Quick Take For The Curious: Heretics Corner

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Quick Take For The Curious: Heretics Corner

Some Bear Takes on Bitcoin

One of our very accomplished and wise readers recently noted in a piece that “hostility towards bears” is one of the hallmarks of euphoria. Her piece[1] compared the antisemitic slurs directed at several prominent and proven short-sellers to what happened to bears in 1929 who were subject to threats and character assassination.  There is no sphere where Kailash believes the hostility to bears is more apparent than in the world of crypto.

For the sake of total transparency, Kailash would like to reiterate that we have no house view on any cryptocurrency.  But, feeling horrible FOMO and having been beaten without mercy by friends for failing to own Bitcoin and Ethereum, your author heeded the advice of a long-tenured and experienced member of the Kailash Concepts team.  In a moment of brilliance, he said “If you are feeling FOMO…buy a little.”

Before acting on the advice, your author sought out one of the brightest human beings ever to grace his world, Isaac Lidsky, founding partner of Senary Ventures.  Intentionally or otherwise, Isaac convinced me that if cryptocurrencies take over the world, Ethereum was the better candidate vs. Bitcoin.  In my crypto-inept brain, Isaac’s tutelage made me think that, unlike Bitcoin, Ethereum held the potential to drive massive social and professional efficiency.  So I bought 10x as much Ethereum exposure as I did Bitcoin. I say this for transparency only – not to advocate for any crypto – we do not have a view!  If you actually want to learn from one of the most knowledgeable guys in the space about the topic, we encourage you to visit their site or contact the team contact@sbv.io directly.

With that in mind, Kailash has collected some of the most thoughtful ANTI-CRYPTO views from long-time readers.  While their views are diverse, the one thing they have in common is they were all in the closet – all of them felt that expressing a “bear” view on crypto exposed them to vitriol. Advocates of an honest and free exchange of ideas, Kailash feels that because cryptocurrencies are unregulated, they benefit from a remarkable ensemble of supporters ranging from the credible to the questionable.   With that said, here are the three bearish views we found most thoughtful[2]:

From a long-time money manager and reader overseas: 

The bull market in Bitcoin is nothing more than evidence of an incredible BEAR MARKET in geopolitical worries.  Despite all the headlines around tension between America, China and Russia, the viability and advance of Bitcoin depends heavily on a continuation of reasonably amicable relationships between the liberal democracies of the world and many autocratic countries. 

Many of these autocratic countries are becoming increasingly aggressive in accelerating the already rapid decline of America’s global hegemony.  Bitcoin advocates really don’t seem to grasp that.  Bitcoin is a remarkable method for possible malefactors in places like this to digitize funds and get it out of their countries.

While impossible to know the exact magnitude of such conduct, being able to convert a large sum of money into a digital asset that goes on a drive and can be moved around the world with ease and getting access to US dollar funding is no small thing.  Getting access to dollars in laundered form allows these state sponsored actors to fund activities adverse to America’s interests in dollars – quite an achievement.

 As a foreigner living outside America this strikes me as a natural first-target for US regulators as a basic premise of your national security.  America is very aware of what these adversaries are doing and underestimating America’s commitment to national security is a losing game.  The moment [various agencies within American government] can make a clear case – if one hasn’t already been made – that shutting down Bitcoin will deeply impair numerous anti-American activities, Bitcoin will be made illegal or regulated into obsolescence. 

From a long-time money manager who is now an inflationist:

Beware a bull thesis that changes.  That has always helped me stay out of trouble.  When a stock is going up but the fundamentals are not there – I have always found inexperienced analysts tend to tag on to a new story. They don’t want to walk away from a rising stock, so they find some other, often long-dated and yet to be validated, reason to like the thing.  And that is very frequently the sign that the stock price is now the validation of the stock price – a premise that works until it implodes.  Pointing to the price as the reason to own something is the cardinal sin and most potent red-flag in a bull-thesis.  

Let’s apply that to Bitcoin.  At first Bitcoin was anonymous. That was the “sale” – privacy. With the primary means of buying and selling Bitcoin moving to things like Coinbase and PayPal, there simply is no way this is true anymore.  Those are public or soon to be public entities that will face incredible scrutiny and regulation.  They will have to adhere to anti-money laundering rules.  So now the government will have the biggest access points to crypto currencies firmly under existing regulatory rules.  That also means you are either buying crypto through a regulated and vetted channel or not.  And if not, why not?  Well to hide funds.   Which makes those other platforms and their customers natural targets for investigation. 

Another popular piece of the thesis was that Bitcoin would become the better and more efficient method of transaction.  That simply is not happening.  Because of the incredible price movements, if you sell a service, like, say, a battery powered car, and agree to take Bitcoin in payment, that is simply gambling.  If the dollar had a history of moving 5% intraday as a matter of routine – how does a vendor of goods that earn, say, 5%, 10% or 20% accept payment in something that can instantly wipe out their profits in the transaction?  The answer is they can’t and we see that in the utter collapse of the “Bitcoin is a better means of buying and selling” narrative.

Along those lines, transacting in Bitcoin is expensive. And not just because the price moves around.  The higher the price of Bitcoin the greater the cost of transacting in it – Bitcoin’s price appreciation means that every transaction uses more electricity.  This effectively means that Bitcoin is not just environmentally unfriendly, it is also akin to being short electricity which brings me to another point – Bitcoin as an asset class to hedge against inflation and falling currency values.

This is the latest thesis and it largely rests on the idea that the price validates the price – my cardinal sin in a bull thesis.   As someone who has very high conviction that the already sharp declines in the dollar and other fiat currencies will continue, there is a lot of appeal to this thesis.  But in this view, you definitely don’t want to be long an “asset” that gets you short energy.  That’s nonsense.  Even worse, unlike something like gold for example, Bitcoin depends on cheap electricity, computers and the internet. At a time when countries are actively ramping up cyber-attacks, the risks to EMPs and other technologies designed to impair the basic elements of social order, the idea that having an “asset” that floats on the internet or even sits on a drive dependent on computers and the internet is ridiculous.  That’s an asset that is long the status quo while claiming it protects you from the status quo.

The biggest part of the bull thesis today is that institutions are finally adopting it and former regulators are backing it.  In my experience these types of moments are no different than major money managers firing their veteran fund managers in 1999 and 2000 – they swap out common sense and experience to make participating in nonsense easier.  No idea if and how high Bitcoin will go but let’s not pretend that institutional acceptance of a novel and unproven asset class after a 10 fold price increase has some sort of long-term bullish meaning. The entire bull-thesis today is “people are going to buy it because it is going up and there is a fixed amount so even if we see adoption of just X% that means it is worth some absurd amount more than it trades at today.”  So the thesis today is simply the price is going up because more people believe it will go up so the price will keep going up if we all just hold on.  Good luck. 

From a long-time reader and computer-scientist:

If you think quantum computing isn’t coming you are wrong.  If you think quantum computing power in the hands of criminals isn’t the end of Bitcoin you clearly don’t understand what is going on.

If you have strong views – either “pro” or “con” regarding the above please let us know!  When it comes to Bitcoin and other crypto currencies, Kailash is sticking to “Swiss neutrality.”

No matter if you are a bear or bullish zealot on cryptocurrencies, the history books are unambiguous: buying high-quality cash-generating businesses at fair to low prices is a terrific way to compound wealth. 

This is what Kailash specializes in. Our newsletters and investment tools are committed to helping people interested in compounding capital using the most time-tested method we know.  Good companies, good management, and good businesses purchased at reasonable prices.  You can find them on our website or by contacting us here.  To learn about and gain access to our powerful tools built using research-proven out in practice and academia please:

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