SharperDingaan

The tax thing is evolving. CBDC use grows at the expense of paper bills, which cut-out ability to track the money trail. Hence, the more an economy has to use CBDC, the more visble the entire underground economy becomes, and the ability to tax it - both domestically and internationally. The recent minimum global tax of 15% as recent evidence of future magnitude and direction. The downside is greater use of tax evasion via the physical goods route, vs the digital payments route. Supply chain can 'obscure' a great many things, and physical co-mingling is very difficult to seperate. It's pretty hard to seperate the blood gold out of your 1oz wafer, and there are a great many smugglers very good at both bribing and co-mingling. SD

Couple of add-on's to this. Outside of BTC and ETH, most of the 20-35 demographic have zero confidence in crypto coin. They are primarily in it to learn how they could use this, how de-fi platforms work; which are better for what, size/type of commissions paid, what volaltility actually means, how a CBDC (eKrona) is actually used, how a stable coin works, what a crowd fund actually is, how it works, why anyone would contribute, etc.. A few hunderd bucks in 'tuition', not much different to how most people 'learnt' how to use smart 'phones when they first came out. Time/money well invested. Very much a utility view, most see ETH as the 'operating' coin that you are going to run your NFT on, and BTC as the practical store of value in 2nd-3rd world apllications. Helps being able to talk directly with peers from these countries around store of value vs volatility. Stable coin viewed primarily as a mutual fund backed by 'whatever', and not as a currency peg. Most existing apps seen as 'OK, or utter sh1te', and in need of a lot of work - same as the early smart 'phones. Stong selection bias in the sample, this is the top 5-20% of the demographic, and they come at it entirely from the business side. There are very few if any coders. All students produce a white paper from scratch; either as a 'green field', or as an assessment of someone else's whitepaper under standardized criteria. Both require a solid understanding of blockchain mechanics, strong familiarity with the tech stack, and the bones of a strong business plan. Where possible, industry management makes guest appearances, and some of the 'green fields' are expected to potentially grow up into startups post graduation, via grants/incubators. 15-25%+ of undergrads go on to do a Master in Fintech at prominent business schools across Asia, India, and South America - against competitive entry. A good portion of the Masters students go on to become involved in policy &/or impementation work at prominent Canadian institutions. SD

Every initial roll-out includes dumb errors - that's why we have sounding boards. Obviously the concept is great, but design execution just needs a little work ... Apparently these things are not co-ed? It's OK to have large amounts of unfilled rooms, simply because the gender balance is off? ... Charlie, the waste! Something against windows? Keep the crazies down and there's a lot less 'wear and tear' .... Charlie, the incremental operating costs! The man hasn't lived in a household full of women??? .... Charlie, what the hell are you thinking! SD

As with dentists,we hire architects for a very good reason. We dont expect investing brilliance from an architect, and we dont expect architectural genius from an investor! SD

Amongst other things I teach a course in 'Introductory Fintech' at both the Master and Undergraduate level The mechanics of blockchain and smart contacts, the IT vs Busines view, the business integration of the new technology. 'Wealth Management' is one of the classes, and all students are routinely surveyed on if/when they would use de-fi apps, invest in crypto EFT's, and why. Similar classes in the apllication of NFT, cash/CBDC, etc. Popular course, most are in the 20-35 demographic, student mix is roughly 50/50 domestic/international, 60/40 male/female. Baba, Tencent, etc. are routine case studies. The 'trust' thing is largely irrelevant, whether that be the de-fi platform itself or the token bought on it. Most treat future crypto investment as a given, know the hack and volatility risk, and invest only small amounts to see how it works out; the objective is experience at both the platform and investment level. De-fi platforms complement traditional wealth management, and serve the vast bulk of everyday routine need. There is a great willingness to pay up for good financial advice, but not for simply order-taking or replicating what an app could do better. Wipes out the 'value add' of a great many financial advisors! 'This time it's different', because this time it really is different. The reality is that this technology did not exist a decade ago. Almost all with knowledge of the subject, unanamously recognize that going forward - the technology will fundamentally and materially change the plumbing of how most things will be done. Older folks just hear the platitude and mock, 'been there, and done that !!!!'. Dinosaurs, with zero recognition of the widespread generational shift taking place under their feet. Sure, if you are 'old' and your clients are 'old', you can probably ignore this. But you are a dying demographic, and there are fewer of you every year. Just a different POV. SD

