TwoCitiesCapital

Doesn't seem like the NY regulator views this as some massive fraud on behalf of Gemini either if they were willing to settle a multibillion "fraud" for just $37 million. I mean, Wells Fargo has probably paid that amount in settlements every month for the last several years

Yea - I know he was still holding $10+ million when he went quiet and has suggested he wasn't selling But I also believe he has disclosed that he'd taken $5-10 million off the top at different times as he rolled some of the contracts so he probably did well even if he never sold another contract and rode them down to being worthless

I was beginning to wonder if yesterday was the start of the FOMO. Strange it may be happening before the supply shock, but perhaps 4th time is a charm for markets to actually be forward looking.

I don't think this word means what you think it means. Im not going to pretend to be an expert on everything that is happening (BlockFi, Celsius, FTX, Genesis, etc). It's a lot. There's a ton of cases, filings, bankruptcies etc. But I am following it more than a casual armchair observer because I had money at stake in multiple of the platforms and am involved in the Celsius bankruptcy. I'm open to being wrong, but ultimately from what I've seen it wasn't Gemini that did anything other than perhaps vetting Genesis to be the one who provided the services. BlockFi and Celsius both used used some Genesis' product on the back-end as well. It's my under Genesis originated 70+% of the crypto loan volume before it's collapsed. Everyone used it. It's Genesis seems to be largely at fault. Celsius has some questionable activities like the CEOs friends and family yanking tens of millions of deposits while he was separately tweeting about how safe/sound everything was. Additionally, they lied about concentration and collateralization of the loans. BlockFi and Gemini? From what I've seen, they largely just got caught up as collateral damage and ice yet to see anything show untoward behavior. And Gemini survived that where few others did. Perhaps. But it's the same agency that thinks a token that provides no ownership interest, no interest, no anything constitutes a security as well. Some things in crypto are fundamentally the same - like banks and a need for regulation and transparency. Other things, like tokenization and DAOs aren't entirely different and need rules to be throught through.

So because they advertised a product on their platform, they're guilty of fraud? Interest WAS being paid. Returns were being made. But it was riskier than advertised and the risks blew it up. Can you prove that Gemini knew it was riskier? Genesis certainly knew. They were the ones making the loans. They absolutely lied, concentrated the loans, and encouraging risky behavior from the borrowers. But prove to me Gemini committed fraud by offering the product. What internal documents? I'm not following the trial in detail, but what I've seen so far is Gemini pulled billions in client funds from the program which is, in part, what toppled the house of cards. Not that they continued to add to it. And as far as the SEC? They also said that Bitcoin spot ETFs couldn't proceed while approving futures ETFs and had to be taken to court, wasted years, and millions of investor dollars through inflated fees and negative roll yield because of it. The SEC has an axe to grind against crypto for whatever reason and their lawsuits against ripple and Grayscale prove it. Not sure that it was fraud just because the SEC called this a "security".

Just wanted to point out that there is no option for 50-100k. You have 10-50k and then 100k. Someone who owns, say $60k of shares, has nowhere to vote.

What fraud did Gemini commit? If you were accusing Genesis if something, I might could agree with you. All I think Gemini is guilty of is perhaps poor due diligence in selecting a partner for the product. Maybe it's their BTC stake that has YOU so wound up?

What I'm hearing is you're making excuses for Adam Neuman, Trump, and Bank CEOS being rich after failure, but the Winklevoss can't be afforded the same excuses when a firm they partnered with failed? Did I get that right? Point is, this is what bankruptcy does. It takes the onus off the executives and decision makers and onto those capitalizing the firms debt/equity. It's ALWAYS the capital providers who lose in bankruptcy. Employees still get paid. Lawyers get paid. Trade claims get paid. Equity and debt? Well that's for the courts to work out. This is how EVERY bankruptcy works. Not just the Winklevoss' - which is itself a misnomer because their firm is still operating and avoided bankruptcy. Outside of Gemini, the Winklevoss brothers are probably some of the largest holders of Bitcoin as it's estimated they still hold over 70,000 BTC that were purchased largely from their Facebook settlement proceeds. There was never any questions they'd still be filthy rich even if Gemini went bust.

