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mike

Does this scare anybody else?

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mike 1y ago

You can rehypothecate a synthetic?

Let’s break it down and explain why you might want to care.

A synthetic asset, also known as a "synth", is a financial instrument that mimics the characteristics of another asset or asset class without requiring the owner to own the original asset.

Rehypothecation is a financial practice where a broker or financial institution uses a client's collateral for their own purposes.

Rehypothecation can be risky, as over-leveraging assets can lead to complex chains of obligations. This can increase systemic risk if the market declines.

My understanding of the 2007/8 financial crises is these are the methods used. With the property market as asset base and with the banks playing the role of bad actors.

This is now what Saylor is doing with $MSTR he is buying Bitcoin, packaging that Bitcoin up as $MSTR shares, these shares have no direct relationship to the underlying asset.

Then investment firms are creating funds tracking the performance of $MSTR shares either betting for or against them and selling synthetics at multiple times the underlying asset of $MSTR shares, which has multiple times the underlying asset of $BTC.

This model is actively being replicated by many other firms copying this model, believing it to be sound.

Why should you care about this?

We know that the 2007/8 crises was a tremor and we are yet to experience the actual earthquake.

Bitcoin was created by Satoshi to counteract what happened in 2007/8 by creating hard money.

Saylor through $MSTR and others through ETFs, which while currently backed by real Bitcoin (as far as we can tell), are creating synthetics and being rehypothecated.

Meaning that Bitcoin is becoming part of the problem rather than the solution. Not only that, it is dramatically increasing the size of the problem.

It has never been more important for us to self custody Bitcoin and not allow its use as a Synthetic or to allow it to be rehypothecated.

Saylor discusses this here, it sounds clever, and to be frank I don’t understand most of it, but it is actually using Bitcoin as a leverage device:

https://v.nostr.build/C0z85M8H3Gbyc6Y2.mp4

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Discussion

d0708145... 1y ago

I keep telling people on her but nobody seems to want to listen, if you think you own ANYTHING apart from bitcoin, you don't. Stocks, shares, pension funds, you don't. They are all rehypothecated and when the next BIG ONE happens, and it will be big. EVERYTHING will be owned by the BIS.

Read the book "The Great Taking".

mike 1y ago

You could continue to be frustrated by others lack of interest.

Or, perhaps, you could try to understand how to leverage the leverage that is being used against you for your advantage.

This is what martial arts teach us.

Melvin Carvalho 1y ago

The most important thing you can learn in investing is called the "margin of safety". When you invest in something, sometimes you will have an edge. But there is always risk. The margin of safety is when your edge is greater than your risk. This is the simple technique that made Warren Buffett the richest man in the world. When your edge is smaller than your margin of safety you are gambling, and will eventually fail. When your investment beats the margin of safety you are on to a winner. That is exactly what Saylor is doing. It's pure genius. What's more he stated this strategy from the start and it has played out exactly as he said. So, if he took on TOO MUCH leverage there would be a problem because he's outside his margin of safety. That's the tight rope you have to walk if you are MSTR CEO and also if you invest in them. There's a little bit more around bit sizing, but that essentially is the name of the game in investing.

stache 1y ago

IMHO

The BIS is a western construct and will likely be hamstrung if not completely supplanted by the BRICS+

Nations with the “New Development Bank” which will likely end up just as corrupt… it would be a severe financial blow to the economies of the developed western nations and their large trade deficits and massive debts

Historically changes in economic dominance/world reserve currencies have ended in kinetic wars… as the dominant world power(s) is/are weakened from within by corruption and domestic polarization which reduces cohesion and national productivity as well as economic strength, the door is opened for rising powers to assume dominance.

Time will tell…but in the mean time ima short fiat currencies and paper assets (IOU’s) with hard self custodied assets🤔🤷🏽‍♂️

Full disclosure: I’m an idgit and wrong almost all the time🤷🏽‍♂️🫡

d0708145... 1y ago

The BIS is largely a clearing bank for assets as opposed to a fractionally reserved one. They legally "Own" the assets till they are sold or contracts settled, that includes ALL derivatives contracts.

stache 1y ago

👆💯

I agree paper assets (3rd party risk/iou’s) can and at some point prolly will be utterly rekt…and the lil guy will be the one left standing when the music stops💥

stache 1y ago

👆U are not wrong🤔

… it seems predicting future economic catastrophes is not difficult… it’s the timing of the catastrophe that is difficult to predict and it seems is currently being engineered by peepl in the know (who will almost certainly profit from the process)🤨

… it’s the vile fiat game which seems to grow more and more corrupt with the passage of time and will be applied to BTC to the extent possible by the creation of paper btc assets/derivatives🤷🏽‍♂️

…I can’t agree with u more on the importance of self custody which gives BTC some of its most important attributes (ie portability, resistance to permission and censorship and authentic scarcity)🫡🙌🏽🌅

Jus one idgit’s opinion

d0708145... 1y ago

The vast majority of that rehypothecation ends up in the derivatives market and the numbers there, well😬😂. When them contracts become due and can't be settled by the brokerage houses, as I say EVERYTHING will legally be own by the BIS and it's benefactors.

stache 1y ago

Ima big fan of David Web but haven’t read the great taking yet (I will tho…thnx for reminding me🫡).

