How do you delete tweets?

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ETF

In the end; it was an embarrassment.

First of all, the SEC Twitter account announced on Wednesday that the ETF had been approved. Some 15 minutes later, the Chairman of the SEC popped up to claim that the account had been hacked and no such thing was true. A further 15 minutes after that and the SEC had “regained control of its account” and decided that the ETFs had not been approved.

This feels rather unlikely. If you go to the enormous trouble and legal risk of hacking a US Government website, you don’t let go after half an hour. It seems much more likely that this tweet was scheduled for Thursday and somebody accidentally sent it. The market gyrated on the series of events, which seemed very much like the market manipulation the SEC seeks to protect the public from. 

24 hours later the ETFs were approved.

It was a bizarre sequence of events. From the start, the US Government’s interaction with bitcoin has been an unmitigated embarrassment. I expect that trend to continue because one participant in the relationship is a piece of software that produces a list of numbers every 10 minutes; the other participant is a decaying monument to corruption.

Almost 10 years to the day since the SEC blocked the first bitcoin ETF application (from the Winklevoss brothers) they have successfully protected American investors from 150x gains via a series of mostly false claims and political machinations.

It seems to me entirely fitting that they have humiliated themselves entirely in their final capitulation.

The approval itself was not unanimous. 3-2 with the Chairman casting the swing vote. His approval was grudging at best.

Contrast that with the statement from Commissioner Peirce who has been a strong supporter of Bitcoin ETFs from the beginning. It is remarkable in its honesty.

“The Commission, rather than admitting error, offers a weak explanation for its change of heart. In the past, the Commission, allowing our prejudice against the underlying asset to get in the way, has rejected applications on the basis that the bitcoin market was still immature and that there were outstanding manipulation concerns. Today’s approval order notes that the Commission now finds that means for “preventing fraud and manipulation” have been demonstrated because the prices on the CME bitcoin futures market and the spot bitcoin markets have been highly correlated throughout the past two-and-a-half years. We have denied multiple applications over that period, depriving investors of the opportunity to gain exposure to bitcoin in a more convenient and investor-friendly way. The only material change since we last denied a similar application was a judicial rebuke.

We squandered a decade of opportunities to do our job. If we had applied the standard we use for other commodity-based ETPs, we could have approved these products years ago, but we refused to do so until a court called our bluff. And even now our approval comes only begrudgingly as demonstrated by our continued insistence that these products satisfy a correlation test we have not demanded of prior commodity-based ETPs. Perhaps the one silver lining here is now that we know that the Commission can execute a robust correlation analysis, perhaps the road to approving other spot crypto ETPs will not be as bumpy (even if the Commission insists on continuing to apply a test it applies nowhere else).”

Wow. What a champion she is.

The first day closed a few hours ago. Volume for the ETFs exceeded $4.5 billion. It is the largest ETF launch ever for a single asset class.

2024 

“The future is already here - it is just unevenly distributed”

William Gibson - author of Neuromancer

I read Neuromancer last year. It was good although I needed these notes to fully understand it. If you choose to read it you might find them helpful. The book is perhaps more relevant now than when it was released and if you are an AI Doomer it will absolutely sing to your fears.

So much technological progress has been accurately predicted by science fiction. Some people it seems are able to be open minded and suspend their disbelief.

All investing success is really an arbitrage of future knowledge; you too must suspend your disbelief. You know something or assume something before other people catch on because the future is already here. For example, anyone who believed that buying things on the internet would be a big thing might have been an early investor in Amazon. Most people did not believe in that thing, they didn’t trust the payments, the delivery, the quality. They were wrong. 

Social media was another. I got this particular arbitrage wrong because I believed that people would not want to plaster their personal lives all over the internet. I was massively wrong and missed Facebook. 

In the case of our fund, I am of the view that economic exchanges will cease to be mediated by the government because they have a tendency to debase money. Mathematical discoveries have made person-to-person exchange trustless. More specifically, mathematics now secures private property. Previously, we needed the government to do that with their guns and laws and police; that is now not the case. It is a deep and profound change that slowly people are coming to understand.

Use of that trustless exchange is still minimal and in some countries illegal. Once again, people do not trust the new technology like they trusted the old. The knowledge arbitrage is available and it is enormous, it equates to the amount of monetisation global governments believe they can get away with. So, a many many trillion dollar opportunity. 

