A bus full of whores

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I’ll call him

I’m reliably advised that it’s been a “terrible week for bitcoin”. I believe the contrary to be true. In the wash up of the SEC movement against Binance, Coinbase and others, several coins have been absolutely crushed having been specifically called out by the SEC as securities. In many cases there simply is no argument.

Now every hedge fund in the world that held them has to ditch them and there are no buyers … hence this:

By contrast, over the last seven days bitcoin is -4%. Not that June will be a particularly good month but it will certainly signal a totally different risk profile for bitcoin going forward. In all likelihood it will be regulated in the US as a commodity and the rest of ‘crypto’ will be a security with all the pain that goes with that.

So far Ethereum has not cropped up in any SEC action as a security, which is rather interesting given there is a reasonable case that it is one. Back in 2018, the SEC rather tied their hands when they had this to say:

The Hinman speech is now infamous because it has been used by Ripple and others in their cases with the SEC. This week a trove of SEC correspondence related to the Hinman speech was released in court after years of obstacles. Incredibly those emails reveal that Hinman actually called Vitalik Buterin to confirm how the “Ethereum Foundation operates” prior to his making that speech.

Hinman was no middle ranking officer, as a Division Director this email is basically a get out of jail free card for Ethereum and certainly for Vitalik Buterin.

Next up in court this week was Binance US who were fighting an asset freezing order from the SEC. The judge decided that “there was absolutely no need for a restraining order” and told them to keep talking. The underlying current looked rather less positive though.

The big winners of the week were bitcoin and Manchester City; the big loser, remarkably, was the SEC itself.

Buyback

Buybacks you say? They normally happen for two reasons, the first is that a company is genuinely overcapitalised, simply with more cash than they know what to do with. Apple would be a fine example.

The other reason is when slightly dodgier companies announce a buyback for some other reason, which is normally pretend and the buyback is solely to enrich management who unload their own stock into the buyback. Indeed there is a rather good article on exactly that here.

In this case though it is the US Treasury who have announced a buyback of bonds from 2024. They are not a company, they do not have any money at all and are so indebted that if they were a company they would have been in the grave long ago.

The buyback is “technical” in that longer dated debt will be bought back and it will be financed by issuing shorter dated debt. I would believe this technical reason except it's highly likely that the folks at the Fed have worked out that as time ticks by nobody is going to want their 10 year + bonds and the yield could spike in a very ugly fashion making the US look like a banana republic.

By pre-announcing this move, when it happens they can simply say we told you. It is not some crisis measure that we made up overnight. They can then easily suppress longer term yields by providing unlimited demand at the longer end and issuing short dated securities. This exact strategy used to have a different name. It was called Operation Twist, with the idea to stimulate growth in the economy and keep longer term interest rates down.

It is a crisis measure though; any sensible government that could lend for 30 years even at current rates would absolutely do so. The fact is nobody is going to buy those bonds. Attempting to issue lots of them and failing would destroy confidence in US bond auctions. So just flog the punters what they want, which is 3 month - 2 year bills. Holding short dated bills is not so risky for investors, even inflation can’t destroy too much on a 90 day bill.

In short, they’re fooked.

For your safety

Following the closure of Binance Australia bank accounts, the pile-on began this week. With over-eager Australian banks introducing all sorts of limits for “your protection”.

Commbank will now impose 24 hour limits for transfers to cryptocurrency exchanges. On balance, that is probably fair because it protects against scams and a cooling off period is often sensible.

The second aspect of the change, the $10,000 limit, is a bit more concerning. $10k is no trifle but that is hardly the point. The point is whose money is this? If it’s yours, why can the bank tell you what you can and cannot do with it? I wonder about the legality of such restrictions. In essence you are now told that your money cannot be used for certain purposes. Who is deciding though? If an elected government decides that is one thing. If an administrative bureaucrat decides that is quite another.

Outside of cryptocurrency, Commbank stepped up their other protections this week. As part of our commitment to “Making Banking Safer” the maximum coin withdrawal is now $100.

Now who on earth wants $100 in coins these days? Who knows, but also, who cares? Again it's either your money or it isn’t and at Commbank it increasingly isn’t.

As we move towards central bank digital currencies this sort of thing won’t need a poster and an announcement. It will be programmable into the cash; certain payments good, certain payments bad, and it won’t be you that's deciding.

The case for having some permissionless money is growing and growing. Fiat money grows less useful and less scarce with each month that passes.

Bacon and eggs

Tough times in the UK. Their inflation stats fell in Q1 but core inflation went back up. Food is absolutely off the scale with some prices going up 50%.

Looking at the chart it’s no real wonder that 40% of the population is overweight either. I’m not hearing much about kale and avocado prices going off the scale but maybe they are. Everyone is upset that prices are rising but really they should be upset about the calculation method which genuinely does defraud them. Here’s a little test for you.

Did you know that when we get better at making things they get cheaper but the inflation stats take the credit?

Take computing; say a good home computer costs $2,000. Next year it also costs $2,000 but is twice as fast because of technological progress. Inflation stats reflect a 50% fall in computer prices.

Technological progress is specifically used to monetise debt.

The author of the Bitcoin Standard Saifedean Ammous laid out a better example of how this works

Imagine an economy with only 2 goods: beef & laptops. Central bank creates a ton of new money, causing prices of both goods to double. But the processing power of the laptop increases 4x through technological improvement. CPI is ZERO.

It’s remarkable that so many people do not realise or acknowledge that prices should almost always be falling because we are almost always getting better at doing things. This isn’t taught in school (or university from my recollection) and is at the absolute heart of the fraud of fiat money.

Human progress is consumed by statistics as a weapon to deceive you. Truly immoral.

Euro-Trash

The April survey was just released. Consumers expect inflation to fall, income growth to fall, spending to fall, house prices to fall and … economic growth to rise? That would seem a mathematically unlikely consequence of the preceding series. Growth always goes up in Europe even though they get poorer every year, so maybe consumers are simply weary of being asked and parrot the appropriate lies.

Finally, they lost another character in Europe this week too. A man of considerable humility and modesty who had this to say about himself: "The best political leader in Europe and in the world, there is no-one on the world stage who can compete with me." Here are some more memorable quotes from Silvio Berlusconi.

That’s Europe. A lot of fun and an economic and demographic basket-case.

Further information

Read our bitcoin news wrap-up for last month on Livewire.

Our May 2023 report to investors can be found here.

If you are considering an investment in the Managed Fund, you can now apply using our online application form: