This article is the latest issue of investor letters from Dan Morehead, founder of Pantera Capital.
This is a Ponzi scheme
I have heard this sentence for eight years.
Regulators have been talking about bubbles and manipulation.
The market is right – there is a huge Ponzi scheme in progress. Let us investigate.
“The committee summarized the requirements of the Exchange Act section…’to prevent… Manipulative behaviors and practices” and “protect investors and the public interest.”
“The only way to profit from a heavily manipulated pyramid scheme is to sell it at a higher price to the’big fool’ who later appeared.
“The committee has proposed in previous orders, which include… the people who dominate in Bitcoin … transacting based on material non-public information”
-The SEC does not approve the instruction of the proposed rule changes on the listing and trading of VanEck Bitcoin Trust, November 12, 2021
The Bitcoin market is too big to be manipulated. Bitcoin is traded on hundreds of exchanges in dozens of countries. The daily trading volume of Bitcoin is 1,000 times that of GameStop, which is only traded in one market in one country.
[SEC Commissioner Hester Peirce made a very convincing argument that the Bitcoin market is actually sufficient for self-regulation]
“Bitcoin (and most other encrypted assets) is difficult to rationalize as an investment asset, which shows that we have seen the formation of a historic bubble.
“However, legislators have passed laws such as Fondstandortgesetz in Germany to encourage new speculative inflows into encrypted assets to encourage bubble risk and increase the ultimate social problem.”
–Ulrich Bindseil, Director of the European Central Bank’s Market Operations Directorate, November 19, 2021
All of these have no meaning to Bitcoin’s extreme positioning. How can you have a bubble that almost no one owns? About 90% of institutional investors have not been exposed to Bitcoin or other blockchain tokens. It’s definitely not a bubble.
“Knowing yourself is the beginning of wisdom.” —Socrates
The government should stop its obsession with Bitcoin and look inward instead. The largest Ponzi scheme in history is the U.S. government and the mortgage bond market- 33 trillion US dollars-all of which are driven by a non-economic Public information for trading.
All of this comes from the Fed’s concerns about “downsizing” in the coming years. What? ! ? ! The Fed’s strategy should be “Cold Turkey (absolutely quit)”-now.
Someone should file a claim under the Federal Whistleblower Protection Act against the Fed in accordance with the provisions of the law against “serious waste of funds.” Printing $50,000 for each family in the United States to push up the price of mortgage bond REITs owned by the chairman of the Federal Reserve and other wealthy assets, while destroying the purchasing power of ordinary Americans, making it impossible for people to buy houses. This is obviously a huge Waste of funds. 35% of people do not own a house, leaving our children with more debts than needed to win World War II.
Bond will experience Wyle E. Coyote moments Nothing, he realized the danger). I don’t know if it will be next week or in the future. After the midterm elections? But this is for sure.
Hedge institutional bonds with Bitcoin
One day, financial gravity will resume operation.
If you are an institutional investor holding any bonds, especially if you prefer the classic 60/40 stock/bond portfolio, you may want to hedge the bond bubble with Bitcoin/crypto assets.
Throughout my career, I have been looking for asymmetric trades-trades where the rise is many times the fall. Obviously, Bitcoin/blockchain is the most asymmetric transaction in a generation.
Bonds are the opposite. The potential upside is only a small part of the very real downside.
The U.S. 10-year Treasury bond yield was 1.34%. Even if the Fed lowers interest rates to zero-which is unlikely, but may be the furthest level imaginable-bond prices will only rise by 13 percentage points. Now let us look at the disadvantages. ..
The real interest rate is severely negative
The actual rate of return is the rate of return obtained by bond investors after inflation. For US 10-year bills, the average effective interest rate for the 50 years (1957-2007) before the beginning of printing was 2.63%.
The Fed decided to print half of the US GDP and use it to push up bond prices, forcing the real interest rate to -4.65%. (This obviously begs the question: why would any economic participant want to buy something that will definitely lose money?)
The best way to visualize how extreme this manipulation is is to plot the deviation of real interest rates from their 50-year average. The gray area is our brave new world of unlimited bond purchases. We are now an incredible 7.28 percentage points below average.
