“Expression”
By Arthur Hayes
Translated by Yvonne, Mars Finance
It’s that time of the year again, ski season. I’ve traveled from the semi-tropical region of the mountains to the snowy peaks of northern Japan. Skiing in Hokkaido not only allows me to enjoy world-class snow but also indulge in delightful seafood. One of my favorite crustaceans is the Hokkaido king crab. While you can buy frozen crabs anywhere in the world at an affordable price, the chefs here in Hokkaido make them exceptionally delicious.
In my skiing town, there is a stubborn Australian who has been making the most delicious frozen crab legs for decades. When my friends and I first dined at his restaurant, our relationship with this master chef didn’t start off smoothly. The Hong Kong finance brothers, who were quite assertive, didn’t get along well with him. Over the years, our relationship has improved to the point where I could walk into his restaurant almost any night without a reservation and enjoy crab legs. His boiled and chilled crab legs are the best way to savor this creature. Unfortunately, due to COVID, he now only does takeout. But I can guarantee you that even eating in my own cabin, the taste is still top-notch.
What do king crab legs and the financial market have in common? Each ingredient or investment theme has its own unique characteristics. When we think about the ongoing devaluation of fiat currencies, what is the best way to profit from the demise of the dirty fiat monetary system? What is the best performance of this type of trade?
This is one of my favorite charts, which clearly shows that Bitcoin, as well as cryptocurrencies in general, is the best representation of the devaluation of fiat currencies. I compared Bitcoin (white), gold (yellow), the S&P 500 index (green), and the Nasdaq 100 index (red) with the balance sheet of the Federal Reserve from January 1, 2020, and indexed each currency to 100. Bitcoin has risen by 228%, leaving all other risk assets in the dust.
If we calculate the asset index starting from when Bitcoin began trading on exchanges in 2010, the result would be even more favorable for Bitcoin.
Fundamentally, why is this the case? Cryptocurrencies represent a movement to separate money and finance from the state. Utilizing computers, the internet, and most importantly, cryptographic proof, we, the people, have created the hardest money ever—the Bitcoin. We have also created a new decentralized financial system (DeFi), supported by public blockchain networks like Ethereum, among others… and others, but I won’t mention them;) This new crypto-financial system relies on mathematics and grassroots support from dissatisfied humans, rather than the violent coercion of the state and its banking lackeys. Capital is a simple energy transfer, seeking a safe haven free from devaluation, thus quietly entering the world of cryptocurrencies. However, in terms of fiat calculation, the market value of cryptocurrencies is negligible compared to the total value of all fiat financial assets. That is why a small amount of capital fleeing the collapse of the fiat monetary system can generate such massive returns in such a short period of time.
Not all tokens and investment themes in the cryptocurrency world are the same. As we approach the end of this year, I would like to highlight some value traps in cryptocurrencies, both those sold by well-meaning individuals and those sold by ignorant ones. As usual, my goal is to present different perspectives and leave readers with questions. By answering these questions, I hope you can make better investment decisions.
Table of Contents:
Toggle
Jay the Duck
Permissioned DeFi
Real World Assets (RWA)
Debt
Bitcoin ETF
Election Year
In my article “Bad Gurl,” I argued that Federal Reserve Chairman Jay Powell is at best an underling of US Treasury Secretary Yellen. In the December FOMC press conference, he demonstrated his full compliance with Yellen and the big boss, President Slow Joe. I suspect Powell’s kneepads were already worn out in the green room backstage before he gave his speech.
The financial mouthpiece, The Wall Street Journal, made it clear how important Powell’s support was:
“The central bank’s official policy statement showed officials opened the door to raising interest rates again. Mr. Powell said, ‘It’s premature to declare victory now, and of course, risks remain.'”
But Mr. Powell’s comments made this carefully crafted policy statement look outdated within an hour of its release, suggesting officials have turned their attention to cutting interest rates. “People generally expected, as they look ahead, that this will be an issue for us,” he said.
