‘Boy, are we in trouble. Oh, it reminds me of my time in the great financial crisis, when every single day you had some sort of talking head from the finance circles, whether it was the head of Lehman or the head of Bear Stearns, saying, “Oh don’t worry, everything is just fine.” As soon as the talking heads start saying stuff like that, you know that there’s some approaching flames and, uh, yeah, a little bit nervous to be honest.’ – Greg Foss.
As a guest on the Hard Money podcast with Natalie Burnell, retired trader Greg Foss, went into detail about how he values bitcoin as an insurance policy. Foss has long advocated using bitcoin as an insurance policy against fiat, which further explains his reasoning. Foss, like many others, sees the flaws and trouble with fiat. If you don’t want to get into trouble, then sign up for the Jet-Bot copy trading platform. Jet-Bot is an official broker of the Binance crypto exchange. You can connect your Binance account to Jet Bot platform via secure Binance API connection. Every Jet-Bot account includes a free $100,000 virtual portfolio. Check out top traders rating and choose best traders whose deals you would like to copy trade.
Now let’s move back to Foss. What makes Foss’s perspective unique is that he sees bitcoin’s true value by viewing it as a credit default swap. In a series of tweets, the math was explained by Foss, along with a fun map and a Bitcoin thread:
The math isn’t for the faint of heart and can be quite confusing. Let’s read Greg’ thoughts on what he sees coming with bitcoin:
‘I’ll be very clear that this is not grade 11 math from the perspective of sitting in a risk chair, okay? Trading credit default swaps are a very specific business. It’s confined to the largest funds in the world. You need what’s called an ISDA, an international swaps dealers association accreditation. It’s done between hedge funds and banks, and banks and large asset managers. It’s not for the little guy.
I use the CDS markets—the credit default swap markets on sovereign debt—to provide a valuation matrix for bitcoin. It’s done through a credit lens, not because that’s where my experience has been. I spent my entire career in credit markets, as you know, so I always start an analysis with a credit perspective. Really quickly, I did send out a tweet. I like to think of bitcoin as essentially a credit default swap on a basket of fiat currencies. That is to say, you are buying insurance on the potential default of some of the currencies in that basket.
As we all know, there have been numerous internal defaults, particularly in emerging market economies. For example, I’ve said that in my career, Argentina has defaulted four times. Well, Argentina is a G20 country. I have yet to experience the formal default of a G7 country, but I believe that is probably coming as well.
To line up how I value bitcoin as an insurance policy on these baskets of currencies, the truth is that if you look at the current five-year default swap rate on the USA, it’s 20 basis points, which means that it costs you $20,000 a year to ensure $10 million of debt in the USA against default.
Many people argue that why would you buy protection for the United States when they can simply print money and solve a default by printing more money? The truth is that that is an excuse. People still do it. I’m not going to argue with the market. The market is 20 basis points, which means people are paying that premium. Why are they paying that premium? Because they obviously think there’s a greater than zero chance. The USA can default.
If you look through the list of tradable sovereign credits, you’ll notice that some of them, like Italy, are much higher than 20 basis points and some of them, like Turkey, are substantially higher than 20 basis points because people would not argue that the probability of defaults of those countries is higher than the USA. I just looked at the USA and it’s 20 basis points. I adjusted it from a five-year tenure to a 20-year tenure. So at 4 basis points a year, over 20 years, for a period of 20 years, I estimate that the USA would be worth 80 basis points.
I just take the outstanding debt of the United States, which is 30 trillion of funded debt and another 170 trillion of unfunded debt. I actually made an error if someone pointed it out in my calculation. I used 160 trillion, and it’s actually now up to 170 trillion. In total, there’s 170 trillion plus 30 trillion, 200 trillion of US obligations out there. Simply multiplying 80 basis points by 200 trillion yields 1.6 trillion dollars, which is essentially how much default protection would be worth for the entire US.
The funny thing is that bitcoin only trades for 375 billion. If my thesis was correct, and I’m not saying it is, it’s just the way I like to look at it, you’re getting default protection on the USA for less than one-third of the value, and you’re getting all the other nations in the world for free.
I think a lot of people would agree with me that the chances of other nations defaulting before the USA are substantially higher, so I like to get stuff for free and only pay one-third of the price for the USA. It was my way of saying, “My God, bitcoin copy trading is undervalued.” I mean, there are all sorts of things that could happen. You already have some Fed governors that are talking about the assumed 75 basis point increase. If you look at what’s coming in the next two weeks, well, Fed governors are smart enough to read financial markets. You know, today’s close in the equity markets was pathetic. Financial stocks took a huge gap lower at the end of the day. Business confidence is at an all-time low, literally an all-time low. This is not good for the economy, and the USA is going to have to choose whether it wants full employment or to control inflation, but it’s not going to be able to do both.
The likely pivot comes, in my opinion, when they change their inflation target. When they move it from 2% to something like 4%, then they declare victory and say, “Okay, so now we have 4% inflation targets, so now we can afford to, you know, stop the tightening cycle.” You know, it’s always that matt. It’s always that matt. It’s always that mirror with the feed. They talk a big game. Then they pivot because the markets and the US dollar’s global wrecking ball are destroying emerging markets right now with historic losses in emerging markets as well.
When you have historic losses in capital in emerging markets, those are your crypto trading partners. Those cause the globe’s global GDP to decrease. A global depression is in the offing, and I think the Fed will pivot. I’m not certain of it because I think that Jerome Powell is not the right man for that chair. He’s a lawyer. He’s not a risk manager.’
What do you think of Greg’s analysis? Do you agree with the map?
[This article is a transcription of a video made by Only The SAVVY]
[Original video: https://youtu.be/BxDW_BRKhDQ]