Water

Taken from an address by David Foster Wallace in 2005, the idea is that the most obvious and important realities are often the hardest to see. Everyone has default settings, things they assume are just correct and they never question them. The idea is an excellent one and you can extend it to any corner of life.

In finance, there is one default setting that we all take for granted, it is included in nearly every valuation model in the world. Your entire portfolio of assets will be valued including this particular price in the model somewhere (more likely everywhere). It is the price of a risk free asset against which all other values are measured. That risk free asset is any debt obligation issued by the U.S. Department of the Treasury.

A dispassionate analysis might conclude that US debt obligations are complete junk, they can only ever be repaid by devouring their own value, a circumstance which must surely be obvious. But it is not obvious, because it is the water in which we all swim.

Nigeria

Cryptocurrency has had particular success in parts of the world where currencies are weakest. Simply, the economic imperative in Venezuela is far greater than it is in Switzerland.

Africa too has seen significant adoption of cryptocurrency, particularly in Nigeria. It has been the number one country for bitcoin searches (per capita) for the last 12 months and it is always near the top.

The Central Bank in Nigeria has been at war with cryptocurrency for quite some time, including a recent round of “bans”. Their fatal mistake was to ban the use of their own currency, the Naira, for remittance payments. Banning it is was not sensible because remittance is the number one use case for currency across the globe, in particular to support family members overseas. As soon as your currency is less useful, fewer people will use it.

The penny (or indeed the kobo as it is in Nigeria) is starting to drop. A Senator last week pointing out in parliament that there isn’t much they can do because every ban so far has failed.

Instructive that we now have nation states wrestling with the reality of personally sovereign money.

But it is not bitcoin that has made Nigeria’s currency useless or valueless, it is politicians. If you stop people using a currency for a purpose for which they need it, they will move to something else, its pretty simple. Especially when that need is the well-being of their relatives overseas.

Secondly, if you abuse the privilege of issuance and print loads of currency, the value will fall like a stone against other items of more modest supply. It is very simple and again, nothing to do with bitcoin. The Naira has had a bad time in the last five years losing 50% of its value against the USD, which it must be said hasn’t had a great time itself. No surprise then that people will look for something else.

The debate in the Nigerian Senate continued:

“If we have an economy that is very weak and we cannot regulate cryptocurrency in Nigeria, then I don’t know how our economy would be in the next seven years. We didn’t create Cryptocurrency and so we cannot kill it and cannot also refuse to ensure it works for us. These children are doing great business with it and they are getting result and Nigeria cannot immune itself from this sort of business.”

Decentralisation is starting to have its effect on nation states, it’s going to take decades but it is happening. For the first time, particularly for smaller countries, there isn’t much you can do but get on board or get left behind.

Binance

Aside from the core currencies themselves, there are other businesses in this sector doing extremely well. Our Managed Fund has a significant position in Binance, a cryptocurrency exchange. The exchange tokens are attractive because once they scale the returns can be enormous, and not just in a rising market, they make money whether investors win lose or draw so I am rather keen on the natural hedge they provide.

The latest additions to their derivative products are vanilla options and leveraged tokens, they have had futures for quite a while. The range of products now easily rivals most stock exchanges and the ease of use and access is incomparable to traditional markets.

Looking at their finance options. You can now spend your crypto via the Binance visa card or get loans against your asset value. All these options are frankly expensive currently (compared to the old world) but they exist, they work well, and new ones come on line every day.

The pace of development at Binance is nothing short of incredible. Their latest volume numbers absolutely swamp most national stock exchanges. On 4th January 2020 Binance did $80 billion in trades. Fair enough it was a record day, but the Australian Stock Exchange averaged $6 billion in trades per day in 2020. It’s not even close on any day.

It is remarkable that some little known exchange which doesn’t really have an official geographic home has become so big. Their token performance has been excellent too rising three fold in the last few months after they published their astonishing volumes and user statistics. The market cap of the token is now around $20 billion, which is pretty punchy but this thing is growing like nothing else.

Many people turn a blind eye to these assets because they exist outside of the current financial infrastructure. The token itself does not even represent equity, it simply provides a revenue share which is used to buy back the token supply (like an ongoing share buyback). In addition, it provides a huge discount for users via a discounted trading rate, so it does have its own commercial imperative.

It is not listed, not regulated, you don’t own equity, you don’t have a vote, it is speculative, it is new and it might go to zero, but Binance has more users than Coinbase which will shortly list on the Nasdaq and will likely be the biggest global listing of 2021.

Most of the users are under 30. They are same people that found Facebook before you’d ever heard of it. I would posit that many of them will never ever use a traditional stock exchange in their lives, but let’s see how things develop.

Change

• AOL
• Blockbuster
• Radio Shack
• Circuit City
• CompUSA
• Sears
• HotJobs
• Yahoo
• VoiceStream Wireless
• Gateway Computers

Euro-Trash

Great news! I have applied for a new job at the European Central Bank. Christine Lagarde includes climate change in every speech and believes it to be within the ECBs mandate, because “climate change impacts prices and so it is absolutely right we have it front of mind”.

The ECB is unlike the Federal Reserve. It has only one mandate stable prices. The Fed has to worry about employment, the ECB does not.

Even so, doesn’t unemployment maybe have a bit more of an impact on prices? Wouldn’t you have a “Head of Getting Young People in Work” before you pursued your own personal vanity projects that have absolutely nothing to do with your core role, however valid they may be.

How about oil? Oil has a massive impact on general prices, does the ECB employ some hidden Sheikh who can turn the taps on and off when Christine commands it? I certainly like to think so.

Bizarrely, the website quotes the roles remuneration net and exclusive of pension contribution, presumably because the gross figures are embarrassingly large. The pension contribution from the ECB is 20.1% annually. It’s astronomical, I have never heard of that anywhere. Having said that, I fully support it since I hope to secure this role for myself.  I’m looking forward to running around Brussels asking people to make sure they print double sided.

The whole episode reminds me of when I worked for a large listed company. At one point the General Counsel decided all Board members would receive iPads so that we would no longer need to print, bind and courier vast amounts of paper for each meeting. It made sense, since we were couriering binders of information about corporate sustainability from one side of the UK to the other.

Board meetings were bi-monthly. The Board members would creep in for a chat early in the morning. “How are things?”

With small talk out of the way, this would follow…….from every single one of them: