Sunday, 27 November 2022

A Analysis

Hey, guess what? Global banks rely on leveraged monies used to speculate on things big and small around the world. These speculations are usually denominated in the banks domiciled currency and express risks through the currencies in which the speculation was made. As an example, business done in the eurozone from a Swiss bank has EUR to CHF exchange risk. This risk is materially and significantly magnified by the leverage necessarily inherent in the banking model. 

You want to know what's worse. The entire FIRE (finance, insurance and real estate) sector is susceptible to the same thing, often to more servere degrees. Insurance companies, particularly longer tail companies such as catastrophic PC and life insurance, place the vast majority of their assets in longer duration bonds, oft denominated in thier home domicile country's currency. So, guess what the Swiss National Bank did? They shot spear right through the heart of Switzerlands biggest financial institutions. Let's take a look, shall we?

Allianz, one of the worlds largest insurers, who was significantly weakend this year by firing likely the most important employee they ever had (Bill Gross) thereby suffering hundreds of billions of dollars of asset outflows from PIMCO now has to contend with a vast amount of what may be left of its investment assets denominated in CHF being worth ~17% less, and that's sans the leverage that they're likely guaranteed to employ to some degree. 

Keep in mind that the SNB is employing NIRP (negative interest rate policy) at the same time as letting exchange rates jump as much as 30%, full knowing that many of its largest instituions are highly leveraged into these markets. These are drastic moves.

From the Reuters' persective:

LONDON (Reuters) - Shares in Switzerland's two big banks UBS and Credit Suisse slumped as much as 15 percent on Thursday after a massive strengthening in the Swiss franc raised the threat that reported earnings will be hit hard.

The Swiss National Bank (SNB) shocked financial markets by scrapping a three-year-old cap on the franc, sending it soaring nearly 30 percent against the euro. The SNB also cut interest rates, which were already negative, to minus 0.75 percent.

..."We estimate that the sharp Swiss franc appreciation will potentially negatively impact forward earnings by about 7-10 percent. With interest rates going into deeper negative territory, there could be further margin pressure," Citi analyst Kinner Lakhani said.

Credit Suisse shares were down 10.6 percent at 20.75 Swiss francs and UBS was down 10.8 percent at 14.88 francs by 1414 GMT. Both had slumped by more than 15 percent at one stage, which dragged Credit Suisse shares to a two-year low. Julius Baer shares were down 12.4 percent.

A 10 percent appreciation in the Swiss franc against the U.S. dollar would have knocked 277 million francs ($271 million) off Credit Suisse's pre-tax income in the first nine months of last year and a 10 percent appreciation against the euro would have hit it by 180 million Swiss francs, the bank said in its third-quarter results.

...About 19 percent of Credit Suisse's revenue and 27 percent of its costs were in Swiss francs last year. About 69 percent of revenue was in U.S. dollars and euros, compared with 52 percent of expenses.

...Adding in the impact of higher costs -- especially in wealth management -- UBS could take a 14 percent earnings hit, Credit Suisse 15 percent and Julius Baer 30 percent, Barclays said.

Can you imagine the margin and collateral calls that are likely occuring right about now. Let's discuss contagtion effect in our next blog post, shall we? This is a price snapshot as of now.

swiss financials after SNB currency debacle

This is how to set up the trade in the UltraCoin client to go long the Swiss Franc in euros and short Allianz equity traded directly on the SWX (Swiss stock exchange)...

Allianz short and long Franc


The pop media is now circling with '"b"itcoin is dead' commentary, prompting me to state yet again, that the value proposition that the "B"itcoin technology represents is grossly misunderstood, if it is even captured by the pop media at all. Remember, Bitcoin with an uppercase "B" is the blockchain, the transport mechanism, the scripting language and the decentralized, distributed trust consensus ecosystem upon which my startup is focused to build solutions upon. "b"itcoin with a lower case "b" is a digital currency and oft times digital payments app, simply early applications (and the most rudimentary ones) in the early portion of this paradigm shifting ecosystem.  