My objective for 2024 is to keep an open mind. I am certain we are underestimating the capability of artificial intelligence in particular, which I now use every day. I don’t think it's a stretch to say that me+GPT4 is at least 4x my 2022 self in terms of technical capability. 

Global productivity ought to sky rocket as a result but once again the gains will not be evenly spread because picking up them up will require effort and a bit of vision.

An anecdote about time

Assume your objective is to preserve value through time. How would you currently achieve it? Certainly not with Australian Dollars and certainly not with bonds. In Australia, people have tended to use property. Indeed, they use it with a disturbing level of certainty that it will always go up in value.

In any event, around the world there is a deep understanding of this objective as families attempt to preserve value for subsequent generations. Here’s a nice story about time from luxury brand Hermes.

The patina (I didn’t know either) is the gloss or shine on the clasp.

Time is money; money is time so here is a much longer article explaining something that the craftsmen at Hermes intrinsically understand.

Cost

I suspect there is growing panic within the Australian government that 18 months into their tenure they have achieved very little. It seems hard to believe but there will be a Federal election next year so Anthony is going to have to give away some cash in the meantime. 

The whole idea of the ‘government intervening on the cost of living’ can only mean printing money. The cost of nearly everything FALLS over time. The technological advancements we have made mean that nearly everything is cheaper. As a general rule, prices only rise when the government makes enormous blunders like spending much more money than it has or interfering with the supply chain wherever it wants. 

You will give me examples of things that do not get cheaper; like education. However I would argue that education is now free. All of human knowledge is available at your fingertips and excellent lessons, content and individually tailored pursuits are available on the internet. While not obvious now, perhaps it will be in 10 years when those that go down this route start outperforming those that did not. Coupled with a personal AI tutor that retains your progress and can take on a persona suitable for a child I would think school is doomed and will be sustained only by its societal momentum.

What about the other government managed scheme that has exploded in cost, healthcare. That too is about to get much cheaper since all medical knowledge and diagnoses are capable of being performed by vastly more capable machines. Watch the fight for this one; it should be really something. 

The more Albanese intervenes, the worse things will get. It’s fairly straightforward for governments:

1. Make knowledge available widely. Do not interfere with its spread or content.

2. Make sure your economy climbs the energy density scale.

   a. the more power an economy has the richer its people will be

   b. don't use wood if you have coal

   c. don't use coal if you have uranium

   d. don't use uranium if you have dyson spheres

Basically make sure we climb the Kardashev scale. If you can’t do that, get out of the way.

Euro-Trash

Radical news emerged just before Christmas in the Euro-Zone. France and Germany reached agreement on ‘new fiscal rules’ for the European Union.

The fiscal rules, which date back to the late 1990s, compel all 27 member states to keep their budget deficits under 3% of gross domestic product (GDP) and their public debt levels below 60% of GDP – thresholds that many currently exceed after years of pumping copious money to cushion the impact of back-to-back crises.

The new rules require member states to “keep their budget deficits under 3% of gross domestic product (GDP) and their public debt levels below 60% of GDP”.

You would be correct here if you spotted that the rules are totally unchanged. It’s just that for 35 years everyone has ignored them because they are totally unenforceable. The idea is that if you breach the rules then the EU fines you, you pay the fine and it makes a bad situation worse. The alternative is you cut spending and get voted out by your local electorate.

The result is this:

The average in the Euro-zone is 90%. To get back to 60% would require budget surpluses for decades which is just not going to happen. The whole thing is pretend, it was pretend when it was first invented in the 1990’s and after the recent changes it is still pretend.   

The Euro will continue to go down in value against everything that isn’t equally diseased. 

With that in mind … here is the quarterly Euro update. I have included every quarter after some of you were upset I chopped bits out last time, for that reason you might need to zoom in. Can’t please everyone I’m afraid.

Bitcoin is up 322% since we began and remarkably the Euro has lost only 2.2% against the US dollar which is a real surprise to me.

Just to put this in context, the Euro has lost 76% of its purchasing power versus bitcoin since June 2020. A trend that will continue, not in a straight line, but it will continue. It will be greatly aided in that by the new fiscal rules, which will, as they have been for 35 years, be totally ignored. 

Further information

Our December 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: