They sacked Thierry

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ETF options

Options on BlackRocks Bitcoin ETF IBIT are now approved. A highly volatile product on top of a highly volatile product. It took 10 years to get a simple spot ETF and 6 months to get something that must surely be orders of magnitude more risky. 

Pricing options correctly is hard. Doing so with a product that has no comparator or equivalent predecessor is even more difficult. Bitcoin’s options will be priced by Wall Street in the same way as equity options are today and for the most part that will work, except when it doesn’t. When it doesn’t, the results will be spectacular.

By way of explanation, you will all remember America’s favourite meme-stock, Gamestop. In 2021, 140% of the company's stock was sold short. That was only possible because there is no limit to the number of uncovered options that can be written. The ensuing short squeeze bankrupted a few hedge funds but the thing that ultimately put a stop to it was the company itself issuing more equity, which was just the stroke of a pen. It was an absolute gift for Gamestop too because the short sellers were desperate for more equity at almost any price.  

It hasn’t stopped there though. This week they once again raised equity from the market. Another 20 million shares were sold raising $400m for ‘general corporate purposes’. They sit on a PE of 172x. 

At that valuation, who can blame them for raising more money? The point here is that there can always be more equity. The difference with bitcoin is there can only ever be the current supply 19.8 million. That supply rises very slowly to 21 million over the next 120 years. 

If (when) there is a short squeeze on bitcoin as a result of options positions you can expect it to be of biblical proportions. I see two reasons for that, firstly the supply dynamics (which still nobody seems to understand). Secondly, the Gamestop crowd (for better or worse) are the bitcoin retail crowd. If they can contribute to Wall Street pain with a few thousand dollars from a few hundred thousand of them, they will do it.

There are two schools of thought on these IBIT options, the first believes that the options will calm volatility. The second believes the opposite. I hate to sit on the fence but I’m in the camp that they will mostly be calming and occasionally there will be a major explosion of volatility like never before seen. 

Should be fun at least. 

Green rates

Reform of the Reserve Bank died over the weekend after the Green Party agreed to support the government only if interest rates are cut. It’s possibly one of the more radical political maneuvers of the past few years and highlighted something that was not perhaps widely known. Specifically, that the Reserve Bank legislation allows the Treasurer to overrule the RBA on rates if they want to.

There is obviously no chance of that happening and Chalmers made that clear but it seems a bizarre request from a “Green Party”. I can think of no more environmentally damaging policy than an artificial interest rate. It leads to all manner of malinvestment. We build things that should never be built, projects are approved that would never normally meet any sort of hurdle rate. 

Their website was not shy about it either: 

It went on, "The Reserve Bank Board are not infallible high-priests of the economy who are above criticism." It’s a reasonable point but who is better placed to understand the interest rate dynamics? The Reserve Bank Board or Green Party’s Minister for Economic Justice?

The whole saga was broadly mocked in the Australian press as ridiculous but I think that misses the point. The Greens are obviously getting feedback from their constituents. Clearly the interest rate is hurting, clearly it is not really designed to help people that need it most either, it just “is what it is”. I feel like the Green’s are telling us something. The Australian economy is so indebted it cannot really sustain a market interest rate. One way or another that burden will have to be monetised away.

This week it’s a bit of a joke. “Which idiots are advising these guys” etc. But it’s not a joke. Around the world, people can neither cope with inflation or the interest rate that might kill it. Real wages are dropping like a stone as a result because policies on fighting inflation are necessarily weak. 

The Greens are onto something, even if the manner of their expression was (as the commentariat would have it) “stupid”. 

Bhutan overtakes El Salvador

About 18 months ago we covered the entry of Bhutan into the bitcoin mining market. At the time the reaction to their involvement was ‘mixed’.

“It’s concerning that Bhutan's resources have been invested in a secretive manner in a highly volatile and risky investment which has a big environmental burden,” says one former international advisor, who asked not to be identified.

In fact, Bhutan is absolutely swamped in renewable energy it cannot use because of its hydroelectric power from the Himalayan snow melt. Mining bitcoin was a good choice for them and they have seemingly done it well.

According to Arkham Research, Bhutan now holds 13,000 bitcoins from its mining operations. It moves them directly to number four on the list below. The difference is that the US, China and UK’s holdings are all from seizures, not from active participation. It’s an impressive feat. 

Notice Bhutan does not even make this list. Why? Because nobody knew. They were just quietly mining away at the base of the mountains without really making much of a hullabaloo about it. Now, nearly a billion dollars later, it’s becoming obvious.

Once the list is refreshed, Bhutan will sit fourth. That will be interesting because the previous inhabitant of that position was Germany. They had over 50,000 bitcoins ($3bn ish) which they dumped in July; which leads us rather nicely to….. 

Meme of the week

I guess there will be more to this particular meme with time. As long time readers will know, we have tracked the price of the Euro v Bitcoin as part of our Euro-Trash commentary for years (quarterly update on that in the next few weeks). 

The German sale will go down in history. One thing they did not need was more Euros, they quite literally are the Euro. Without them it fails. 

It’s inexplicable to me why they dumped all their bitcoin. They had something with strategic upside and sold it for something that adds nothing. 

Euro-Trash

Possibly the largest Euro-Shock of the year. They sacked Thierry!

Having laid waste to any possibility that Europe might be a leader in Tech, the time had come. It was all done in a very European way too. The French President had only just re-appointed him to a second term in June but Ursula Von der Leyen asked that his name be “withdrawn”. He already had the job though, so how does that work? The brutal language of international diplomacy strikes again. Threats are ‘neutralised’ and political appointees are simply ‘withdrawn’.

Thierry, of course, was outraged at this and immediately resigned. In fact, he resigned from a job he no longer had in an attempt to save face. That didn’t work because Elon Musk immediately posted the whole saga on Twitter (the platform Thierry wanted to ban) to 40 million people. 

Even more strangely, Thierry then took to Twitter himself to announce his resignation (sacking) personally with some weird je ne sais quoi tweet of an empty picture frame. 

The whole saga is quite a telling one. Consider last week's update on the total lack of presence of the EU in cloud computing, AI and quantum space. Then one of your top diplomats goes rogue; not content with scaring off every global tech form he starts threatening US tech companies with legal action.  

Did Ursula Von Der Leyen really fire him? Or did the Americans pick up the phone to gently remind the Europeans that they might like to play nice. Who knows? All we do know is that Thierry is gone and it’s a good thing for Europe.  

Programming note

MoneyBits is off next week. 

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