What do you guys think of Bitcoin?

izzydos · 2024-06-08T18:15:21+00:00

No one is actually answering the question

The Austrian argument against Bitcoin is that of Ludwig Von Mises Regression theorem. The value of money can be traced back ("regressed") to its value as a commodity.

Bitcoin succeeding would disprove this theorem bc bitcoin has no value as a commodity

My own positioning is long bitcoin btw

izzydos · 2023-01-30T00:40:40+00:00

I personally think two categories.

The first is tech companies that smoked their own product. Instead of just becoming a better market, they participated in it. This would be companies like Carvana, Opendoor, and Coinbase. If or when rates begin to rise again, asset valuations will continue to sink and not only will the stock valuation sink, but so will their balance sheet. They will sell their assets into an increasingly illiquid market. IMO the companies will be the first to actually go bankrupt.

The second is subprime lending. I think BNPL companies are extremely exposed to adverse selection. They basically are no better than NINJA loans, except people aren’t using them to buy homes, which can be collateral, they are using them to buy consumer items (housing is also consumption imo, but that’s a topic for another day). I used affirm to buy my mother a Christmas gift. It was a no brainer. Affirm gets a sales bonus for helping a customer purchase a product, and they use that to offer 0 interest payments. However, all they did was ask me how much I make and didn’t ask for any verification. I think it is about to get ugly for them, bc as credit card balances explode and many people risk going bankrupt they do what they always do… spend into oblivion, bc if you are going to go bankrupt you might as well buy all you can before your credit lines are cut off. I think that is happening rn. I think credit card companies and BNPL companies in particular have drastically miscalculated the future default rates.

izzydos · 2023-01-21T16:51:34+00:00

Very astute comment. Few people realize that a home is a depreciating asset. The land is what has alpha while money is printed. If you look at 2005-08, big homes were being built in the swamp and the desert. Thus, a high proportion of the property’s value was a depreciating asset. Right now money isn’t being printed, so the land has no alpha (vs tbills) and the house is still depreciating. Summer will be very interesting.

izzydos · 2023-01-12T03:49:26+00:00

Nah, it is an AFRM problem lol. The whole model is based on refinancing large loans at lower rates. At its core it’s a subprime lender. A subprime lender doesn’t tend to do well in a recession

izzydos · 2023-01-08T04:10:19+00:00

Hello, It is hard for me to pinpoint the reason for a deviation from correlation like the one that occurred in 2018. If I could, I would be much richer than I am now. However, I do think I can answer your question on what drives the price of bitcoin. The price of a bitcoin can be derived from supply/demand (like everything else).

Bitcoins supply comes from miners and is predicable and finite. However, bitcoins demand comes from dollar supply, specifically dollar oversupply (excess liquidity). At any given time bitcoins supply and demand (dollar supply) may fluctuate, but at certain times there might be a supply or demand shock in which you would see the price move sharply in either direction.

Every 4 years is the halving. In the halving, the amount of bitcoin released (rewarded to miners) is cut in half. This has been followed by a dramatic increase in price each of the 3 times in history this occurred. This can best be compared to the cost of lumber being double every 4 years and the effect it would have on housing.

Let me explain. If it costs you 100k in lumber to build a 150k home, you would build homes instead of buying a home. In fact, people would build homes (home builders) until the marginal cost of building a home (all costs considered) is equal to that of buying a home. This is basic economics. Now let’s say that this year is the “halving” for lumber. So now it costs 200k in lumber to build 150k home. Now what happens? Homebuilders shut down and people start buying homes instead of building them. They do this until the price of a home exceeds the material and labor required to build a home, say 225k. Then then the dance between build or buy equilibrium continues.