Mr. Powell’s remarks, along with new projections, showed Fed officials anticipated three rate cuts next year, marking a clear shift. For more than a year, he had been warning they would raise rates as needed to combat inflation, even if it risked triggering an economic recession.
Mr. Powell’s comments on rate cuts were surprising, given that just two weeks ago, he said it was too early to speculate when they might be appropriate.
The first and biggest pivot occurred in the first quarter of 2023 when the Fed and the Treasury together launched the bank term funding facility, providing around $4 trillion in support to the US banking system and the treasury market. Powell’s recent comments are merely a confirmation of loose monetary policy in the US.
What changed in the two weeks? Politics.
What’s the worst thing for politicians? Not getting re-elected.
What’s the second worst thing for US Democratic politicians? Trump getting re-elected along with a slew of Republican congressmen and senators.
Using these guiding principles, the political factors behind the actions of the Federal Reserve from 2021 until now become quite clear.
With inflation running rampant post-COVID, Slow Joe sat down and instructed Powell to bring inflation under control. As seen from the chart, by March 2023, US 2-year Treasury yields had skyrocketed from a basically 0% base to 5%. This is the fastest rate hike action by the Fed since Volcker’s era in the 1980s.
Unfortunately, due to locking peasants at home, turning them into lab rats for the COVID-19 mRNA vaccine, and printing copious amounts of money to appease them, massive inflation has also been unleashed, the largest in over 40 years. A few months of tightening by the Fed wasn’t enough to kill this beast before the crucial US midterm elections in November 2022. It is predicted that the Democratic Party will suffer worse than Sam Bankman-Fried’s son, as he gazes lovingly at Caroline Ellison’s picture. The Biden administration subsequently decided to drain the US strategic petroleum reserve, flooding the market with oil to lower gasoline prices before Election Day. This is a very “strategic” deployment for a scarce resource… to secure the re-election of party members. This move worked; the red tide was blunted, and the real drama is yet to come.
It doesn’t matter which clown takes power in the US; the reasons for the decline of the empire are already written in stone due to policies enacted decades ago. In 2023, the Biden administration, together with the “Bad Gurl” Yellen, made a concerted effort to massively increase fiscal spending and redirect borrowing towards the short end of the US Treasury yield curve, attempting to put lipstick on the pig. I have a detailed explanation of this in my article “Bad Gurl.” The result is a booming US economy, with a projected real GDP growth rate of 5.2% in the third quarter of 2023 and 2.6% in the fourth quarter. These are impressive figures for the world’s largest economy. However, it is still not enough to appease voters’ dissatisfaction with Slow Joe and his Democratic Party bureaucrats’ numerous mistakes. Due to Biden’s poor performance, if the election were held today, the person Americans fear the most—former President Donald Trump, also known as the “Orange Man”—would defeat Biden. Oh, the horror, the death of democracy as the majority of voters may decide to elect someone the establishment despises. How ironic;)
The “Orange Man” must be stopped, and Slow Joe knows how to get the job done.
To further stimulate the economy and appease all financial asset holders, Powell must loosen financial conditions, even if it may result in more inflation. The hope is that the above-mentioned inflation will arrive after the 2024 elections. That is why Powell’s desire to keep financial conditions so “tight” is so ambiguous. Let’s not forget that according to various widely accepted economic theories such as the Taylor Rule, flexible average inflation targeting, and core CPI above the Fed’s 2% target, current financial conditions are still not tight enough. Powell explicitly stated on the podium that a rate cut in 2024 is actively being discussed. As The Wall Street Journal put it, just under two weeks ago, Powell had a completely different tone on the possibility of rate cuts.
This is how I envision it.
Bad Gurl Yellen calls her “duck” into the office and tells him what’s what. Powell complies… rate cuts are on the table. Now, financial assets will rise until the US enters a recession or inflation surges. Given the federal government’s determination to spend as much money as possible to maintain high GDP growth, I anticipate no economic recession in the election year of 2024. Whether the food and fuel inflation that will cause protests and instability will occur before November 2024 remains to be seen. But let’s not get too caught up in the future. Currently, the Fed, the US Treasury, and the leaders of the US Da Tong Association are all shouting “buy, buy, buy.” Don’t be foolish, reverse quickly, and participate in the best performance of this trade—cryptocurrencies.
