I mention my thesis about the underlying value of Bitcoin in this piece, originally published BItcoin Magazine In April 2021. It represents my view on the value of BTC, Fiat Hall Ponzi, and how everyone needs insurance against Ponzi breakage. As Voltaire famously said, “Paper money eventually returns to its underlying value – zero.”
As Charlie Munger famously said, Bitcoin is “a class of rat poison.” Well, Charlie, you have pills, because Fiat is a rat.
The basis of my research paper is BTC is the declining credit quality insurance of fiat-issuing sovereign countries. As such, it is a credit protection on a basket. When you own insurance, you own instability. Similarly, when you have long credit, you are short volatile. Maximum asset / investment order short volatility. Accordingly, the world of investment is short-lived volatility, and it is insurance (or being) Long Instability).
In my research paper, I calculated the then-current Credit Default Swap (CDS) rate and the internal liability of BTC in the total liability of the G-20 countries. This dynamic accounting value will increase as the price of insurance increases. The rise in insurance prices is reflected in the expansion of CDS spreads. Well, the spread has widened for a variety of reasons. China, for example, has expanded due to infections caused by the collapse of CDS Evergrand. The Canada CDS has expanded because we have irresponsible politicians who have just been re-elected, yet they “don’t care about monetary policy.” And because the US CDS has expanded, well … there are four or five reasons, but the most worrying is that the political elite are playing word games with potential. Defaulter.
Wake up man, this No. A drill. The risk of infection is increasing due to possible global stagnation (see excellent article by Dylan Lecler and Sam Rule, published in Deep Dive Number # 072). The internal value of BTC has increased since the beginning of this year when I originally calculated the value to be over $ 150,000 per currency.
I’m going to take a different strategy this time. I will just run through the calculation of the value of BTC on the US financial condition. You will see that the market cap of BTC should be more than 1 trillion dollars. What this means is that you are effectively getting the default insurance for domestic price discounts in the United States, And You are protected All For other fiats Free.
Is it any wonder why I believe BTC is the best asymmetric investment opportunity I have seen in my 32 years of trading risk? Giggling.
In the United States, the five-year CDS traded at just 17 basis points (bps). For the average person, this mysterious measure means that US 17,000 is spent to insure against the US Treasury debt (UST) default. Recall that in 2006, Lehman Brothers (LEH) spent 9 9,000 to insure debt 10 million in debt.
That insurance contract became very valuable when LEH eventually defaulted, the value of the contract was more than 6 million. Vendors of LEH protection were picking up nickel in front of the steamroller. Are current US CDS vendors doing the same thing?
I do not believe that a short-term default by the United States would be cost astronomy. However, the kids are playing games. Yellen is dangerous because he doesn’t understand the real risk market. Powell is a well-planned lawyer who has never sat in a risky chair. These are our leaders, and their original background will not cut it in the trading pit.
Remember, you don’t have to have a default experience to make money on a spread change in a CDS deal. The mark-to-market function will account for the massive expansion and you will be able to profit by closing the contract before five years of maturity.
Adjust the CDS agreement for a period of 20 years
If the five-year CDS is 17 bps, what will the 20-year CDS be if it is a free trade agreement? (Note: In my paper I have used the term CDS for 15 years, but have since reconsidered the need for long-term insurance. Smart it will drastically increase the average term of its debt repayment. There are bond investors who are picking nickel in front of the steamroller).
To get that number, you need to calculate a term. It’s a bit of a “finger-in-the-air” exercise, but here it goes. Five-year CDS costs 17 bps or 3.5 bps per year. If we make a linear response to effectively extend the CDS over a 20-year period, the cost would be 70 bps per year. My heart tells me that in the next 20 years it will be even wider because of all the variables the United States and the world face. In fact, I am quite sure that I will withdraw the 20-year CDS offer in the United States from 100 bps per year (if anyone takes FOS as an opponent’s risk, which is unlikely). Thus, for the sake of argument, let’s assume that the 20-year US CDS is 70 bps and 100 bps per year.
The current funded and meaningless liability of the United States
According to the excellent website, USDebtClock.org, the total funded plus unpaid liabilities in the United States amount to 29 29 trillion and 8 158 trillion. To calculate the underlying cost of insurance in the United States, this memorandum needs to be multiplied by a total of $ 190 trillion in CDS premiums over 20 years.
$ 190 trillion x 70 bps = $ 1.33 trillion
$ 190 trillion x 100 bps = $ 1.9 trillion
The current market cap of Bitcoin
Using my favorite BTC dashboard, bitbo.io (two really tough Canadians: created by Chris Gimer and Mark Chounard), as of this writing, BTC’s trading market cap is only $ 1 trillion (worth $ 54,7000 per currency).
How to explain the results
If you compare BTC’s current market cap with the total U.S. liability ($ 1.33 trillion to $ 1.9 trillion) compared to the cost of insurance, BTC is definitely cheaper to provide protection in the United States alone. And you get protection for all other failures Free.
Good alley, Miss Molly. The market may be unreasonable, and in my opinion, BTC is much cheaper. Yes, current prices are a round error compared to my long-term target price, but this approach comforts me that we are still too early.
How are your hedges, Charlie? And hedges are not just for gardeners. Bark up. Instability is gurgling. Buy if your insurance is cheap.
BTC is Fiat Credit Quality Breakdown Insurance No. Opponent’s risk. The United States may be the last failure, but in the end, all fayats fail. Hat tip, Voltaire.
This is a guest post from Greg Foss. The views expressed do not fully reflect their own and BTC Inc.’s Bitcoin Magazine.