SharperDingaan

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

The 1st world just doesn't 'get' that the intent behind legalizing BTC is NOT to replace the domestic currency (Colon, Real, etc.), it is to COMPLEMENT it. and AVOID using USD. BTC used as a store of value, not something to buy your groceries with. BTC preferred over USD as a state 'work around' the use of USD as reserve currency. BTC to make your wealth both portable, and inflation resistant. BTC to make remittances easier SD

One of the key implementation issues with blockchain is 'reliance upon the code'. Operational managers have long mocked this 'reliance', citing coding culture, and the reliable regularity of coding logic failures Coders code! get out of my way and let me code! - it's not my problem if you don't continually test the algorithm logic! Sure .... As long as developers/start-ups drive the bus (current state), expect more of this. The default position is to shut down crypto entirely (China), and a phased-in use, subject to layered and robust ongoing testing (China). Of course, the technology will roll out - but most would expect that it'll be atop a pile of developer skulls. Ideally, you don't contribute your skull! SD

Nothing new here, but if you were hoping for great things from WeChat or Alipay, you might want to think again. You also might want to rethink stable coin entirely, and recognize that the US is not driving the bus. It's hard to find a trustworthy platform that can convert stable coin into digital yuan, and without digital yuan you're excluding the 2nd largest market in the world. SD https://oilprice.com/Finance/the-Markets/Is-Chinas-Digital-Yuan-The-Death-Knell-For-Crypto.html The crypto ban comes at the same time as the Chinese government’s roll-out of the Digital Yuan, its sovereign digital currency now either years in development. The digital yuan was envisioned back in 2014 and already has distributed some $30 million in digital currency. It’s a clear rival to unregulated cryptocurrencies. It also is the government’s way of challenging WeChat and Alipay, the two private giants dominating the mobile payments market.

The flip side of China is that when the place gets into trouble ..... they implement solutions on a scale that few others can match, or tolerate. https://oilprice.com/Energy/Energy-General/Oil-Prices-Soar-As-Beijing-Orders-Energy-Suppliers-To-Stock-Up-For-Winter.html Bloomberg: government officials "ordered the country’s top state-owned energy companies to secure supplies for this winter at all costs." There are few things as powerful as a junkie on the edge, pushing hard for their next fix. The why you invest in the commodities a China uses, and not China itself. SD

The market is in denial over inflation, same as it was at the start of the housing collapse that brought on the GFC. Most folks shouldn't be in the market and probably know it, but have become market junkies addicted to the rush. Most dealers have become addicted to the endless stream of junkies. So ,,,,, everybody wins, as long as the band keeps on playing. Of course we all know there will be a time of reckoning, the crowds loss will be the disruptors gain, and that some folks are going to get very, very rich. How rich being largely a function of street smarts, ability to think independently, and ability to think on your feet. Not very many people. Of course there are no guarantees, and predictions are just informed opinions. Nobody knows the future. All you can do is attempt to know your limitations, and play within them. SD

We would add that ESI very likely made a profit in Q32021, and that their low share count is another plus. Most are also expecting them to take out a significant competitor via a stock swap, before any real dividends start. Should it occurr, FFH could expect a material unrealized gain, a variable dividend, and to be < the 10% reporting barq1. We own shares in both drilling companies. SD

Agreed there are lots of ways, but what gets done where - will depend primarily upon the cost of feedstock less the recovery from by-product (CO2) sales. It will also take a mminimum 2-3 years to build the required plant and distribution facilities. SD

China's actions just makes BTC stronger. Technically, all that really happens is that the hash calculation gets easier as Chinese processing power is withdrawn. While banning BTC just temporarily reduces immediate demand, until it displaces elsewhere - and further proves the use case. SD

NG has indeed done very well but you might want to temper expectations a bit. Prices are already high ... Higher prices require both a colder winter, ongoing supply restrictions in Europe, ongoing diminishing wind, and growing fears of shortage as UK fuel rationing progressively broadens. However, global warming produces warmer winters, there is definately no shortage of deliverable NG in the ME, winds generally blow stronger in the winter, and UK fuel rationing is only temporary. This is a time when the smarter producers would hedge, and many are/have. Lots of widely popularized UK gas supplier faIures, primarily because they sold at fixed rate, bought at spot, and refused to cap their maximum cost (costs $ to hedge). The good news is that the more failures, the more reinforcement that NG spot prices are going higher still, 'cause they already have Lot of enthusiasm around hydrogen fuel cells to power EV vehicles, but few realize that most of it comes from the breakdown of NG and that CO2 is the waste product. While the food industry is a major user of CO2, scaling is not really practical until there is widespread and reliable CO2 sequesture, and that is still some time away. SD

The reality is that every libertarian has to live in the 'real' world, and every year he/she gets older. When you have nothing to lose, and the energy of youth, libertarianism is easy. However, once our libertarian has something to lose, and is tired - he/she has to make a bed, and live in it. Gretting old sucks! Ultimately he/she picks a location, then plays within the local rules/regs to their advantage. Sure, he/she might not like all the individual rules/regs - but usually it is not enough to cause a permanent move to another country with different rules/regs. In NA, individuals are generally free to choose what they will/will not do .... in most other locations, that just isn't true. SD