Bond bubble burst
When the Fed stops manipulating the bond market, bond investors will be completely destroyed.
Below is the market value of U.S. Treasury bonds and mortgage bonds. The huge short squeeze implemented by the Fed is obvious. It increased the value of bonds by $10 trillion. When the Fed is forced to stop, bonds will fall.
The dotted line above is what would happen if real interest rates were no longer manipulated and returned to the 50-year average. Bond market prices will fall by 30%. This runs counter to the possibility of a maximum increase of 13%. What if they are only half back to normal? The market value of $6 trillion has evaporated!
Buying cryptocurrencies with a market value of only $3 trillion seems to be an excellent hedge.
Fed bubble burst
These growth rates are unsustainable.
House price rise
The Fed’s manipulation of the mortgage market is causing unprecedented problems.
According to a survey released by the National Association of Realtors, in the 12 months ending in June 2021, the median time that American houses spent on the market before signing a contract was only one week. This marked a record low in data since 1989.
That’s crazy. Why is the Fed **still** buying mortgage bonds? Trying to make it negative?
If your institution has not sold your bonds to the Federal Reserve, please accept the transaction.
The Fed cannot always pay more for your bonds. Take gifts.
Once the Fed stops manipulating the market, financial gravity will work.
The bond bubble reminds me of a classic country song by Hank Williams, Jr.. It’s all over, cry.
Inflation is everywhere
This is the global inflation survey since last month. Eurozone inflation hit a 13-year high.
The US CPI hit a 39-year high year-on-year. You have to go back to 1982 to see such high inflation.
Old school inflation
“Fed Chairman Powell’s inflation record is much worse than official statistics show. According to reports, consumer price inflation is the highest in 30 years. According to actual prices, it is one of the countries with the highest inflation rates in the post-war period. The double-digit growth in the 1970s and early 1980s was comparable.
“In the 1970s, changes in house prices were seen as inflation. Today, people assume that equivalent rents are important. Using the method of the 1970s, a 6% increase in inflation in the past year would be more than 10% because of rising housing prices. Nearly 20%, and landlord’s rent has risen by 3%.”
– Joseph Carson, former chief economist of AllianceBernstein, The Wall Street Journal, November 25, 2021
This is real. The landlord’s equivalent rent of CPI rose by only 3.1% year-on-year. Anyone trying to rent or buy a house/apartment knows that this does not reflect reality.
Sometimes zooming out helps. The landlord’s equivalent rent was invented in 1982. The index is now 3(.)47359. I believe we will all be happy to buy a house at a price three times the price in 1982.
This is the reality of house price inflation. Mortgage bond manipulation is pushing up housing costs at a record rate.
Paper money tsunami
The tsunami of money printing did not just push houses, it made all ships float. All real, unquantifiable assets are soaring—relative to the value of paper money.
As the U.S. responds to 3.6 million unemployment and non-agricultural employment before the epidemic, the stock market continues to hit new highs. This is obviously the result of excessive policies.
Experts talk about overpriced stocks. Judging from historical indicators, they may sound overpriced. However, they are not expensive relative to the bubble in the bond market.
Goldman Sachs Research has done a good job of outlook. Although stocks may seem expensive, they are cheap relative to the manipulated bond market.
“The Federal Reserve has responded to the COVID-19 pandemic by injecting a large amount of liquidity into the financial market and pushing fund rates to zero. [Editor’s note: The main impact comes from direct manipulation of the long-term bond market.] Since the trough in March 2020, the standard The Poole 500 Index has more than doubled in an almost uninterrupted upward trajectory, reaching its current all-time high…
“The price-to-earnings ratio is 21.6 times, and the absolute value will be 93% in the historical top. However, compared with the historical average (46%), relative stock valuations are still attractive compared to U.S. Treasury yields… .
“The yield gap between the S&P 500 index yield (4.6%) and the 10-year U.S. Treasury yield (1.6%) is currently 301 basis points, which ranks in the top 40% compared to history.”
– Goldman Sachs Macro Outlook for 2022: A Long Road to Higher Interest Rates, November 8, 2021
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/pantera-is-btc-a-ponzi-scheme-there-is-no-other-bigger-ponzi-scheme/
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