Gemini is still a functioning brokerage, no? Thought they just halted withdrawals from their Earn program because Genesis couldn't make good on it? Could be wrong. So many bankruptcies in this space, but also this is how bankruptcy typically works. Adam Neuman is still filthy rich despite WeFail. Trump is still stupid rich despite having multiple bankruptcies. Bank CEOs circa 2008 largely remained super wealthy after the bank failures and consolidations. This was the intent of bankruptcy process - protect those taking the risks so they keep taking risks to push business forward.

Can you name a collectible that has outperformed BTC since 2009? What about since 2019? Just curious why all of these desirable/rare collectibles are a better buy than the thing that continuously trounced them in its adoption/growth/price trend? Good thing they're not mutually exclusive. I own both. But if I had to pick one, I'd pick BTC for any incremental add outside of my residence. And yet, so many democracies relinquish control of their currencies to peg to the $.... or relinquish control of their resources to have access to the world bank/IMF funds.... or allow themselves to be puppeteered in global affairs to retain access to the USD banking system. Yea, I wonder why any of them would look to BTC $50k BTC is as cheap today as 5k BTC was in 2017. 1) there are many. 2) there's a law of good money vs bad money that explains why it isn't more Yes. One absolutely needs a currency that can be devalued so that a country can continue to make the mistake of too much leverage and debt over and over and over and over again. You're absolutely right. There's no other solution. Then perhaps you should start seeing BTC as an asset. Because it's both.

Collectibles is a broad term that includes more than Picasso. Wines. Whiskeys. Cars. Sports cards. Beanie babies. Absolutely have booms and busts associated with all of them. And many of those have busts, and booms, that absolutely mimic -70% and +100%. Back in the early 90s, you could find used Porsches for cheap. The company's sales halved for new cars and used car prices were in the dump. Now? Cars from that era literally go for 100k + as collectors items. Significantly more than the cars sold new for back then. And cars are traditionally a depreciating asset? How's that for a bust/boom What makes you say no coincidence? Because the correlation has been negative, zero, and positive several times over the last 5-years. And is currently cratering... Why should BTC behave differently going forward and simply be correlated with equities when historically the correlation is basically zero? What gives you confidence in this view? Of course not. Countries looking for alternatives are ones that have previously failed. I don't why that isn't obvious to everyone out there. The countries who will switch first are countries who have everything to gain, little to lose, and likely have failing currencies. But let me let you in on a little secret - every reserve currency before the USD has failed. So why is it you're so confident the US won't eventually get there? Especially after 5 decades of it losing value against real assets? And why do you believe that the US getting there is the only thing that would justifies BTC having value? I mean, you seem to be willing to cast your faith in the USD/fiat currencies when history is literally littered with failures of the majority of them. But you'll also assume it's BTC that is the one-off bubble as opposed to secular growth trend even when no other bubble has previously persisted this long through multiple busts? I tend to to take my chances that history will repeat/rhyme rather than bet that both the USD and BTC are outliers. Especially since the BTC being an outlier of a bubble argues against the USD being an outlier of a fiat currency. And if the USD was an outlier of a fiat currency, then there likely wouldn't be a growing number of people using BTC every year.

1) that's EXACTLY the way collectibles behave. They always boom with the economy risk/assets 2) Bitcoin was falling for most of 2014 while stocks were rising. Bitcoin exploded in late 2015 while stocks were falling. Bitcoin was falling in 2018 while market was flat to rising. And in 2021, Bitcoin cratered 50+% between May/July 2021 while stocks were still rising. Bitcoin didn't bottom until early 2022 - months after most stocks had put in their bottoms in 2021. Multiple environments where BTC behaved significantly differently than broad equity markets. It isn't a collectible. And it's correlation to equities ebbs and flows and varies based on the time horizon you're observing it over. El Salvador and Central African Republic already have. Others are considering it. Name a single bubble that survived for more than 15+ years with multiple "busts" that made higher highs and higher lows?