The systemic risk is generational shift, that older folks just do not get. Simply look around you. Most folks < 35 look to apps (ie: a Wealth Simple) for their financial and investment advice (ie: a Robin Hood) - not an investment advisor. To them, doing anything without tech is wierd, this is most of the demographic buying crypto ETF's, and most wealth apps are quite adequate for the everyday transaction. Sure, young investors can still make stupid investments, and there is risk to being on the bleeding edge - but against the remaining runway? it's just not a big deal. You and I might rant that we'd never trust an app (ie: algo), or hold a token - but we're the dinosours. As long as we see lots of other dinosours around us, we are positive that things will never change! - yet totally miss that the glacier we are standing on is rapidly melting. Every chunk of glacier breaking off, a black swan event. SD

Not for everyone - but one of the safer alernatives is the 'cross mortgage' We have a UK source funding an internal 1-Yr CAD mortgage at a fixed rate; every maturity the mortgage either rolls over, or the capital repatriates. The expectation is that over time CAD appreciates (petro currency) and the pound depreciates (brexit); resulting in a material (pound denominated) gain upon repatriation. Interest rate differences between the two countries largely a non-consideration. About once every 7-10 yrs, the CAD/USD FX rate is at parity, and most would expect that post brexit - the pound slowly drifts downward against the Euro. Comes repatriation day (whenever it eventually happens) a net 25-40% tax-free FX gain is not unrealistic. SD

Most would go fixed - if only because it is virtually certain that over the next 5 years the floating rate wll rise by > 90bp. Obviously, the sooner the rise occurrs the greater the benefit to you. Most don't realize it, but for a fee - it is also possible to issue yourself a mortgage out of your own/closely related RRSP. Pay yourself the extra 90bp, and if you can't repay for some reason - the shortfall is taxable income. Lots of possibilities SD

Direct experience in this .... The fixed rate mortgage will amortize over 25-30 years, but reset every 5 years. The property will have 5 years of appreciation and principal repayments to offset the impact of higher rates at a rate reset - most times, it's not really a problem. To reduce the monthly payment, the mortgagee can also choose to amortise over a longer period - versus the now shorter 20 years. Most mortgages will either be insured or secured against equity at well > 20-25% of the property value, and all are recourse. In the event of collapse, the banker just keeps the properties off the market, and supports inflated property valuations by choosing not to foreclose in quantity. Doesn't become an issue until short-term mortgage rates get > 10-12%, and the properties are in provinces with foreclosure laws going back to the depression era (very few). Sched-A banks are forced to hold significant reserves against exactly this possibility. Net impact? It'll screw up your day, but otherwise - no big deal. SD

No dog in this, but a few observations .... Sauble Beach: More retirees, greater ability to WFH, and just more wealth. Sell your place in Toronto for 1M++. pay 800K to buy in Georgian Bay (Sauble Beach), and you will still pocket 500K ++, plus have a materially lower cost of living. More liquidity than you and the mrs could possibly spend in your remaining lifetime. Multi-family: Much of the big city in-fill housing, and the 1M++ housing is multi-generational, 'one family'. Same idea as the MURB; but each generation with its own floor in the same house, versus a string of smaller units next to each other. While still very new, de-fi platforms have also simplified the ownership process - buildings no longer owned as thousands of little units, but as 2-4 units owned by different family members. The de-fi thing is just an automation of some traditional european ownership practices. Holiday hotels traditionally split into 20, 5% ownership units that also require the owner to be present 1 week/year. Its just not common practice in the US. SD

Bond market thing ... The fundamentals clearly point to higher nominal rates. Furthermore, Liquity Prefernce Theory (LPT) has NOT been repealed, so there should be a steep rise across the curve as well. There are only 2-ways by which the yield curve can be where it is. 1) Real returns are stongly negative; ie: simplified, the -3% real + 5% inflation = the 2% nominal we see on the curve. 2) Flooded supply at each point along the cuve; ie: simplified, the cost of money at that term lowered via increasing supply through quantitative easing (QE). Central banks are tapering; most would agree that if uniformly applied, reduced QE supply, should raise interest rates across all points on the yield curve. The only way this doesn't become a problem (as central banks seem to expect), is if the real rate of return has materially worsened; in the example, the real rate is no longer -3%, it's -5%. The 5% inflation rate is 'main street', the real rate is 'wall street'. The result is lots of press simulaneusly talking about the higher cost of lliving, and the very real risk of asset deflation. However, most would expect that long term covid impacts, ESG transition, China transition, and growing supply chain shocks are indeed worsening the real return. So what? Pick your spots - simplify, and go long only the things that matter to main street; energy, food, etc. Different POV. SD