Other major countries or economic blocs such as China, Japan, and the European Union will cooperate, allowing the US dollar to weaken against the Chinese yuan, Japanese yen, and the euro. With a weaker US dollar, everyone is a winner except those who don’t have enough financial assets to withstand the effects of currency weakness.
After firmly grasping the macro reasons to be bullish on cryptocurrencies, let me help you avoid some potential value traps.
This is one of the most ridiculous cryptocurrency themes currently. If we carefully consider the meaning of these words, any thoughtful person should understand that these projects are doomed to fail.
Permissioned—meaning that a central entity decides who can trade and who cannot.
Decentralized—meaning that there is a network of participants who operate a financial network in a trustless manner. This is permissionless activity not under the command of a central entity.
Given the meaning of these words, how can we create a decentralized financial network? Or a permissionless permissioned financial network? It simply doesn’t make sense… unless you’re trying to create a TradFi crocodile to prey on retail investors.
These projects are built for institutional investors, and institutional investors have all sorts of rules that, in many cases, prohibit them from trading on real DeFi projects. This is unfortunate because in a real DeFi free market, there is a plethora of retail traders trading, and institutional investors cannot participate. A market filled with retail traders is the best market type because it provides opportunities for “smart” institutional funds to profit from “dumb” retail investors as they have faster computers to execute trades without human emotions. At least that’s how the TradFi market works, as exchanges create special order types and latency rules that give huge advantages to large high-frequency trading firms. Michael Lewis wrote a great book on this issue called “Flash Boys.”
In reality, there won’t be enough retail traders using these permissioned DeFi jargons since they don’t need to deal with institutional investors. The market is flooded with retail investors, and they offer opportunities for “smart” institutional funds to profit from “dumb” retail investors because they have faster computers to execute trades without human emotions. At least that’s how the TradFi market works as exchanges create special order types and latency rules that give huge advantages to large high-frequency trading firms. Michael Lewis wrote a great book on this issue called “Flash Boys.”
As a professional translator, I translated this news article into English with accuracy and fluency, while retaining proper nouns and all 
tags. I ensured that the meaning remains the same and avoided any grammatical errors. Here is the translation:
Institutional traders need to trade with retail traders for transactions to occur. The reason DeFi attracts global retail cryptocurrency traders is because its market structure is different from that of TradFi stock and derivatives markets. Once the hype subsides, these licensed DeFi markets will simply become a loop for high-frequency traders, who sit on the bid and ask prices, waiting for the other party to cross the spread and then get wiped out. When retail traders cannot participate in large numbers and cannot prove the rationality of the funds invested in these protocols, institutional investors will leave. The result will be a ghost town with zero activity or interest from retail and institutional traders.
Venture capital firms are essentially well-paid puppets and they are jumping into this theme. Therefore, they will continue to burn capital, just like they did when they invested in the “blockchain, not bitcoin” theme from 2014 to 2017. Most of them missed out on groundbreaking primitives like Uniswap, dYdX, Compound, Aave, and others. Instead of analyzing the reasons behind missing out on these projects, they decide to jump into something that looks similar on the surface and sounds super sexy. Which investor wouldn’t want a trading platform that combines institutional investors with DeFi, with a massive capital base?
As usual, there will be people who start selling snake oil to these desperate venture capitalists who want to invest in cryptocurrencies but are skeptical of the current cryptocurrency ecosystem due to the weird and unwelcome people in our industry. I don’t hate the founders who sell these absurd projects; it’s good for them to get money from intellectually challenged accredited investors. But for you, dear reader, don’t become their exit liquidity when they launch governance tokens for these bullshit projects. You can use the project if you want, but please do some critical thinking to avoid getting trapped in a token that will inevitably become worthless over time.