I have heard him discuss the great taking on several podcasts and I think his proposed scenario is one of the possible eventualities…the problem with all the speculation of the eventual outcome is it’s like speculating on a game of chess as u play it… the guy on the other side of the table will always have some effect on the endgame.

IMHO if/when the economies of the west collapse there will likely be some form of asset seizure (ie various taxes, regulatory penalties/fines, liens, eminent domain, etc). However, it’s much harder (not impossible) to seize hard assets in self custody and even harder if said asset is extremely portable (ie btc). People like money will flow to where they are treated best (to the extent that they can). The difficulty will always be leaving behind the security of what u and ur family have built but history shows that in dire straights people will do it.

Just my 2 sats…but keep in mind ima idgit and my oldest son kix my ass in chess🤷🏽‍♂️

stache 1y ago

👆💯

I also agree that the actual value of the derivative market is prolly incalculable and on the higher side of any of our guesses (most people think linearly and can’t begin to comprehend the value of $1quadrillion…it becomes just a word).

As a hard asset/btc guy I also think that hard assets will eat a large part of the value of that collapsed market…I don’t subscribe to a soft landing but as I’ve said I’m wrong a lot.

d0708145... 1y ago

Ha ha, all we can do is have as many sats as is possible. That's our little insurance policy for when the ride starts to get really wild!!

stache 1y ago

Tru dat

Freedom on my libertarian brotha🌅

Melvin Carvalho 1y ago

You raise good questions. What Saylor just produced there was beyond nobel prize winning analysis of the weaknesses in the wall street group think. He's beating the risk free rate because people are bitcoin skeptics and microstrategy skeptics. He has a bit of leverage but not a huge amount, and it's all pretty transparent. MSTR is better capitalized than any bank in the world. And this is not a coincidence.

2008 was outright fraud. They basically used banking licenses to print money. A banking license lets you print money but you have to take on the risk premium if you do that. They didnt, they just did robo loans and collected pay checks. Then repackaged that junk with the ratings agencies as derivatives. The idea is that house prices always go up, so you cant lose. It's a fiction. And it still goes on today. Which is why so many banks are insolvent.

What Saylor has done has completely hacked the system. Everywhere he turns he has the opportunity of free money, all be it with some risk. He keeps the risk in check, and takes the free money, and gives it to his share holders, so the price goes up.

He then sells more shares to buy bitcoin. In any other company you get punished by selling shares. Think of it like vitalek printing more ETH. But Saylor is doing it to buy BTC, which just makes them stronger. Every corp finance wannabe in the world needs to understand this inside out (they dont).

This is an absolute master class in a long series of master classes. Should you be worred? Nah, unless you're super paranoid AND you do the maths in a spreadsheet. You should be more worried about Barclays being insolvent and that just makes the case for full reserve digital assets even stronger.

Saylor will go down as the Galileo of his day.

mike 1y ago

Oh Saylor is extremely clever, that is very clear.

And what he's doing is brilliant.

And if he alone was doing it, he could successfully play the market and win.

The problem comes when others copy and everybody copies the copiers.

Then a small hack becomes a giant DDOS and eventually everything is destroyed.

I have to disagree with your last statement.

I think Saylor will go down as the "Fred the Shred" of his day.

Fred was brilliant, until he wasn't.

Same with Enron, same with the banks.

Melvin Carvalho 1y ago

He has that covered too. In fact he is courting it. If others copy him, he wins as first-mover. You should listen to his earlier interviews. He said when he first bought BTC he was in a semi-panic because "what if someone else figured this out before me".

mike 1y ago

If I cut down a tree to make a fire, there is no problem.

If everybody on the planet cuts down a tree to make a fire, we have a problem, even though, as first "chopper" I am warm and cosy.

Melvin Carvalho 1y ago

I get what you are saying, but it seems a stretch. If demand outstrips supply that puts upwards pressure on the price and increases MSTR margin of safety.

mike 1y ago

Oh, it will take time, all other systemic failures take years.

We have yet to fail from the abolition of the gold standard in 1971.

Melvin Carvalho 1y ago

Temporary suspesion, you mean? 😂

mike 1y ago

Oh yes, sorry I forgot 😂

mike 1y ago

Leveraging an advantage ceases to be effective when everybody else does the same.

And when everybody tries to lever an advantage over everybody else, the system they are leveraging collapses.

If you are clever enough, you leave that system before the collapse happens. That is true genius.

A bad fighter looses

A good fighter wins

A genius fighter doesn't fight.

Melvin Carvalho 1y ago

Well, he has an advantage until others figure it out. He could leave and sell his bitcoin, but sell it for what? You have to find something better than bitcoin. And that is hard.

mike 1y ago

Land is better than Bitcoin.

Bitcoin, gold, stocks and shares and property are all artificial constructs to a greater or lesser degree.

N.B. Gold value is an artificial construct, not gold itself!

Land is not.

But land is not fungible and is stable in value.

Also, land ownership requires trust and permissions, so has traditional disadvantages.