As a matter of fact, the drastic drop in the price of bitcoin serves to highlight the true value of those utilizing the technology behind bitcoin - the blockchain. The drastic drop (or pop) in prices does nothing to alter the business models of these companies. The value proposition lies in the blockchain and programmability, not in the price of individual currencies within a digital currency app - yes, bitcoin as a payment system or speculative currency is an app within an ecosystem, not the ecosystem itself. Until one is able to grasp this concept one will simply be chasing the erratic prices swings of a single cog within a complicated machine up and down - all the while missing the opportunities within.

To proclaim the death of bitcoin due to a drop in the price of components of one of its apps is akin to proclaimng the death of the Internet due to the drop in the price of AOL stock. Yes, it does sound assinine, but that's what the media is proclaiming.

A tightly related, yet tangential story can be used to prove my point (for those that are not familiar with UltraCoin, it is a blockchain-powered Global Macro trading app that allows anybody, anywhere to trade almost anything with any amount of money on a counterparty/credit risk-free basis). WSJ reports: Macro Horizons: Shock Swiss Policy Turn Alters Equation for Other Central Banks:

WRAPThe Swiss National Bank rocked European markets in early trade by abandoning its euro floor. Unable to resist the pressure of euro devaluation against the dollar, and with more likely to come as the European Central Bank prepares to launch quantitative easing, the SNB faced catastrophic losses on its mounting holdings of the eurozone currency if forced to abandon the one-sided peg sometime further down the line. The immediate significance is for people elsewhere in Europe who hold Swiss franc-denominated mortgages, to Swiss corporations which find themselves suddenly 20% or so less competitive against eurozone rivals and to leveraged investors betting that the SNB would hold fast forever. More generally, it reminds people that central banks aren’t invincible. Ultimately, their efforts and intent can be defeated by even stronger market forces and by having to weigh difficult political judgments. Ironically, one of the outside effects over which they have no control are the actions of their counterparts in other countries – which is what the SNB’s will do to others. Poland’s central bank now has a whole new game plan to think about in a meeting Thursday whose decision is due shortly. And a string of earlier central bank decisions in Asia, including a surprise rate cut by India, now have a different meaning for their currencies because the Swiss central bank has just put the franc back into the mix as one of the globe’s safe havens.  (AM, MC) 

SWITZERLAND: Switzerland’s central bank abruptly ended its policy of maintaining a minimum exchange rate of 1.20 Swiss francs to the euro, while at the same time cutting its key interest rate to a negative 0.75% from 0.5%. The Swiss National Bank also said that it was moving the target range for three month Libor to between -1.25% and -0.25% from the current range of between -0.75% and 0.25%.

In what must be one of the most currency market-shattering announcements made by a central bank in recent memory, the SNB ripped the ground out from anyone with an interest in the Swiss franc-euro exchange rate. At one point the euro collapsed to 0.86 against the Swiss franc, from 1.20 immediately before the announcement – a 28% move. That must stand as one of the most dramatic developed market currency moves ever. The SNB justified the move by saying that the 1.20 ceiling had been put in place at a time of serious Swiss franc overvaluation and that while the franc continues to be expensive, it is no longer quite at such an extreme – in part thanks to the dollar’s recent surge. We await fallout among investors holding Swiss equities and macro hedge funds who had taken the 1.20 level to be sacrosanct. (AM)

On that note, notice the trade on this 100% bitocin blockchain powered application. We are going long the Swiss Franc (betting that its spike against the euro will continue past the news event this morning (NYC time) due to its floor decoupling/unpegging from the lagging euro and short the leverlaged oil ETF which had a deadcat bounce up over 7% for the night, where we're assuming it will continue its drop. This is all done in one trade, and this is the power of the bitcoin blockchain. Forget the price of the widgets of that one blockchain app and open your mind to the future of distributed decision making.

Long Swiss Franc short leveraged oil trade via Veritaseums Blockchain powered Global Macro Trading App

For the more adventurous, here's a long CHF short EUR and GBP trade.

Long CHF short EUR and GBP via UltraCoin

On the New Years special on Max Keiser, I proclaimed that we'll likely see multiple crashes for 2015. I don't say this lightly. First the clip, then some illustrative evidence that demonstrates where I'm coming from.