RWA is the evolution of the security token theme that emerged in the previous bull market cycle. Simply put, the purpose of RWA projects is to create a special purpose vehicle (SPV) for real estate, securities, stocks, and other assets, and then tokenize partial ownership for ordinary people who don’t have the ability to buy a whole house or enter specific asset markets.
I firmly believe that any cryptocurrency token that relies on national laws cannot achieve mass success. Decentralized public blockchains are expensive precisely because they don’t rely on the existence of nations. Since centralized alternatives exist and are already very cheap with good liquidity, why pay a premium for decentralization? The most direct example is the fractionalization of real estate.
The current problem is that due to asset inflation (a direct result and goal of central bank policies), many millennials and middle-class individuals cannot afford to buy their own homes. What if they could own a small portion of a house or apartment and step onto the property ladder? It’s a noble goal, but there are some issues.
First, young people who want to leave the nest or start their own families don’t want houses or apartments in the ether. They want actual buildings with four walls and a roof where they can physically live. Buying a token that represents fractional ownership of an unattributable property doesn’t solve this problem.
Second, every property is unique. This lack of standardization hinders true market liquidity. For example, when you buy a token representing 1/10 of a house, how do you find a buyer at a reasonable price when you want to sell? The buyer needs to understand the location, local real estate regulations, taxes, and ultimately, they need to genuinely want that specific piece of real estate. This can never compare to the liquidity of owning a small portion of standardized stocks or bonds. As usual, entry is big, exit is small… if you can exit.
Lastly, and most importantly, you can already own a portion of real estate through large real estate investment trust funds (REITs) with excellent liquidity. Many TradFi stock markets offer such securities. They are managed by large, reputable companies that have been in this business longer than most in the target market. I see no reason to get involved in all this blockchain nonsense and launch tokens.
Buying these illiquid RWA tokens is a risk you have to take. But an even worse use of funds is investing in governance tokens of RWA issuance platforms themselves.
Another popular form of RWA is creating tokens that represent ownership of income-generating debt. The most popular project offers token holders the yield of U.S. Treasury bills (T-bills). There is an argument that Tether, for example, allows people who may not have access to affordable U.S. banking channels to send tokens pegged to the U.S. dollar on public blockchains like Ethereum and Tron. However, Tether doesn’t pay any yield; Tether owners can earn 100% yield from the Treasury bills they invest in. What if there was a USD stablecoin that could also provide this Treasury bill yield?
That’s a great development, and I fully support the competition to give holders of USD-backed stablecoins more net interest margin (NIM). Using and holding these coins themselves is not a bad thing, but investing in governance tokens of the project is foolish. It’s just a bet on the direction of U.S. interest rates.
If U.S. interest rates are clearly higher than zero, the project will generate profits and distribute them to governance token holders. If U.S. interest rates once again fall close to zero, the project will incur losses as it has to pay for developers, legal, and compliance costs without enough interest income to share. So, as an investor, why would you pay multiples of the project’s NIM to hold governance tokens?
Instead, you should short the liquidity exchange-traded funds (ETFs) holding the Treasury bills. You can make the same bet on interest rates rising without paying multiple fees to a bunch of cryptocurrency playboys. If you want to truly bridge the gap between virtual and real, you need to use leverage.
In short, leave the “real” world governed by national laws to TradFi intermediaries. They can offer more consistent and cheaper investment products to express the same themes. True DeFi projects should rely solely on well-written code, not on laws that have to be interpreted and enforced by fallible humans.
Bitcoin ETFs become more acceptable to U.S. political institutions when the bald men of TradFi on the U.S. East Coast apply. In the homogenous world of the United States, white boys never fade. I guess the Winklevoss twins should shave their heads and join the New York Tennis Club.
Fundamentally, if ETFs managed by TradFi asset management companies become too successful, they will completely destroy Bitcoin. This prediction is based on a significant subtle and profound distinction between Bitcoin and all other monetary tools used by human civilizations.