1) most of the people I knew buying crypto in 2020/2021 weren't buying Bitcoin. They were shilling shit coins like Doge and Shiba Inu trying to find the next Bitcoin thinking they'd already missed the boat on that since it was already 30-40k. Now the vast majority of those coins are down 90+% whole BTC is in reach of it's ATH 2) while BTC isn't new, most people don't understand it, don't allocate to it, and don't recognize it's value. We still have to have conversations why it's not great for criminal activity and why it's unreasonable to assume 100% of the world's electricity will be used for mining in 5 years which are the same tired arguments that I was making in 2018 before being orange pilled myself. We're still very early in the adoption trend even if the technology isn't quite new any longer.

Welcome to being orange pilled

I like intermediate mortgages and treasuries for my core bond exposure. Can get 4-6% YTMs here without doing anything sexy or trying. Things like RGVGX, JCBUX, TLT, ZROZ, and etc. here. Primarily buying in accounts where my investment options are limited like 401ks, HSAs, etc. Best returns here will come from a rate cutting cycle. In other accounts where I have a bit more freedom, I like short-duration spread sectors, CEFs @ discounts to NAV, agency mortgage REITs, and other higher octane/leveraged positions. This is for more "oomph" if the economy manages to avoid/delay a recession. 5-10% expected returns here aren't hard in a scenario where we avoid a hard landing OR keep hiking rates. JSCP --> 5.9% YTM @ 2.7 years of duration JLS --> 10+% yield @ 10+% discount to NAV w/ sub-2 years duration AGNC stock --> ~15% yield at the moment TLT call spreads for leveraged duration exposure Have also been looking at some other CEFs (like WIW and WIA for leveraged TIPS exposure), but am waiting to be opportunistic when discounts are widening. Ultimately, my positioning is motivated by 3 things: 1) I work in finance and my compensation is impacted by equity returns - I like to have diversification to equities for this 2) I don't need anything higher than 6-7% returns to retire comfortably in 25-30 years. If I can get that in fixed income, why take the risk in equities? 3) I believe that history demonstrates fixed income will likely outperform equities in environments of volatile inflation and economic weakness. I expect both over the next few years

How to value it becomes the case of valuing any commodity. Supply vs demand. How much it's worth is how much someone is willing to pay for it to have immediate delivery. How much someone is willing to pay for it will depend on how much value it provides them. While I have no fancy/sophisticated model to map the supply vs demand date for current pricing minute-to-minute, there are some thoughtful models put together to try to assess the longer-term value which can then inform some smoothed price prediction removed from the minute-to-minute supply/demand imbalances. The best work I've seen done on this is by N-Squared where he applies the Metcalfe theory to the Bitcoin network in terms of describing network value based on the number of users the network has. Beyond that, he makes informed assumptions about how quickly that network will grow to get a smoothed price projection into the future. Then its just a matter if discounting back to the present with your hurdle rate for what price you should be buying it at. There's also the Stock-to-flow which is just focused on supply-side dynamics as has been a model for other commodities in the past. I like this one less for BTC because the price of Bitcoin would go to infinity once the supply dropped to 0 in 100+ years. With that, we know the model will break at some point. So far, it has been reasonably good at identifying inflections in the price and an upper bound as to which the price will likely trade and may continue to be useful in the intermediate term.

Absolutely. I agree. Except cash isn't volatile. Treating Fairfax as a cash equivalent because of the fixed income it owns will likely be a mistake in volatile environments - environments where cash would be expected to "gain" in relative value where Fairfax might be "losing" relative value

Just be careful applying this in practice. Fairfax owned a ton of cash/short duration bonds in 2020. The stock still was down over 50+% from the peak despite that. This was also demonstrated in 2008 where the stock of Fairfax was falling even while it's CDS were printing money. In a panic, it'll trade like a stock regardless of how well it's underlying assets are doing.

