
So, it is becoming hard to separate fact from fiction. In particular, if unemployment is so low, economies are growing and America is Great Again, why are we in this weird interest rate environment?That’s why we like bitcoin, we understand the economics, we know exactly how many of them there are right now and exactly how many of them there will be at every point in time. These certainties are hugely and increasingly powerful characteristics in strange monetary times.
Bakkt paves the way for institutions
Bakkt Bitcoin futures got final approval for full launch on September 23rd. They key feature here is they are physically delivered contracts so participants will have to enter the market and buy bitcoin rather than net settling in cash.
Let’s hope the everyone has done their homework because if you are uncovered and need to buy and deliver bitcoin things can get expensive, very quickly. Here’s a new formula we have developed in house for the launch of these futures.
Tight supply + physically delivery = interesting for price
The Fear and Greed Index
With prices fluctuating around US$10,000 mark the last few weeks, here’s a useful tool analysing bitcoin market sentiment, the Fear and Greed index.
This week we are at maximum fear. Generally a good time to buy. It’s a fun site but probably reflects the content of conversations on twitter rather than anything more fundamental.
Ethereum’s fee conundrum
This week saw the annual Ethereum conference in Berlin pass with a little less fanfare than the ICO finance fuelled 2017 and 2018 editions. One discussion centred on the protocol’s high fees and the issues they have caused:
“If you’re a bigger organization, the calculus is that if we join, it will not only be more full but we will be competing with everyone for transaction space. It’s already expensive and it will be even five times more expensive because of us.”
The fact is blockchains rely on fees. There has to be a fee market to sustain the miners and therefore the whole ecosystem. Really, the discussion should be how do we make a healthy fee market that provides sufficient value for which people are willing to pay.
This discussion at the conference is concerning for Ethereum. Quite possibly, they are wrestling with the issue that people are not prepared to pay to use that blockchain because the alternatives are better.