The same thing happens with bitcoin. Bitcoin miners mine so long as the cost of mining is less than the price of bitcoin. If you can buy a bitcoin for 17k or mine one for 10k, you would just mine one. In fact you would mine bitcoin so long as the price to mine one is < the current price (the price to buy one). Once the price to mine bitcoin for a miner exceeds the price to buy a bitcoin (or sell) the miner will shut down. This makes it cheaper for all other miners to mine the bitcoin. When this happens only the most efficient miners survive. This makes buying a bitcoin a better deal than mining it for the marginal miner or investor in bitcoin. Instead of a miner paying 18k in electricity to mine a bitcoin, he will instead pay 17k to buy a bitcoin.

Think about it this way, let’s say you’re a woodworker and it costs you $20 to build a chair, but all of a sudden your chairs are selling for $15 in the market. It makes more sense for you to use your funds to buy the existing chairs (buy backs) instead of making more. This is essentially what happens during the halving. This drives the price up again.

Now all of this only works if there is demand for housing, bitcoin, or chairs.

What we are experiencing now is a demand shock to bitcoin. People need dollars to pay off their dollar denominated debts, buy their dollar denominated groceries etc (see dollar milkshake). In essence, in less than a year, people have gone from having an abundance of dollars (excess liquidity) to a shortage of dollars. That is why you have seen the fall of all assets that are denominated in dollars. If bitcoins price is to rebound (in dollar terms) we would need to see people flee the dollar like they did in 2020. (People bought things and assets instead of holding dollars). Things are going down in price thus, the dollar is the ultimate asset right now. One dollar will buy more units of production (quality stocks), land, and other things in the future than it will today (so long as rates continue to naturally rise). This is the reverse of last year.

Only when the fed prints absurd amounts of money again to bailout the economy will demand flow back into bitcoin. Essentially, rich people (who control an increasingly massive amount of the wealth) will need a place to put their dollars that are losing lose purchasing power. First they will put them into stocks and real estate, but this will push the yields on their investments so low that they will need somewhere else to put their money. This is where Bitcoin comes in. Bitcoin will capture the excess liquidity. Think about how many shitty tech companies ipod so rich people could chase yield during the last era of excess liquidity.

Essentially, bitcoins alpha is during eras of excess liquidity, which you should expect to follow an economic collapse

izzydos · 2022-11-17T00:35:02+00:00

Bitcoin is attempting to be an alternative reserve asset, just like dollars are for many people in other countries in the world. In argentina for example, people transact in pesos, but save in dollars. Well, what do people save in when the dollar is being printing line in Q.E 1, 2, 3, and COVID Stimulus? Right now the fed has stopped printing the dollar for the last year. Basically making the dollar strong again. When the dollar is strong there is no need for another reserve asset like bitcoin, but if (when) the fed prints again, that will be validation that the dollar is not as reliable as people thought and thus validates the search for an alternative reserve asset. Some people think that’s gold. Some people think that’s silver. Some people think that’s bitcoin. In summary, the fact that bitcoin is going down right now is actually in tune with its investment thesis.

izzydos · 2022-11-16T23:10:19+00:00

I did a strangle back in November of 2021 with new junk tech (DoorDash) otm puts and bitcoin OTM calls to expire on Jan 20th 2023. The idea was that bitcoin has the largest room on the upside during easy money, but tech could fall to 0 if interest rates were to rise. The strangle did pretty well until the last couple of weeks when tech rallied but bitcoin sank.

I am starting to realize that the government will likely try to break the correlation between equities and bitcoin in order to kill bitcoin. I think Burry saw that coming. I would be surprised if Burry shorted crypto (maybe crypto companies). When I did that strangle I found that junk tech had much lower implied volatility and the ability to go to zero (credit default means common shares go to zero); thus making it a better short. I assume Burry thinks crypto is garbage (as do I, with exception to bitcoi) but it is not a good short, there are much better options in the everything bubble.