As for what to sell Bitcoin for, nothing in the foreseeable future. But plenty in the unforeseeable future.

Viktor Vsk 1y ago

Land was good when you were able to protect it with your punches, stickes, stones maybe guns

Today land does not belong to people but to bigger constructs, so comparison makes little sense

mike 1y ago

On a serious note, we are becoming the establishment and will set the rules that others follows.

The power tables are turning, we are on the right side.

Melvin Carvalho 1y ago

You have a good line of thinking, and you are wise to be a skeptic. But also you need to run the numbers. Saylor is fine, he's just beating the system.

There are some flaws in his thinking as a first cycle bitcoiner. You always know more in your 2nd and 3rd cycle than first. But nothing in that interview was flawed.

Obviously those 2 hosts were not able to challenge him, and neither really was saifedean who i like alot.

So where I would challenge saylor is around 3 areas:

1. who is your custodian, and how do you know they are safe

2. how do you protect bitcoin as it gets bigger, and mining reward is less

3. how do you defend against social attacks on the developers

We still have a few things to solve and there's quite a lot of propaganda around. Need to sift through that and come to good solutions and then both bitcoin and mstr will be fine. But we are not home yet, and complacency should not be a word in the bitcoiner lexicon.

mike 1y ago

The problem does not lie with Saylor, the problem lies with 2nd rate, 2nd hand Saylor's, Mk 2.

BoomTown 1y ago

He is taking advantage of mispriced funding in the current system. Two things are likely to happen: (1) long term, bitcoin starts appreciating 12% annually, in line with mezzanine credit / expected equity returns or (2) short to kid-term, private credit gets more expensive to align with the 50%+ annually Bitcoin appreciation rate.

In order for (1) to happen Bitcoin is $200T asset. So to nostr:npub1xtscya34g58tk0z605fvr788k263gsu6cy9x0mhnm87echrgufzsevkk5s point, hyperbitcoinization has happened in part due to Saylor’s strategy working. But as (2) happens, the deflation of asset prices in fiat terms will totally change our economic activity.

First (2) then (1) … given the success of Saylor’s strategy [assuming he actually has the bitcoin] there’s really no way that these don’t happen and when it does, the process becomes pretty painful for most people.

james 1y ago

I am afraid bitcoin is just another chip at the casino.

I take it everyone has watched 'the big short', sort of describes everything you need to know about derivatives

mike 1y ago

It's my "dummies guide" for this 😂

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Judge Hardcase 1y ago

Personally, I'm not concerned - because the only Bitcoin I care about are the keys that I control. It's true that a bunch of Bitcoin rehypothecation could result in a Mortgage-Backed-Security-style crash similar to 2007/8; which could in turn crash the $ price of Bitcoin just like the $ price of real estate crashed in 2007/8. But, ultimately, the BTC someone owns with no strings attached will still be the same BTC - just like the house someone owned with no strings attached is still the same house.

reia 1y ago

i have no idea what’s happening here but it all sounds intelligent and important. can anyone please point me towards the proper entry point to read up on all of this?

finance is a field i’ve entirely neglected, and is a gaping hole in my polymathic pursuit.

mike 1y ago

If you watched the film “The Big Short”, you’re probably on the right path.

Studying Bitcoin forces you down the rabbit holes of traditional finance.

Maybe others can advise paths they’ve taken.

reia 1y ago

that’s a very digestible place to start.

thanks

Aspherical 1y ago

Excellent post Mike, and an astonishing interview. Michael Sailor allegedly studied bitcoin deeply. Now he advertises his msrt stock by claiming that investors „trust“ him and that he will continue his strategy „forever“. What happens if he has a change of mind or heart attack? Doesn‘t his leveraged bitcoin strategy and coin amassment (remember Smaug’s treasure) on the level of black rock etfs create another single point of failure for bitcoin success ? Riskying market turmoil and a considerable throwback of bitcoin valuation and adoption, thereby crushing the hopes of many that are now saving in bitcoin? Yes I am worried about excessive and reckless financialisation strategies failing. Wasn’t it supposed to be „don‘t trust, verify“ for bitcoin? Just my five cents. Your comments and thoughts welcome.

mike 1y ago

Fair points, but to put it into context. Although we talk about Saylor, MicroStrategy is a public company with a board and shareholders. Michael is the founder and CEO.

While important, the company can survive without him, just as Apple survives and thrives without Steve Jobs.

Also, MicroStrategy only hold just over 1% of Bitcoin total supply, so very significant, but not make or break. Blackrock hold more at 369,000, while ETFs in total hold over 1M BTC.

You are right, however, it is his strategy that is of concern and the exponential effect it could have on the market due to synthetic Bitcoin and rehypothecation.

This along with the flurry of companies copying Microstrategy’s strategy, exponentially increasing the risk.

Aspherical 1y ago

Yes Mike, I agree. Of course I know about his company. But nothing about his board and how they support his strategy in the long term. Also, To my defense, In his interviews he portrays the control of his company a lot like a one man show. And you are right it is the size that plasma role formten systemic risc. He announced that he is continuing his strategy aggressively. His stack and its valuation are expected to increase substantially.

mike 1y ago

💯