And for those who fell I'm being bombastic this time around, simply look at where we are and where we've come from...

Here comes the crash

If there are any more doubts, I invite all to peruse my track record in calling the housing crash, the CRE crunch, the European sovereign debt crisis, the mobile computing wars shakeout, the monoline insurer debacle, the fall of Bear Stearns, WaMu, Lehman among over 30 other banks, and much more. Hopefully, I've earned your audience. For those UHNW types interested in assisting me in building a structure to monetize this upcoming volatility, contact me via the information on the coin above. 

Those who follow me know that I don't agree with many of Goldman Sachs recommendations, primarily because I know that Goldman considers their clients to be "muppets" and use said muppets as profit springboards for trade setups. Of course, I can be wrong, but remember that we have ex-Goldman partners who support this thesis with personal experience, reference "Goldman Sachs Executive Director Corroborates Reggie Middleton's Stance: Business Model Designed To Walk Over Clients":

An executive director at Goldman Sachs has explicitly corroborated what I and many in the blogosphere have been crowing for some time now, and that is... 


The whole video can be seen here on the Max Keiser show, starting from about 19:00 minutes in where I discuss risk vs reward in GS and how they outperform eventhough risk outweighs reward. Those who like numbers and charts can see where I actually demonstrated in For Those Who Chose Not To Heed My Warning About Buying Products From Name Brand Wall Street Banks:

As in “When the Patina Fades… The Rise and Fall of Goldman Sachs???“, we can reminisce over the fact that Goldman BARELY earns its cost of capital on an economic basis, and that’s before considering the potential horrors which may (and probably do) lay on the balance sheet (for more on BS horror, reference Reggie Middleton vs Goldman Sachs, Round 2.

gs roe

And now we have supporting evidence from the inside... From the NYT:

"TODAY is my last day at Goldman Sachs. After almost 12 years at the firm — first as a summer intern while at Stanford, then in New York for 10 years, and now in London — I believe I have worked here long enough to understand the trajectory of its culture, its people and its identity. I can honestly say that the environment now is as toxic and destructive as I have ever seen it."

"To put the problem in the simplest terms, the interests of the client continue to be sidelined in the way the firm operates and thinks about making money."

"I knew it was time to leave when I realized I could no longer look students in the eye and tell them what a great place this was to work."

" I have always taken a lot of pride in advising my clients to do what I believe is right for them, even if it means less money for the firm. This view is becoming increasingly unpopular at Goldman Sachs. Another sign that it was time to leave."

 "How did we get here? The firm changed the way it thought about leadership. Leadership used to be about ideas, setting an example and doing the right thing. Today, if you make enough money for the firm (and are not currently an ax murderer) you will be promoted into a position of influence. What are three quick ways to become a leader? a) Execute on the firm’s “axes,” which is Goldman-speak for persuading your clients to invest in the stocks or other products that we are trying to get rid of because they are not seen as having a lot of potential profit. b) “Hunt Elephants.” In English: get your clients — some of whom are sophisticated, and some of whom aren’t — to trade whatever will bring the biggest profit to Goldman. Call me old-fashioned, but I don’t like selling my clients a product that is wrong for them. c) Find yourself sitting in a seat where your job is to trade any illiquid, opaque product with a three-letter acronym."

"I attend derivatives sales meetings where not one single minute is spent asking questions about how we can help clients. It’s purely about how we can make the most possible money off of them. If you were an alien from Mars and sat in on one of these meetings, you would believe that a client’s success or progress was not part of the thought process at all."

"It makes me ill how callously people talk about ripping their clients off. Over the last 12 months I have seen five different managing directors refer to their own clients as “muppets,” sometimes over internal e-mail. Even after the S.E.C., Fabulous Fab, Abacus, God’s work, Carl Levin, Vampire Squids? No humility? I mean, come on. Integrity? It is eroding. I don’t know of any illegal behavior, but will people push the envelope and pitch lucrative and complicated products to clients even if they are not the simplest investments or the ones most directly aligned with the client’s goals? Absolutely. Every day, in fact.

It astounds me how little senior management gets a basic truth: If clients don’t trust you they will eventually stop doing business with you. It doesn’t matter how smart you are.

