It’s not what they say
“Not for us”
“It’s a ponzi”
“It’s going to zero”.
We still hear it every day from banks and institutional fund managers. What they say is one thing though, what they do is more instructive.Take BlackRock, the world’s largest fund manager, with $9 trillion at their disposal. They have taken a very conservative approach to bitcoin, their early appraisals were less than generous, but if you look at their portfolio holdings it’s a different story;
- BlackRock owns 15.8% of MicroStrategy which itself owns 100,000 bitcoins (80% of its market cap)
- BlackRock owns 5.9% of Square, the largest seller of bitcoin in the US
- BlackRock owns 6.7% of Marathon Digital Holdings: the largest bitcoin miner in the USA
- BlackRock owns 6.6% of Riot, another giant bitcoin miner
The Financial Times exhibited a rare piece of honesty this weekend, revealing to its readers that “US Treasuries are only really worth what you can ultimately buy with them”.
The journalists at the FT have been reading a new research paper which asks questions about the true value of US debt. You can read it here if you wish. It took a lot of clever people two years to produce, and they share their findings over 65 pages of complicated nonsense. Their extract sets new records for ambiguous babble.
As the FT helpfully points out, when investing in US bonds think about what that money will buy you today. Then think about what it will buy you in 10 years. They are anything but risk-free investments.
The London Upgrade
It’s a number of weeks now since the Ethereum network went through its London upgrade. A change designed, in principle, to reduce fees on the Ethereum network. The daily fee rates on Ethereum have fallen since but they are still prohibitively high, averaging around $4 to send a transaction since the change.
It would be wrong to characterise this as failure at this stage. The change is part of a wider change the network is making to move to proof-of-stake. More importantly, it brings in to focus the question of how do you scale a blockchain? Ethereum is taking one route, attempting to scale on their main chain making it large and potentially cumbersome.
Bitcoin, on the other hand, is scaling via second layer solutions like the lightning network. In this case, every transaction is not written to the main blockchain, this only happens when absolute finality is both required and worth paying for. For small, trivial amounts, do you really need a permanent copy of the transaction replicated on thousands of computers forever? Probably not.
The lightning network itself is growing fast reaching 2,300 BTC this week. The rate of growth is seriously impressive currently doubling every six months and facilitating instant payments for a negligible fee.
Two very different scaling models are playing out here. Nothing is certain, but we have a clear preference for the certainty offered by the bitcoin base layer, with volume built out on second layer abstractions. In any event, it’s game on.
Two weeks to go until bitcoin becomes legal tender in El Salvador. It would be fair to say that the international financial community has pulled together, to threaten, cajole and generally terrorise the President in a textbook display of passive aggression.
Since the law was passed in El Salvador in June, the US State Department has added high‐level members of President Bukele’s administration to the travel ban list. These include his cabinet chief, minister of labour, vice minister of security, and legal adviser. They have been accused of a laundry list of charges such as money laundering, accepting bribes, and undermining democracy. The sorts of things that never happen in the USA.
The World Bank and the IMF have also issued warnings and done their absolute best to undermine the country and the President.
Happily, he has a sense of humour and responded to Hanke’s tweet.
The whole El-Salvador experiment is interesting but really it is small fry in the bigger picture. The bigger picture is about the largest industry in the world, remittance. Remittance is a half-trillion dollar business with people all over the world sending money home daily.
In Nigeria, remittance inflows into the country are down 27%, bitcoin volumes are up 250%. Africa is jumping all over bitcoin like they jumped all over mobile phones.
Many transactions are now using the lightning network because it is easy, fast and cheap to move money around the world.
The little understood point here is that the network is really being used as a transport mechanism for fiat. Remittances are leaving the USA in USD, converting to bitcoin, entering the lightning network, and emerging as local currency in bank accounts at the other end. The whole process taking about 10 seconds and costing almost nothing. Watch this space.
Refreshed from a Euro break, Agent Lagarde returned to the office this week. I suspect she went somewhere hot because rather than return to the issue of mass youth unemployment or her complete inability to fulfil her inflation mandate, she talked about the weather.
I have reviewed the ECB’s “ambitious plan”, it looks rather like a hastily compiled spreadsheet put together by a summer intern.
Take item number six for example, “Climate Stress Testing on the Eurosystem Balance Sheet”.
Prepare data and methodology? According to the ECB plan this is due anytime this month. Somebody at the bank will be required to model the impact of changes in weather conditions on the balance sheet of an entire continent. Bear in mind we cannot accurately predict the weather one week hence and our weather predictions are not much better than our economic predictions. I hope very much the person that did the “ambitious plan” spreadsheet doesn’t also do the climate model.
I have no doubt that the intentions here are good and that a lot more could be done to preserve the environment. The fact remains it has absolutely nothing to do with central banks. Even if you append every sentence you utter with “within our mandate”, it still won’t be.
The whole team, they relentlessly pound the idea, in every interview, in every report. Meanwhile in Spain, the youth unemployment rate remains at 33% and in Greece it’s 35%.