Keep in mind that if the withdrawal is to fund a charity, there will be a reduced tax bite Put an animal shelter on the side of your barn, have the charity pay for it, and hire your kids to do some of the work (nothing says you cannot be a main beneficiary). Even have the charity pay to send one to veterinary school, conditional of concurrent care of the animals in your shelter .... Lots of possibilities - but if you want a luxury vessel to document coral destruction in the carribean, expect some 'resistance'. You'll need to have at least 1-2 researchers on your boat, at least every 6 months or so - but the rest of the time, she's yours! SD

We find it usefull to think in different timeframes - all else equal; 1-2 yrs out as reasonably predictable, 3-5 yrs out ... not so much. It is pretty clear that we will have aggressive wage inflation over the next 1-2 yrs. Health care, education, public service labour contracts etc. are all up for renewal, and a 1-2%/yr increase just isn't going to cut it; there will be lots of drama, but wages are going to go up. To minimize the annual wage inflation impact, most would expect 1% wage increases and an upfront sign-on bonus for the rest - indirectly funded via the central bank. Supply chains are going to take at least a transitory 1-2 yrs to 'normalise; fading bull whip price spikes partially being offset by re-location. 3-5 yrs out, todays decisions on onshoring new PPE and related labour (EV factories, ESG, drugs/vaccines, robotics, etc) dominating the picture. Successful implementation of CBDC's setting up the displacement of USD as the globes reserve currency. Relative inflation and trade flows materially impacting FX rates. China isn't going away, but most would expect a global de-coupling - our own view is CBDC/Reserve Currency, and a domestic baby boom. There is still demand for commodities, but domestic markets largely remain closed to the international market. Obviously, how/if it plays out, is the wild card. Lots of opportunities, but learn to make disruption your friend. SD

The enterprising lad would simply remove Dhandhro at an "in kind" valuation of zero, and argue that there is NO market for them. As the IRA is a deferred tax account, the resultant decline in the value of the IRA account - will also reduce tax paid when the funds are withdrawn. Get paid to take the junk out of your account SD

Most would expect the state to assume the entire housing inventory for the value of its loans, and let everything else crash. Thereafter the inventory is finished off, and the apartments rented out as social housing. Housing affordability is a global problem, and even Germany (Berlin) is actively thinking of nationalizing the housing stock. https://www.theglobeandmail.com/business/article-berlins-bold-proposal-for-surging-rents-evict-the-landlords/ SD

While China both remains the 'workshop of the world' and continues with its build, there are jobs for young people. Going forward, most would expect both these to taper off, unemployment to rise, and young women to bear the brunt of the lay offs. However the unemployment rate will NOT rise - if those young women are permanently leaving the workforce to raise kids! The CPC could easily 'break wings' to make that happen. The resultant pent-up baby boom both supporting the domestic economy for a good 3-4 generations, and diminishing Chinas reliance on ongoing 'western' demand for Chinese goods. Make property in the ghost cities affordable, available, and move industry there - or be disappeared/nationalized with minimal compensation. You live in China, not the west. Ultimately, it's just a different approach, measured by different metrics. SD

Re demographics: Rampant 996 culture ensures that no one is making babies when they finally get home! Most would expect that the CPC is expecting fewer jobs in the future, and preparing the ground for younger women to leave the workforce and have babies. Creating a baby boom, would be a very smart policy move that also solves a number of problems. SD

Effective 12/31.2021, the Canadian federal minimum wage is $15/hr. Each Canadian province is different, but the Ontario minimum wage will shortly be $14.35/hr - following a 10c/hr increase. https://www.blg.com/en/insights/2021/07/the-15-dollar-question-how-to-prepare-for-the-new-federal-minimum-wage https://www.ontario.ca/document/your-guide-employment-standards-act-0/minimum-wage Provinces argue that raising minimum wage both costs the poor jobs, and closes small businesses. It's better to permit exploitation, than pay a living wage. Most in the G-7 recognize that like it or not, guaranteed minimum income is coming, and that it will set the floor minimum wage/hr (annual income/50 wks x 37.5 hr/wk). The objections are because this will materially increase the minimum wage/hr, close many small businesses, and clash with workaholic 996 culture. Essentially, the same arguments that were made by US plantation owners ahead of the abolishment of slavery. Covid has changed everything. As supports fall away, a great many small businesses will become statistics, with minimal impact on employment stats (no workers). Following which those former business owners will be clamouring for the guaranteed minimum income. You and I will be paying more for what we buy, and buying less because we dont have the money. Provinces &/or states either get with the program, or suffer new leadership. Disruptive change. Not a bad thing, but essentially another Roosevelt type 'new deal'. End of a way-of-life for many. SD

The market solution is that prices throughout the supply chain rise, and the volumes decline - as the end product becomes unaffordable. Accelerating economic contraction as end users progressively collapse, and suppliers successively exit the chain. Not a happy place to be. SD