I agree. I think it'll just take more time. The company I worked for was asked a question about BTC during an educational conference with our advisors 2 years or so ago. They laughed it off And basically said our clients were better off not owning it after the rapid drawdown we'd just seen. There was no intellectual honesty about it being the best performing asset over 3- and 5- year periods even after that drawdown. Now that's it's gone up 2-3x from those amounts, there's still no one really talking about, or recommending it. I'm sure over time more and more clients/FAs will push for us to allow it and have guidance on it - especially with the ETFs now available. But it's going to take time. We're not chomping at the bit to add it just because it's up 300% from the lowd and I imagine other firms are similar which is why you're seeing them block clients from owning it at this time. I think we get one more cycle starting this halving. BTC may go up to 200-300k as the FOMO will be more widespread, but still not driven by the institutional adoption. Then we'll come back down to 50-100k in one last shakeout and from there the adoption curve will really take off as 2-3 years will have passed. Market cap will be sufficiently high to start accepting widespread inflows from retail and corporates. That'll drive the market high enough to allow for the entrants of countries/sovereign wealth/central banks. .

I think plenty of them will be cautious to buy if it has just gone up 50-100%. Also, plenty of firms/advisors are still not 'for' it despite the approval of BTC. It's a pipe dream to expect the company I work for to allocate to it any time soon. And as far as those with advisors, people don't tend to be as greedy when allocating others' money then when trying to resist the pull of greed on their own so will be more cautious as the price rises I suspect.

I think its going to take years. How do you get $200+ billion into a market cap that is only $1 trillion? You either drive the price to the move massively by hitting every bid and then risk having no liquidity if you need to sell OR you slowly accumulate while waiting for that $1 trillion market cap to grow to $5-10 trillion. I think most of these allocations occur AFTER the next exponential step-wise move in BTC. Unfortunate for those guys - great for me to continue to accumulate.

I'm open to the Fed hiking again. I think it would be a mistake. I don't think the data will support it especially now that we're seeing outright deflation in many goods/real assets. But I can believe that their motivations may be something other than "stable employment and inflation". Powell has basically said, in other words, that their intention is to drive the economy into a recession. Whether he does that by raising rates, or leaving them too high for too long, I can't say. But I've been pretty confident for awhile that 4% was too high and have been buying duration every time its available above 4%. I'm in a lot of things in fixed income at the moment. Started off in cash and iBonds when rates were basically zero in late 2021. Then started accumulating short-term spread products and agency mortgage expopsure as rates rose and certain spreads blew out in 2022. Then started adding intermediate government duration and core bond type products. Then I started adding TLT calls when rates were on their way up to 5%. In recent months I was adding fixed income CEFs at sufficient discounts to NAV to make me want the low-quality credit. 10+% cash yields. At this point, I don't really care what rates do. Lower rates benefits my duration exposures and can give me ~10+% while likely giving me attractive opportunities in stocks. Flat rates let me collect a yield that probably YTMs that are 6-7% in aggregate. Higher rates hurts my duration, but likely help my spread products - so maybe ~5+% while setting me up for even juicier returns next year. I'm ok with any of those scenarios.