Just to build on this... All across Europe, Canada, Asia, etc - similar 2022 increases are being quietly discussed. Most indexing annually, with the announcement in the early part of the new year. Between now and then ... rising fuel/heating costs, and rising food costs from increasingly disrupted supply lines. Add 5.9% inflation to the US treasury yield curve, and nominal discount rates are 7%+. Even if the global 'average' inflation is only half this (or 3.0%), the nominal US discount rate is close to doubling within 3-4 months. Yet there's very little - if any, discussion about any of this in the financial press? All fixed income values should drop, equiity valuations should drop - the only folks making coin should be the drug dealers, and the unhedged energy producers Hopefully somebody has a plan .... And may we all wish him/her a successful execution! SD

Over the years, our investment choice of 'X' vs 'Y' has almost always been correct. The disconnect - has been our view, vs the market as to how long it will take until 'X' has its day in the sun (ie: timing), Hence our preferance for the commodity companies, as changing commodity prices are quicker to force a valuation change. Similarly our preference for long investment horizons and averaging down until the market eventually catches up. The issue is that the disconnect can last for years, even when the evidence is as plain as the nose on your face. Lot of people have been pointing out the energy opportunity, for a very long time. Widespread availability of dirt cheap shares, but uninvestable unless you were private money, not beholden to others opinions, and could stand by your own decisions. Today, many of those investors are sitting on share counts in the six and seven digits, dividends are returning as markets normalise - and projected 25%+ cash yields are increasingly considered 'common'. Ultimately it comes down to the industry/company 'value proposition', how it is changing over time, whether the market will pay for it, and how much. Whether the company is currently profitable, is not particularly useful - heretical!. Case in point; a o/g coy produces product that we cannot do without, the quantity available is continually depleting, and the market will pay the least it can - identical to the drug pusher selling to junkies. Simply trim the relative supply ... and you have a great business! SD

The reality is that a PM has to be diversifing at the commodity level ... and NOT the country, or even industry level. Case in point; today's magnesium market. https://www.mining-technology.com/news/magnesium-curb-price/ The most effective diversification would be by energy use - options/futures + climate change arbitrage. This particular black swan is magnesium, but the reality is that the world is seeing a near simultaneous swarm of these black swans, as there are many similar very stressed sectors (cement, steel, chips, vaccines, etc). Supply chain shocks that drain the ocean everywhere , lowering all boats. Depending on model, current new car factory order 'waiting lists' are approaching 6-9 months. Auto plant production is not just slowing down, new car releases are being deferred as well. Deflation. SD

More along the lines of something additional being sent to a bonded warehouse on SP, and being released at a discount price re 'incorrect' labelling; subject to later receipt of replacement 'correct' labels. The old labels wash off in SP, the bottles do some travelling, and reappear with new labels in a povincial bonded warehouse. Needless to say, the Mrs is very good with paperwork SD

The whole premise hinges on what the USD for Coin exchange actually is, and how accounting records it. The contributor got Coin, and a statement from the issuer that the coin is backed 1:1 by USD, it is inferred that the assets are US T-Bills and Bonds. However the contribution is NOT equity, it is NOT a segregated fund for some purpose, and it is NOT a secured loan - so what exactly is it? It is nearest to a crowd-fund; accountants/auditors will look to both precedent and the substance of the transaction. Becauase the USD received are NOT encumbured segregated funds, they can be comingled with the issuers funds, and pledged to banks without restriction. Hence no issues around custodians. As the USD received are NOT equity, and the coin can be converted back into USD, it must be an issuer liability. Absent any security documentation, it is an unsecured loan (paying 8% in Geminis case). As the liability is not expected to be repaid, it can be written off and the gain booked directly to equity. Were there security documentation, the funds would be segregated, and comingling prohibited. The result would be a mutual fund, similar to a BITGOLD, SALT, etc. Ultimately the accounting method is an interpretation of the transaction. Both accountant and auditor will be looking to FASB and regulator(s) for guidance. The regulators themselves will also have different views (China, BIS, US, etc) Different set of risks. SD

It's just a different 'value' system, measured against different metrics. In their minds they are being entirely rational. Many years ago I had a great conversation with a kindred spirit who occassionaly smuggled liquor from St Pierre and Miquuelon, something of a sport on that part of the coast. He was truly gifted at it, often earning as much in 1-2 trips as he might otherwise have earned in an entire fishing season, but lived very modestly along with his Mrs and their family dog. He explained that he was in it 'for the challenge', and was so disappointed by the ineptutude of the coast guard officials, that he just gave it up! Fortunately, he agreed to have a nephew 'crew' on his boat one season, with a stop or two at St Pierre. The nephew gets sick as a dog on small boats, but suudenly came back with 1/2 the downpayment on a small house. I know, 'cause I staked him the other half! SD

