The crazy thing about this chart when you look at it is and it’s pretty obvious is that we are collectively in one way shape or form basically trading up ever since 2018 really with all the stimulus because if you look at the mean price of Bitcoin about 2018 it was a nothing Burger. What we were talking about was a price that was sort of between a few thousand dollars to three thousand ten minutes three thousand and then all of a sudden when all of the stimulus money hit the market look. What happened to it? But I think something unique also happened which is that people really understood how to run these very complicated off-chain Bitcoin arts. I think we should explain what those are because those are what’s behind the three arrows Capital. It’s behind I think Sam had this kind of oblique tweet that said some of these exchanges are actually already in a solvent. They’re already The Walking Dead, so the first thing to keep in mind is that. This is a completely unregulated market. There are no middle maker market makers per se that actually have reporting requirements to any regulatory Authority. There aren’t any Clearing Houses. There isn’t a way for us to understand systemic risks as it builds in the crypto Market. So, what happened starting in 2018 and 19 is people realized the following things were true. To begin with, we must say that if you want to start crypto trading, we can suggest you to use a crypto trading bot to make safe transactions. Earning from 200% up to 2,000% APY is a great bonus of using Jet-Bot copy trading platform.
It’s sort of what we talked about last week. You go and do some crazy round you Mark up some Phantom equity in a company that company then issues tokens to you, then list the tokens not on a Blockchain per se, obviously. But, in a place where trades can happen off chain right and there’s a bunch of exchanges where these things happen off chain because it’s one company and then they have a bunch of segregated sub-accounts. What happens is when these things initially get listed retail goes crazy. The price goes up folks basically dump on retail and you spin that loop as fast as you can. You can extract an enormous amount of money along the way all these things like DeFy all of a sudden popped out of nowhere. And it’s like: “Hey, you can earn 15-16-17-18?”. Just deposit the Bitcoin and so folks with deposit Bitcoin. But, then what would happen is like the places where those deposits were held but then need to obviously find places to make that 11-12 or 13. So, then they would go off the chain to some other random person who was offering to pay them even more than that. They would try to arm the difference. But, it all catches up with you because when something like Terra goes to zero all the Bitcoin that was used to basically run that DeFy process around Terra vanishes. Then, all of a sudden, you the lender are like: “Hey, can I have my Bitcoin back and the broker is like well actually I don’t have it I lent it to somebody else let me ask that someone else. They’re like I’m sorry I don’t have it but I have these tarot coins because I was running some ARB and now it went to zero and that’s essentially what we’re seeing right now. So, we have two big problems. Then I think we have a third that’s kind of funny. The first big problem is obviously in the absence of any regulatory oversight. This stuff is going to happen systemic risks are going to build up. What we’re facing right now is an enormous amount of systemic risk largely around Bitcoin, a bunch of this money. I think it has been essentially just vaporized.
So, all these people that try to find their deposits, especially in custodial accounts in off-chain brokers may be SOL at some point. I think that’s just going to be a huge show, if that actually happens and to be clear chamoth. They don’t have the keys to their own Bitcoin they gave money to a custodial account they then did this lending went out to get them to 15. They don’t have any recourse here, they can’t get there look at these live real Bitcoin owners, put them in a wallet, and on the keys. Does anybody have the recourse of this three-year-old capital and all these other interrelated parties that are now gone completely bankrupt because of this scam? The answer is absolutely not. So. that’s the first problem – you have absolutely zero oversight which means systemic risk has been built up in the system. The second thing is that exactly what you just said Jason is that people don’t even understand the chain of custody here which is that you thought that you owned this Bitcoin. It turns out you, actually, may not actually own them at all you thought that you were properly lending them out. You, actually, don’t there is no enforceable contract it turns out. So, I think that’s going to be an entire set of different legal issues that are now going to come to the service because of people who actually legitimately lent this stuff out. For example, if you short a stock and you go and borrow stock from any one of us. They’re really tight guardrails, if you wanted to go and put a credit derivative swap on against debt.
There’s a central Clearinghouse that makes sure, you’re not over levered you know you have to go and get audited by a bank to even get in the kind of account that allows you to put these derivatives on none of that was possible in crypto. Then the last thing which I think is kind of funny is that we’ve had to listen to every Millennial and gen Z Market Observer and crypto tout how. This is not like Boomers and they turned out to be the same. I mean this is the stick of all it’s like of all of the times you’ve had to hear, how it’s so different it turns out it is entirely the same entirely in fact worse. I’ve transitioned most of my public markets time to focus on debt and I’ve been looking at these companies because there’s a lot of these really interesting tech companies with a lot of because what David said: “I think is a hundred thousand percent right what sax”. Just said there is a massive regime change here and it will shock you. If you don’t take the medicine and what’s funny is like, so many of these companies have been left for dead. But, what is really juicy is the few companies that you think Will Survive. Specifically, making sure you’re protected in the capital structure which means owning the debt because the debt is always senior to the equity.
There are some really interesting companies out there that are in that situation. It’s just like it’s a much better risk-reward in a moment where again. We talked about this but why would you give up your liquidity today. I don’t know the answer to why what’s going on? you’ve used this term Jason before like skipping along the bottom. I just think it’s like psychological wishful thinking, as opposed to sort of like a rational summation of the actual Jerome Powell, who just said: “I will tank the economy in order to beat inflation”. He just said it in the Wall Street Journal. But people believe inflation might be turning over. Do you buy that or not?
No. As I’ve said, I think you’re going to see eight and nine percent inflation prints for at least the next three or four months minimum. I think that things could get marginally better after that. But, I think the thing we don’t know and again it just touches. I don’t care what the audience thinks touches Russia and Ukraine, so sorry to bring up politics. But, not always things are inexorably intertwined and if people want to go and Venture and gamble in the stock market, you might as well understand this. Because I think many of the scenarios will trade because of what’s going to happen with Putin. It’s reflexive because of these next three months as I kind of indicated last week. I think we’re going to see inflation prints that are really high in part because things like rents that haven’t which are on the lag will get folded back in. So, we’re going to be printing eight and nine percent. Then, guess what Jason it’s the fall it starts to get colder Russia’s depriving Europe of Nat Gas, where is the oil gonna come from OPEC is basically still stiff farming the United States with respect to expanded production capacity. Why? Because they didn’t like the way that we were strong-arming them and a whole bunch of other topics in and so where do we stand, you could have a hundred and eighty dollar a barrel oil foreign.
This article is a transcription of a video made by Jamie Tree
Original video: https://youtu.be/BjYf0IqTX4s