Data driven

“I’m a data driven person”. It’s hard to know how to interpret the statement. You do what excel tells you? You completely ignore your instincts. For a single individual, it seems a very strange thing to say and yet we hear it all the time. If you have it on your LinkedIn profile, do yourself a favor and get rid of it.

For a central bank on the other hand, I would think it perfectly normal to be data driven. Yet we had the Federal Reserve last week giving us this:

“the pace of future rate hikes is data-dependent”

… and the RBA on Tuesday chiming in with this:

“The size and timing of future interest rate increases will be guided by the incoming data” 

The follow up statements from both banks explaining that from now on everything will be ‘data driven’.

What was happening before then? Random gunfire in a darkened room?

Sell Pressure

A good summary of the bitcoin sell pressure over the last few months.

From mid-May through to June over 236,000 bitcoin hit the market in forced sales, equivalent to 70% of all the bitcoin mined in a year. The collapsed Luna Foundation being the biggest seller, followed by Tesla, Purpose ETF and then liquidations related to the 3AC collapse.

It’s a huge amount of selling, which resulted in the price action that we saw. Each seller has a buyer though and a lot of people have soaked up these bitcoins at what they believe to be a discount. There is no better buy than when the seller is forced to sell.

Next off the grid though for sell pressure is the Mt Gox liquidator. For those new to the sector, Mt Gox was once the world’s only bitcoin exchange — everyone got their bitcoin there. It was hacked in 2014 causing its collapse, but a portion of the bitcoin has subsequently been recovered. The process of returning the assets to creditors is now nearing completion and the coins in the vault will be distributed.

There are 132,000 Bitcoins in the Mount Gox wallets, which you can track here. The disbursement is a fraction of the 850,000 coins lost at the time but it is now worth much, much more in dollar terms. So dollar for dollar, creditors are being made more than whole, not so in BTC terms though.

Mount Gox has lingered over Bitcoin for a decade. It will be great to have this one resolved and may well be a good buying opportunity as the coins hit the market.

The liquidator will also distribute the 2017 forked coins from Bitcoin Cash. Not a particularly liquid asset anymore, so the price pressure there might be a lot more interesting.

Liability time

Perhaps the most frustrating thing about working with bitcoin is the general lack of understanding. We must take our share of responsibility. We deal with it every day and should make more of an effort to explain the underlying principles that give it value.

The most important in my view is that bitcoin is not somebody else’s liability. This is fundamental.

• Government bonds: a liability of the government to whom you lend. You are relying on their ability to collect taxes.
• Cash: a liability of the bank, created when banks lend money.
• Equities: a liability of the company. You are relying on their assets and success to recover your funds.
• Paper gold investments: a liability of the issuer. You better hope they have the physical gold to back it.

Alternatively

• Physical gold: not a liability. Which is why all central banks hold it.
• Bitcoin: not a liability. The gold of the internet era.

Creating a digital asset with this feature was unbelievably challenging. It was the number one problem in computer science for decades and took a combination of software, mathematical discovery and the foresight of a small community of people to produce an open source solution to the issue.

When I see hot takes like this one then, it’s incumbent on us to point out the error. It’s not only wrong, but wrong at a fundamental level that demonstrates a total lack of understanding.

Inflation Reduction Act

Not six months ago, inflation wasn’t an issue. Now it has its very own $650 billion Act of Congress. The Bill itself raises taxes, so only introduces a net $300 billion in spending.

In reality though, this bill has nothing to do with inflation, it’s just called that because that’s the issue in the news at the moment. Last year we might have called it the Jeffrey Epstein Infrastructure Bill, a topical introduction followed by the real explanation.

The bill is radical, targeting a 40% reduction in CO2 emissions by 2030, which will be on us pretty quickly. As a result, most of the spending is for climate change and renewable energy projects. To be fair to Biden, he has an electoral mandate for this and it looked unlikely to be passed even last week.

It will be a massive boon for bitcoin miners across America too, who are fundamentally changing the way energy works by integrating with renewable generators. Their consistent delivery of demand at any time of night or day in any location makes the economics of planning these plants much easier. I expect this to play out over the next decade, including in Australia, which is in the process of legislating similar CO2 reductions.

Aside from being good for bitcoin mining, it is good for bitcoin too. More printing of money the US government doesn’t have. It won’t reduce inflation but I am really looking forward to Biden claiming this Bill was the thing that turned the inflation worm south when it takes an inevitable dip.

Euro-Trash

It is indeed a happy week because Christine is on a well-deserved holiday. One that is 16% more expensive than last year. Generally, Christine and fam go away for the first two weeks of August (often to Greece, so if you are there do say hello). She hasn’t emailed to let me know or anything, I just happen to be across the pattern of operation. The next serious meeting isn’t until September and there is nothing in the public diary for the next two weeks either. Hopefully we can expect some peace and quiet in the Eurozone while she’s gone.

Her absence gives us a chance to check in the EUR v BTC wager we had back in 2020. Bitcoin has had a terrible time this quarter, one of its worst ever. Only two weeks ago Christine was reminding us all of that fact “a Euro is a Euro and always will be”. Surely she is now in front?

Nope … we’re up 112% against the dollar and the Euro’s down 7.6%