Variation on this .... In Canada, most people are entitled to a Canada/Quebec Pension Plan - payable anywhere in the world, at any time. The pension could be +/- 30% of the Age 65 amount, depending upon when the person choses to retire, and is in addition to subsidized health care if in the country for > 6 months/yr. Standard 'snowbird' stuff. Except ... keep going south, and fly on to the Carribean, South America, Africa, India, etc. The CAD pension goes a lot further in the weaker currency, local costs are materially lower than they would be in Florida, and its Summer when its Winter in Canada. Rent vs buy, visit with the relatives, pick a different place every year. Retirement looks pretty good! The shorter version is the 2-3 week cruise, with 1-2 month stopovers along the way. Use the cruise ship as a water taxi, where practical share your villa rental costs with others. Obviously not for everyone, and applicable only to the 'go-go' years of retirement. SD

It is a very straight forward argument. Coin holders believe their coin is backed 1:1 by T-Bills/Bonds. Custodians/auditors confirm the T-Bills/Bonds exist - they are indeed owned by the company, they are indeed there, and they have been recorded in the books correctly. However, these are NOT segregated assets, verifiers are NOT confirming that coin holders have beneficial ownership of the T-Bills/Bonds. The coin IS backed 1:1 - but the coin holder is an UNSECURED creditor, and the coin is backed by an illiquid capitalized asset, the company's own unpledged assets, and a small amount of T-Bills/Bonds. If there are insufficient UNPLEDGED assets and T-Bills/Bonds to meet redemptions, the coin issuer has to sell the illiquid asset - and there may NOT be a market. All else equal, over time as more money is spent on development - the illiquid capitalized asset gets bigger, and the quantity of UNPLEDGED company assets and T-Bills/Bonds gets smaller. The coin issuer is becoming a progressively riskier backer of their coin. All that is required for collapse, is a sustained redemption large enough to exhaust the quantity of UNPLEDGED company assets and T-Bills/Bonds. I humbly put forward that the introduction of a US Federal Reserve backed digital USD, might trigger such a redemption. Why? The coin became obsolete as soon as the digital USD was introduced. Functionally, the coin solution still works - but it just doesn't have the acceptance, backing, or utility of a digital USD that can be used in/on everything. The coin users rational action is to to redeem the coin for USD, then exchange the USD for digital USD. Different opinions around introduction of the digital dolllar and CBDC. Look outside of the US and it is pretty clear that CBDC is coming - the only question is how long until arrival. Different opinions around the 'utility' of stable-coin - currency pegs are just one application. Simply segregate the T-Bills/Bonds, turn the coin into 1:10 units of the segregated assets, and you have the standard money market mutual fund at $10/unit. A fund that is materially cheaper to operate and distribute, and WITHOUT the myriad of intervening intermediaries. Different PoV. SD

"It would also be fairly damning of State Street, Signature Bank, and BPM who custody and audit the reserves if they're allowing Gemini to pledge money it doesn't own as collateral for loans for its own benefit". The custody banks would all be on side, as a Gemeni would be putting up unencumbered assets that it does actually own - everyday business. The generic example just used Gemini as a name example of a USD stable coin issuer. No aspersions intended. SD

The accounting quirk that underlies most stable coin …. I give XYZ company 1M USD, they give me an unsecured note paying X% interest/year – called 1M XYZ Dollar, backed by the full faith and credit of XYZ company, and denominated in one-dollar increments. XYZ company: Debit Cash, Credit Redemption Liability. In banking, if a customer deposits money and there has been no activity in the account for X years – the bank can reduce its liability (customers deposit) and credit its equity. However, the bank must then send the deposit to the nations central bank for safekeeping: debit equity, credit cash. XYZ company estimates that some of the XYZ dollar will redeem within 180 days (50K, or 5%), but the remaining XYZ (950K, or 95%) will never redeem. XYZ company debits redemption liability and credits equity. The balance sheet shows 1M in cash, 50K in liability, and 950K in equity – debt/equity ratio looks spectacular! XYZ puts up 100% of its unencumbered 1M in cash (T-Bills, Bonds) as security, borrows 900K and spends the money on IT development, capitalizing the entire cost (simplicity). The balance sheet shows 100K in cash, 900K in a capitalized asset, 50K in liability, and 950K in equity. The custodian will also show 1M in T-Bills and Bonds (collateralized against debt). Were you able to see the balance sheet you would see NO debt, as it is netted against the cash balance. I falsely think the 1M in custodian assets is securing the 1M in XYZ Dollars. Whereas the XYZ Dollars are actually an unsecured claim against 100K in cash and 900K in capitalized asset. Worth cents on the dollar in a XYZ Dollar to USD redemption run. The good news? If the redemption run can be met from an injection of fresh funds, the value of the capitalized asset materially improves. I give you the funds - you give me 95% of the equity; we survive the run; I get very rich and deal the company off into stronger hands. A well-worn robber baron technique. SD

