VanGuess

📚️ PDF ⏳️ 7 min 📖 7

VanGuess

We often discuss here that nobody really knows how to specifically price assets in this sector (including us).

Enter VanEck, one of the world’s largest fund managers with $100 billion in AUM. They wowed us last week with their 2030 estimates for Ethereum. Low end $360; high end $154,000. I have to say, there is such a thing as giving yourself margin for error, but that’s quite the margin given the current price is about $3,600 they have 90% to the downside and several thousand percent to the upside. The full report is actually very thorough and there is a genuine effort to evaluate the value proposition.

On the downside, Ethereum does have technical problems and its move to proof-of-stake, at least monetarily, has not been altogether successful. However, it is useful. It remains one of the primary transport mechanisms for Tether and it will have an ETF very soon. In addition, it has scarcity and a developing yield curve too. So, there is enough interesting stuff to make people want to buy, hold and importantly, use it.

Our own range for ETH is anywhere from zero to $20,000 by 2030, which is much narrower than that of VanEck but accepts the possibility that it could completely fall into a heap. I think we should probably be open about that even if only so that it encourages people to do their own research. We published a report on Ethereum some years ago, which I think still has relevance today.

Krugman

It’s been a couple of years since paid economic shill Paul Krugman told us not to worry about inflation. Now it’s 2024 and we are all roughly 20% less well off than we were. 

This week he was telling us that it isn’t true that people can’t afford food. Look, said he, they are spending 36% more on fast food even though prices are only up 26%. Paul has never heard of the substitution effect, vastly more people eating cheap processed food because real food is too expensive.

Confident in his position, he deployed his latest article, “Why you shouldn’t obsess about the national debt”. Interestingly, it is not behind the New York Times paywall (I am instantly suspicious of non-paywalled articles when the NYT has spent millions of dollars blocking all its other content to non-subscribers). I guess because it's an election year and it would be rather helpful, given its political slant, if people would read it.

Here is why you shouldn’t worry.

It’s extraordinary really. America’s leading economist is just telling you that they will inflate away their debt. Since there is absolutely no other option and as he says they “aren’t going to pay it back”. 

It’s so brazen it’s almost admirable. How will we pay the debt? Simple, we will steal from you by simply creating lots of money so that nominal prices rise. All being well, you will not notice because you will be wealthier through economic growth but nowhere near as wealthy as you would have been.

Down Under

We never talk about GDP per capita. Whenever an official quotes GDP, it’s always the absolute number. In Australia, that absolute number nearly always goes up. For 30 years in fact, it has gone up.

Most recently Australian GDP also … went up.

The full story is rather different. 600,000 Irish people have arrived here since the start of 2023. 590,000 of those all appear to reside 300 metres from me. I like them, so I don’t have an issue with it,  but they do make a difference to the GDP calculation.

In per capita terms, Australia is in recession and it has been for a while. Most people know and feel that but we just prefer to bandy around totally pretend numbers that mean absolutely nothing and hope that house prices keep going up. It’s the Australian way. 

The American experience is even more remarkable because not only are they growing much faster than everyone else but even in per capita terms GDP is going up. I wonder if the simple reason for that is that they have absolutely no idea what their population is. Japan obviously solved their per capita GDP issue by letting its population collapse as we discussed last week. 

Finally, Greece. It’s good to see them doing well, the only country where per capita growth exceeds actual growth rate. Again that's because their population has fallen by 7% in a decade. 1.39 births per woman, another calamity in the waiting.

The carry trade

Carry trades! Easy and ‘risk-free’ money. A nice example this week with Mexico which has been a popular carry trade for US investors. Getting paid 11.25% on Pesos, while paying only 6% for your Dollars is juicy. However, you can also lose 5.5% in a single day as happened this week. When that happens it's probably a bit less fun. Even if you have your currency hedging in place, it was an ugly day. As with all ‘risk free’ trades events have a funny way of making things quite a bit less risk free. 

Our sector endures a similar ‘risk free’ trade’ The cash and carry trade, whereby most of Wall Street is short bitcoin futures and long spot, they then collect the premium on futures price. It’s all fairly straightforward and 100% hedged and you can expect it to get bigger and bigger.

I have no objection to it. It makes the market much more efficient and keeps futures and spot prices roughly aligned. However, there is a complete misalignment in the sorts of people doing it which provides for crushing moves in the bitcoin price that generally wipe out a lot of these positions over short periods. We have seen this week, near 10% price swings in both directions which once again has wiped out the over-leveraged. 

The conclusion one might draw from the short positions above is, I’ll go long because these people are going to be crushed while the market is net-short. Lots of “traders'' did that this week because it was ‘obvious that the price would rally from $71k’. Absolutely the opposite happened; prices fell sharply. Once they were wiped out, helped by the US CPI result, prices recovered. 

The message is simply this. It’s not risk free. It’s never risk free. For this sector, do not use leverage. Do not use exotic financial instruments because you will lose. What is more, as this futures v spot v leverage game continues to build underneath bitcoin we are going to see short and long squeezes like never before. The best place to be is simply exposed to the asset and not to the nonsense. It’s pennies in front of a steamroller.

Trust me, it’s risky enough as it is.

Euro-Trash

Election time in Europe. As predicted, the news for Christine and her ECB-Green-Machine was not so good. 

The results in France were so overwhelming that Macron, to his credit, called immediate elections since it became so evident that whoever currently claims to represent people in France clearly does not. Here is the election map in France, Paris stands alone from the rest of the country.

Over in Germany and Austria, the issues are rather different. Mostly they are related to energy policy and the crippling effect that has had on their industry. Predictably, the Greens were absolutely decimated in both countries. Their share of the vote in Germany halved. Not because Germans don’t care about the environment. I would think there are no more fastidious environmentalists in Europe than the Germans. Simply, the Greens lobbied for crazy things; like turning off the only carbon neutral power source Germany had. 

The Euro itself immediately lost 2% of its value as the results came in, leaving it still remarkably overvalued versus the USD. Quite how it is holding parity I do not know, but we shall see.

The net result of all this will be not much but I am fairly certain that we will hear a little bit less about ‘Green Bonds’ from the European Central Bank, which at least is something.

Further information

Our May 2024 report to investors can be found here.

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