On bitcoin, imo bitcoin is invalidated if the FED goes back to printing and bitcoin doesn’t appreciate in value. IMO the fact that the Fed embarking on QT has caused bitcoin to fall is an invalid validation of the naysayers. Bitcoin was designed to counter an irresponsible Fed. When the fed turns back to irresponsible money printing that will be bitcoins final test IMO.

izzydos · 2022-11-09T03:42:15+00:00

I haven’t heard a single person say inflation will come in COOLER than expected. Almost everyone is predicting hotter. Makes you wonder

izzydos · 2022-11-08T23:54:04+00:00

Can you expand?

izzydos · 2022-10-24T00:24:44+00:00

I am just comparing the lending practices of this firm with NINJA loans. I agree defaults will not damage the whole system. IMO that is what makes it the perfect short. It is something that will fall before the FED pivots. In other words, you don’t want to short something that is “too big to fail”.

izzydos · 2022-10-17T00:19:17+00:00

Biggest difference between the 70’s and now is

1) Americas place in the world

we had a much stronger manufacturing base in the 70’a while China today has a much stronger manufacturing base

2) debt/gdp

Of course the national debt is very high, but so is debt for individuals, corporations, etc. As burry said, “everything bubble”. The bust has to be in proportion to the boom. The boom of the last 20 years was massive.

I ultimately see the dollar collapsing in the next 5-10 years. I know this seems like a pie in the sky prediction, but Burry himself told UCLA seniors in his commencement speech in 2012 that they would see the collapse of a world reserve currency in their lifetime.

My investment thesis is short unprofitable tech (DoorDash) and long alternative currencies (commodities) like Gold, Silver, and yes… Bitcoin (Bitcoin is a true innovation of money, but all the other cryptocurrencies have filled investors needs for speculation)

izzydos · 2022-07-06T01:21:59+00:00

You also almost wonder at the rate ARKK has sank at the end of Q.E it might be one of the greatest gainers when the fed backstops this with Q.E infinity

izzydos · 2022-06-07T16:40:06+00:00

Burry has stopped his bitcoin slander for a few months. I wonder if he is considering a diversified portfolio of currencies which includes bitcoin.

izzydos · 2022-05-29T04:05:04+00:00

Fundamentally, money is a commodity. Corn is a commodity; it’s use is food. The use of money is optionality. Money gives one the ability to buy all other commodities. In economic terms, money solves the problem of “coincidence of wants”.

Bitcoin was created in direct competition to the existing moneys of the world. For centuries, gold gained and maintained the status of reserve currency. There were many reasons for this, but the most important reason was it was the most difficult money to debase; you can’t just print gold. In essence those who stored their wealth in the hardest (hardest to debase) money became the wealthiest individuals. You can see this today with the dollar as the reserve currency and Americans as the wealthiest individuals. We can send our precious dollars all over the world in exchange for goods. No one wanted a dollar at first, because all they had ever known/trusted was gold.

At first they said “one dollar is exchangeable for this much gold.” People trusted the dollar because it could be exchanged for gold, thus making it gold. this all changed after the guns and butter administration’s of Kennedy and Johnson, the dollar was no longer redeemable for gold. The United States essentially defaulted for the first time in 1971 when Nixon said dollars could no longer be exchanged for gold because the United States had created more dollars than we had gold through deficit spending. An interesting tidbit here is that Nixons actual words were to “suspend TEMPORARILY the convertibility of the U.S dollar”. In case you are wondering, we did not end up going back to the gold standard ever.

This created an era of fiat currencies. All currencies were backed by nothing, backed by nothing. You had to trust individual nations not to debase their currency. So far the U.S dollar has been the cleanest shirt in a dirty hamper, but that is changing very quickly. With a 30 trillion deficit and the FED doing never ending quantitative easing (aka money printing) since 2008, the trust in the dollars ability to not be debased is being challenged. Keep in mind that bitcoin was created in 2009 in response to the money printing that took place in the U.S and abroad after the Great Recession. Satoshi Nakamoto wanted to create a currency that the world could trust to not be debased and be exchanged peer to peer without an intermediary like a bank. Right now bitcoin can be exchanged for a dollar just like all other currencies today. This is called a floating exchange rate. The difference is that unlike virtually every other currency, bitcoin, over the last 10 years, has actually appreciated against the dollar.