Re Tether: Where is the USD money? Lot of the wrong people beginning to doubt that it is actually there and asking what is real versus notional (ie: derivatives). Not a lot different to the early days of the ENRON collapse, and everybody really hoping that the financing structure is indeed 'OK'. SD

Step back and look at stable coin objectively. Is Gemini not identical to the ‘weak’ country (ie: El Salvador) attempting to maintain a currency peg against a stronger standard (ie: gold)? Growth controlled by the net flow of standard (gold) into the country. Stable so long as the weak country can maintain the markets confidence. Currency collapses if/when the peg can be broken. The US used to have a gold standard, but ultimately couldn’t maintain it. The BoE famously had a currency peg, ‘broken’ by Soros. In both cases, it was a loss of market confidence in the US &/or BoE reserve bank ability to maintain the peg - that triggered the collapse. Stable coin issuers are multiple times out of this league. The market just has to be of the opinion that the stable coin issuer DOESN’T HAVE sufficient reserve of the standard to maintain the peg and calls the bluff. In practice – the issuer has cumulatively spent more of the standard than they have taken in and is no longer able to cover the shortfall via outside financing. Profit via a short sale of the overvalued currency Re GUSD? I surmise their cumulative net flow of USD will be negative, and sustainable ONLY if they can maintain external USD financing. When a US CBDC introduced, there would be a run on GUSD to USD redemption, which Gemini will not have the liquidity or USD assets to meet. Peg breaks, Gemini collapses. All other US based stable coin in a similar position, all at the same time. Market monetizes by breaking the tether peg and shorting BTC via CME puts. Federal Reserve intervenes by allowing Gemini to directly exchange GUSD for CBDC at a specified fixed exchange rate. Controlled chaos, and BTC proof of concept further enhanced. Long term? Few doubt that both stable coin and NFCs are highly desirable things, but there needs to be a widespread market cull. Until then … its risk versus reward, SD

So many things just don't cut it .... The investor has Gemini Dollars, not USD. The investor has no FDIC insurance, Gemini does. My USD is backed by the US Fed and everyone accepts it. Their Gemini Dollar ... not so much. So why do I need them?, and why are they better than USD? Nobody else has a CBDC that I can use instead? If EVERY USD collected backs a Gemini Dollar, what currency are they paying that 8% interest in - Gemini dollars with NO USD backing them? Similarly, what currency is the landlord, the developers, the consultants and the staff getting paid in every month? - pretty sure its USD, and not Gemini Dollars! So .. where are those USD coming from? This only works if Gemini is acting like a bank. Borrows in USD, pays back in Gemini Dollars (your contribution). USD deposits offset with notional USD liabilities funded with notional Gemini Dollars. Risk managed via USD derivatives based on notional amounts - NOT actual amounts exchanged. Keep only enough USD to meet redemption demand, and MTM settlements - fund it via a credit line, and spend the rest? Scale it up and you have a Tether? The only way to benefit is to 'not engage'. Simply because as soon as a USD CBDC is announced, it would start a run on Gemini to USD conversion .... creating a lorced liquidation demand for USD that Gemini does not have, and cannot raise - BECAUSE it is liquidating. SD

It is useful to think of cryptocurrency in terms of an 'upstairs' and 'downstairs' market. The upstairs market is BTC; of greatest value to the sovereign states, arms and drug dealers, dictators, and criminal elements. Setlle via BTC vs the USD. The downstairs market is the multitude of other crypto from sh1te coin to stable coin to Libra to CBDC. Like it or not, the downstairs market is going to primarily use zero cost CBDC vs BTC; individuals using a local currency CBDC to pay for groceries, plus a major CBDC as the store of value. Most expecting local currency CBDC to subsequently 'evolve' into local 'trading block' CBDC, ie: a 'south american' CBDC, a 'middle-east' CBDC, a 'carribean' CBDC, a 'african' CBDC, etc. The sh1te coin, stable coin, and Libra's made obsolete. Not a bad thing, but don't expect an elegant 'transition'. SD