Markets are plenty stupid from time to time. Pricing the 2021 stock market at 30x+ earnings while knowing inflation was accelerating was idiotic. Seemed like everyone was saying equities were an inflation hedge. Meanwhile, myself and a few others were suggesting real returns on equities were going to be poor, that margins were likely to contract (and profits fall), and that picking your spots in bonds and gold would likely outperform. And what did we see? Contracting margins and falling profits. S&P 500 profits are STILL below what they were in 2021 in real terms. Even after the double-digit rally in Q4 last year, nominal returns are mediocre and real returns are roughly -2%/yr over that time. The only real surprise here has been the markets willingness to bid stock prices up again, despite an environment that is clearly cautionary and even that couldn't deliver good results to the average stock. On rates: The problem that markets get wrong about rates is that if you're lowering your discount rate, then you should be lowering the average growth rate you expect as well. The effects largely cancel one another out. This was borne out in the 2010s when U.S., Europe, and Japan all had 0% rates. Broad revenue growth was abysmal. GDP was significantly below average. Real earnings to workers and etc suffered. The primary saviors of the S&P 500 came in the form of refinancing high cost debt and levering up which expanded margins, using cheap debt to buyback shares, and the eventual concentration of the index in a few hyper growth names that were ablet o buck the trend. But 2 of those 3 trends are basically guaranteed to reverse and act as headwinds in a decade of non-zero rates. Earnings have NOT been resilient and have NOT been better than originally expected. The only expectations beat were the expectations that were previously cut dramatically. The expectations were earnings would be inflation resistant. We are still below 2021 earnings in real terms by a fair bit. Not a huge amount of evidence? It's only in services consumers are "splurging". Retail sales plummeted in 2022 in real terms in 2022. 2023 basically got us back to even in real terms. The best characterization of that is stagnation. And that stagnation was existing before we entered a consumer credit cycle. Now? Credit card defaults are accelerating. Major economies ARE going into recession. Commercial real estate is beginning to weigh on regional banks and we know major banks have been cutting back on lending. I have to believe that sets us up for a worse 2024 than 2023 i.e worse than stagnation. I don't know what is delaying the recession. The timing of these things is always difficult - especially when confounded by trillions in an unprecedented bout of stimulus. But forward data continues to disappoint and now coincident data is starting to. The only three things that appear to be holding up are the 1) S&P 500, 2) the unemployment rate, and 3) GDP. 1) The S&P can make mistakes and turn fast. It has repeatedly done so in the past 2) On unemployment? The numbers have been trending in the wrong direction. And while headline numbers are fine relative to historic figures, the moves under the surface are concerning. More part time jobs and fewer full time jobs. Higher wages, but fewer hours, leading to less take-home pay. More government jobs, fewer private sector jobs. Etc. etc. etc. The weakness is there and growing and we know this is a lagging indicator 3) On GDP? It's painting an entirely different picture from GDI which aims to measure the same thing. And it can be revised lower as it has been in prior periods leading into recessions. My expectations are historical GDP figures will be revised lower and GDI figures will be revised higher and GDP will not appears as robust in hindsight And lastly, we have official recessions in Germany and Japan. France is teetering on the edge. Most of the rest of Europe is slowing. As is Canada. As is China. The majority of the global economy is pointing to a slowing.

Fairfax has demonstrated time and time again that its share price is NOT part of an efficient market. As mentioned in my post, there used to be stellar earnings reports that the stock wouldn't react to and then 2-days later the stock would pop 4-6% for seemingly no reason. I actually started a strategy of adding to my positions after great earnings and then selling into those pops that worked reasonably well for 12-18 months. So while there is nothing that surprised us, given things like the headlines characterizing these earnings as a "miss" or as lower than last-years (without adjusting for the $1.2B gain from a subsidiary sale), or the share price tanking after the MW report, it's clear that the market doesn't follow this anywhere near as closely as we do as is regularly missing the story here. Which is why I'm surprised the earnings report didn't spell it out for those folks with $1.7B in Q4. That could be. That was exactly my plan into a 5-10% earnings pop ABOVE the pre-MW report prices. Broke my own rule on position concentration to allow adds in the wake of the MW report. Gains since then have been satisfactory, but was definitely expecting more "oomph" from it. Now I have to decide how long I'm going to allow myself to break my rule for. Yea - we'll see. Hoping it's the return of the 2-3 day lag in share response to earnings.

Going to be honest - the share price reaction to an a amazing earnings report is a bit disappointing Makes me wonder if 1) the market had it "right" and the earnings rally was what we saw in January or 2) if we're back to the days of the getting the earnings look for free and the stock responds 2-3 days later Either way - I am somewhat shocked we didn't get a pop of 5-10% from market participants who haven't been following this as closely as we have.