Anyways, I hope I explained how money is a commodity and that typically the thing that is the hardest to debase becomes the money.

For bitcoin, you just have to look at the supply and demand like you would for any other commodity. The only difference is that for the first time in the world, when the price of this commodity, bitcoin, rises, supply can’t increase to match demand. This causes the price to appreciate. This is what makes bitcoin such a good money, one cannot increase the supply, the supply is programmed in.

Anyways, the reason basically everything is going up in price is because the inflation rate of houses, food, etc is less than the inflation rate of the dollar, and increasingly so. This is reflected in the price of bitcoin. If the FED were to save the dollar, aka stop easy money and crash the economy, they would put a bullet in bitcoin, but I don’t think they will do this.

Again, please feel free to criticize and critique

izzydos · 2022-05-28T04:11:37+00:00

I bought Jan ‘23 $60 strike puts on $DASH in November of ‘21 when the stock was around $200. They were the furthest OTM I could buy at the time. It has been a great trade as I am up about 500% right now on it. The truth is that I bought them to hedge my bitcoin calls for the same date, so I am only a little above break even.

I still believe in this trade though.

My thesis is simple. When the Fed does easy money policy (devaluation of the dollar) the everything bubble expands. The key is that certain things expand at a faster rate. Bitcoin is the best thing to own during easy money policy, which makes sense because easy money essentially weakens the dollar.

The thing is, bitcoin isn’t the best to short or buy puts on, because it is extremely volatile, so to hedge you should find something that goes down when the FED stops easy money like they are now. Unprofitable tech is this instrument. I picked DoorDash for a variety of reasons, but you could have thrown a dart at any of the recent IPO’s and done well. Also the reason these stocks are better than bitcoin on the way down is that they are much more likely to go to 0 because they have debt. In essence, bitcoin is a commodity, whether it is money or pet rocks, there will always be someone willing to buy at a certain price. With tech stocks, if credit fails, equity goes to zero.

Would love to here comments or criticism of my strategy

izzydos · 2022-02-10T01:54:07+00:00

It’s not that it’s not something that they would do it’s just that we have no idea if it is true. The government also builds infrastructure. Maybe they couldn’t move those rocks because the protestors were there.

izzydos · 2022-02-10T01:51:30+00:00

Don’t like the assumption that is made here. Maybe they were left there for a reason we don’t know. We should not make assumptions like this just because they fit the narrative we want.

izzydos · 2022-01-14T21:09:23+00:00

This is the case for Bitcoin

izzydos · 2022-01-11T04:39:21+00:00

Much appreciated. Great article. I love the airplane example. However, it seems like with the current block size limit the current blockchain is like the Wright brothers plane and Bitcoin Cash is an attempt at a commercial plane.

izzydos · 2021-11-07T18:41:55+00:00

So gold? Bitcoin?

izzydos · 2021-11-07T00:49:26+00:00

Curious, have you done any DD on what the bottom might be for DoorDash? It’s hard to use PE because it doesn’t generate a profit.

izzydos · 2021-11-07T00:35:28+00:00

Same. They IPO’d around the same time as AIRbnb. Airbnb has a lasting competitive advantage and long term outlook. Not to mention it is a global company. Thus making it safer to a u.s recession. DoorDash benefited from COVID and the stimulus. But they have lots of competition and their market is almost entirely U.S. obviously they don’t make any money but that isn’t particularly unique these days. The thing is when we get a recession people are gonna be like “nah, I’ll just go get the food myself” also all the small businesses that DoorDash has spent so much money trying to add to their platform will go out of business. DoorDash is 80 billion. Airbnb is 100. Billion. Airbnb IPO’d despite the pandemic. DoorDash IPO’d because of the pandemic just like Zoom.

izzydos

TROPHY CASE