These days, the most common question I get from junior analysts about derivatives is, “How much money did we make off the client?” It bothers me every time I hear it, because it is a clear reflection of what they are observing from their leaders about the way they should behave. Now project 10 years into the future: You don’t have to be a rocket scientist to figure out that the junior analyst sitting quietly in the corner of the room hearing about “muppets,” “ripping eyeballs out” and “getting paid” doesn’t exactly turn into a model citizen."

Well, anyway.... This piece was not intended to reveal the inner workings of Goldman Sach's business model. It was intended to illustrate how our UltraCoin system can be used to monetize global macro trade ideas, even if they are from the vampire squid! According to Forbes:

Goldman’s first non-U.S. trade recommendation revolves around an expectation European stock markets rise in 2015 as the impact of ECB money-printing makes its way into the real economy. Goldman recommends investors go long a December 2015 Eurostoxx 50 call spread, buying a Dec. 2015 strike call at 3,150, and selling a Dec. 2015 strike call at 3,450. “The (nearly) at-the-money 3150 call costs 170.6, while selling the 3450 call costs 69.10 (both priced as of the close on November 19), giving this position a maximum potential 2-to-1 payout,” notes Goldman. The firm sees two reasons European stocks will move higher: regional growth simply accelerates, or disappointing inflation readings force the ECB into added action. Both scenarios, Goldman believes, augur well for European asset prices.

First, let's put this in a form that can be traded via UltraCoin. To go long the Eurostoxx 50, we'll receive exposure to the SPDR Eurostoxx 50 long ETF (speculating that the top 50 EZ equities will rise from currency wars & QE)  and we will pay exposure to the ProShares Ultra Euro ETF (ULE) seeking to provide twice the exposure to the performance of euro versus the U.S. dollar on a daily basis (speculating the euro will fall relative to the US dollar as a result of currency wars & QE by going short). It should also be noted that leveraged ETF products usually seek to match the return of the euro against the dollar over a single day. Due to this and the compounding of daily returns, the returns of the product may deviate from long term return rates, suggesting that investors need to monitor their holdings closely if they are going to be in for a long time period. It should also be noted that this is a materially more advanced trade setup than that recommended by Goldman, for it captures potential euro downside movement relative to the dollar AND potential european equity market upside -which, according to the Goldman hypothesis, are tightly linked. One would think that Goldman should start recommending trading with UltraCoin, no? 

My take on this? Well, it's obvious that the euro will see some pressure from central bank machinations, but its not so obvious... or maybe its too obvious that that is an automatic plus for the eurozone economies in general. Remember, what's good for stocks short term is not necessarily what's good for the economy medium term. The eurozone is a confederate of 27 (or so) countries with widely disparate economies, equity markets, macro situations, fundamentals and financial situations. This is far from a one size fits all situation. This should be obvious to all (and is how I called the Pan-European Sovereign Debt Crisis 5 years ago). In Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse! I illustrated how inaccurate the many calls for European growth actually were, to wit:

Let's take a visual perusal of what I am talking about, focusing on those sovereign nations that I have covered thus far.


Notice how dramatically off the market the IMF has been, skewered HEAVILY to the optimistic side. Now, notice how aggressively the IMF has downwardly revsied their forecasts to still end up widlly optimistic.


Ever since the beginning of this crisis, IMF estimates of government balance have been just as bad...


The EU/EC has proven to be no better, and if anything is arguably worse!




and the EU on goverment balance??? Way, way, way off.

It's not just Greece either...

And what about Italy???

This is Italy's presumption of economic growth used in their fiscal projections:





If the IMF was wrong, what in the world does that make the EC/EU?

Now, for sure, there are some eurozone nations that will benefit mightily from the debasement boost, but those countries are not representative of the entire eurozone. The reason why debasement and QE are almost a forgone conclusion is that Japan has thrown the gauntlet down and the ECB feels it has little choice. You see, there is a stark difference between how the Japanese economy (despite 34 years of a lost decade) and the EZ economies are put together, and a currency war will bring those differences starkly to the forefront. I posted series of tweets on this topic a few days ago...