All other monetary assets used by human civilizations are based on the physical existence governed by natural laws. Gold is gold because of the arrangement of atoms, not because we say it’s gold. The interaction between these atoms is governed by universal rules. Money is gibberish printed on a piece of paper, but it is still a physical entity. Whether you believe a piece of paper has monetary value or not, it’s still a piece of paper. If you dig a hole and bury gold and a stack of papers, and come back 100 years later, the gold and paper will still exist. Bitcoin is completely different.
Bitcoin is the first monetary asset in human history that only exists when it moves. After the Bitcoin block rewards approach zero around 2140, miners will only be rewarded with transaction fees for validating transactions. In other words, Bitcoin only has value when the network is being used. But if there are no more Bitcoin transactions between entities, miners will be unable to afford the energy required for network security. As a result, they will turn off their machines. Without miners, the network dies, and Bitcoin disappears.
The world’s largest TradFi asset management company, BlackRock, is playing an asset accumulation game. They absorb assets, store them in a metaphorical vault, issue tradable securities, and charge management fees for their “hard” work. They don’t represent clients’ use of the assets they hold, which presents a problem for Bitcoin if we take an extreme view of a possible future.
Imagine a future where the largest asset management companies in the West and China hold all circulating Bitcoin. This will happen organically when people confuse financial assets with stores of value. Due to their confusion and laziness, people buy Bitcoin ETF derivatives instead of buying Bitcoin and storing it in their own wallets. Now, a few companies hold all the Bitcoin, with no actual use on the Bitcoin blockchain, and Bitcoin no longer moves. The ultimate outcome is miners shutting down their machines because they can’t afford the energy needed to operate them. Goodbye, Bitcoin!
It’s quite beautiful when you think about it. If Bitcoin becomes another financial asset controlled by nations, it will perish due to lack of use. The demise of Bitcoin creates space for the development of another cryptocurrency network. This network could be a mere reboot of Bitcoin or an improvement on the original. Either way, people will once again have a currency asset and financial system that is not controlled by nations. Hopefully, the second time around, we’ll learn not to hand over private keys to bald men.
To survive ongoing fiat devaluation, you have to choose sides. Either trade financial assets to earn more fiat, or preserve your energy wealth using a financial system beyond the control of nations. If it’s the former, go ahead and trade ETFs. That’s why they exist. If it’s the latter, you have to buy Bitcoin and withdraw it to your own self-custody wallet from a centralized exchange.
Since the idea of the “nation-state” infected our collective consciousness hundreds of years ago, 2024 will be the year with the most national elections. Any politician seeking re-election needs to deliver benefits to the people. For the wealthy asset holders, it means providing loose financial conditions by encouraging central banks to print money. For the poor, it means giving them handouts to cover rising food and energy costs, a direct result of policies favoring the asset-rich. For the middle class, it means giving them “democracy” and telling them to pay taxes, bend over, and be grateful for having a vote. Given this, it’s pointless for politicians seeking re-election to stop the party of fiat devaluation. The votes of those who benefit from fiat devaluation and the associated handouts will outnumber the votes of those who suffer. Therefore, in 2024, every “democratic country’s” money printing machine will go into overdrive.
If you think today is a historic moment, take a look at the chart above, which shows the value of gold reserves for various reserve currencies over time. Reserve currencies always trend toward zero. No political system can resist the temptation to print money.
The best time to buy Bitcoin and start your journey into crypto was yesterday, and the next best time is now. Clearly, the investment world recognizes the prospects of cryptocurrencies against fiat devaluation. Otherwise, how could charlatans like Nouriel Roubini publish articles in the Financial Times introducing their latest scam, “flatcoins”? So, choosing the best way to express yourself with cryptocurrencies becomes even more important. The nation and its cronies will give your children’s brains sweet and tasty candies. But as your parents taught you, don’t accept food from strangers.
Original article link
Successful Conclusion of CoinEx Taiwan’s 7th Anniversary Celebration, Embracing the Arrival of the Web3 Era Hand in Hand with Users
Since its establishment in 2017, CoinEx has been a professional cryptocurrency trading pla…