Of course, if one wanted to take the opposite side of Goldman's views, simply click the switch button in the trade setup screen of UltraCoin to reverse the exposures. Download the UltraCoin client for free, and start trading for free without banks, brokers or exchanges.

Correction: the improper ticker was initially used in the trade setup. We intended to communicate going short the euro, which is what the words said, but the original ticker and desciption was for the Proshares ultra short euro ETF, which would have had a net long effect (shorting the short). The ticker has been corrected to reflect the Proshares long euro ETF, which one would be shorting through the UltraCoin client.

Management apologizes for the editing error. 

Why is Bitcoin dangerous and of little intrinsic value? Because my local Central Banker Told Me So!

In my last post titled "Come, Journey With Me On An Adventure of Fundraising, Massive Disintermediation and the Confrontation of the Worlds Most Powerful Vested Interests" I told the tale of my trip to the UK to strum up interest in Veritaseum's UltraCoin (see excerpt at end of this post). During the dinner that was arranged for the prospective investors, of which I was the keynote speaker, several of the diners questioned the value of bitcoin as a "virtual' currency. In particular, they asked why should they believe that a bitcoin is really worth $375 or 280 pound sterling. I replied, "Let's look at this way, what is the pound worth?". I got back, it is worth 1.26 euro. Then I fired back, but if you accept that the pound is worth 1.26 euro, how do you have a problem accepting that bitcoin is woth 304 euro, or 371 US dollars? It is that circular logic that is somehow permitted in the evaluation of fiat currencies that is prejudiciously lacking on the valuation of cryptocurrencies. 

The crowd then went on to say, well the pound and other fiat currencies are backed by the government. I said, "Very much like the bank insurance scheme of Cypriot bank account holders, or Zimbabwe currency or Argentinian pesos? Many people oft put too much faith in the 'full faith of the government'!" As you can guess, this really sparked this room of brainy people as I dared them to start thinking outside of the fiat box! Bitcoin is backe by math! The reserve currency is backed by the biggest guns on the globe (yes, it is and it always has been, looked it up if you don't believe me). Other fiat currencies are backed by faith! Faith can be quite fleeting and ephemeral, trust me. As a matter of fact, you don't have to trust me... I'm about to show you.

Friday, the Wall Street Journal ran a piece called Bring On the Currency Wars, of which I would like to quote a few choice lines, to wit:

Central bankers struggling against weak growth and falling inflation have come up with a cunning plan: shift the problems onto someone else. Finding it hard to stimulate domestic demand through cheap credit in a world of rock bottom interest rates, the next best solution central bankers have settled on is to generate growth by boosting net exports. And the way to do that is to devalue their currencies.

Now, the US has performed this stunt like a champion, but over the last few weeks I must admit, we've been outdone!

The Bank of Japan has been the most aggressive at pursuing this policy, driving the yen down 15% against the dollar over the past year. The currency effects have been relatively slow at registering in Japanese trade numbers, but they’ve finally started to show up in the data. Japanese exports jumped 9.6% on the year in October, more than double market expectations.

Other central banks have noticed.

The European Central Bank has announced a number of policies over the past six months designed to boost its balance sheet. The more assets a central bank holds the more liquidity is available to the wider economy and thus cheaper credit–or so goes the theory. But even when interest rates are at rock bottom levels, massive central bank asset purchases by the Federal Reserve and BOJ have “led to a significant depreciation of their respective exchange rates,” noted ECB President Mario Draghi in a speech on Thursday. Implicitly, he was saying: if they can do it, so can we.

Then, on Friday morning, the People’s Bank of China launched its own measures, cutting its one year lending rate by 0.4 percentage points to 5.6% and its deposit rate by 0.25 percentage points to 2.75%. Ostensibly, the cuts were a response to domestic factors, namely falling inflation, a weakening economy and sliding house prices. But it seems clear that the underlying reason was the renminbi’s appreciation relative to the yen.

As one economy devalues, the impact is to force deflation onto its neighbors. With Japan putting downward pressure on the yen, the question now is how long can other Asian economies hold out from their own devaluations.

The currency devaluation game is relative, and its zero sum. If you devalue to increase your imports to another country, you do so at the expense of some other country. Contrary to popular Keynesian math, you really don't get something for nothing. 2 minus 1 does not equal 2, my dear friends. With this concept in mind, let's take a look at the headlines from around the world:

China ready to cut rates again on fears of deflation 11/23/13: This would be the second time in as many weeks.

(Reuters) - China's leadership and central bank are ready to cut interest rates again and also loosen lending restrictions, concerned that falling prices could trigger a surge in debt defaults, business failures and job losses, said sources involved in policy-making. Friday's surprise cut in rates, the first in more than two years, reflects a change of course by Beijing and the central bank, which had persisted with modest stimulus measures before finally deciding last week that a bold monetary policy step was required to stabilize the world's second-largest economy.

Draghi Urgency for ECB Action Gets Final Reality Check: Economy

Mario Draghi is about to find out just how urgent his call for action has become. One week after the European Central Bank president vowed to revive inflation “as fast as possible,” policy makers will receive a glimpse on just how feeble cost pressures are now. Economists forecast euro area data on Nov. 28 will show price growth matching the weakest since 2009, which would add to the drumroll for a stimulus debate at the Dec. 4 meeting. Bond yields from Spain and Italy fell to record lows and stocks gained today on speculation the ECB will buy sovereign debt. Draghi has stoked pressure toward purchases as panels of officials study possible new measures and prepare to cut their economic outlook. 

What is the result of all of this devaluing? Well, the next time someone asks you how much is bitcoin worth, you should just say, "In a Currency War, more than the yen, yuan, pound sterling, and euro!"

Bitcoin vs Fiat

The lasting message from the highly Centralized, Centrally Planned, Central Banks of the World? "We think, so you don't have to!"

As exceprted from "Come, Journey With Me On An Adventure of Fundraising, Massive Disintermediation and the Confrontation of the Worlds Most Powerful Vested Interests""

After a couple of more meetings I headed over to the Cavalry & Guards Club on Piccadilly for the dinner. An interesting, old money club that is steeped in English military history. 


The dinner began with quick tutorial on the history of the club and its importance re: the battle of Waterloo, etc. The dinner included over 40 extremely interesting people. Here's the place setting before we got started - each and everyone of the invtees placed at the table appeared. Standing room only - and all to hear what yours truly had to say about Bitcoin's investment potential.

20141117 185449

The room was packed with brainpower - packed! Since they are big on privacy, I will not reveal names, but I can reveal statistics. Over $35 Billion dollars of assets under management directly controlled by the people sitting in those seats. Over $1.2 Trillion controlled by the corporate entities that they represented. Industries included banking, asset management, insurance, real estate, telecomm, energy, commodities trading and medical. Nearly half were successful serial entrepeneurs in their own right, with several having had their own multiple liquidity events. Even a member from the Bitcoin foundation was present. The vast majority were bitcoin skeptical. As for my presentation??? Let's say there's some big money, some olde money, and some money that many thought would never flow into this space any time soon that is quite anxious to investigate crashing the party.


thumb Slide7

Let's quote some of the last lines of my last article on Bitcoin: "Witness the drivel that comes out of the the analyst's reports (and yes, I thoroughly ridiculed each one):

  1. Theres' Something Fishy In The House Of Morgan, Pt. 2: Bitcoin Fear, Envy & Loathing
  2. Does the Mainstream Media Assist Wall Street In Hypocritical Hypothesis For Fear Of The Next Paradigm Shift?"

You see, first JP Morgan threw baseless fear tactics, then Citibank jumped into the fray. Well, guess whose next? Goldman Sachs, of course. Everybody's favorite fair game player. As excerpted from Business Insider today:

"Dominic Wilson and Jose Ursua of the firm's markets research division are first up. They argue that Bitcoin fails to meet both basic criteria of a viable currency: while there remains an outside chance for widespread acceptance as a medium of exchange, as a stable source of value, it has so far failed. That undermines the premise that Bitcoin could serve as a way of short-circuiting exchange rates in inflation-prone countries."

 And Reggie, Chief of Bullshit Patrol & Related Crimes Division chimes in with a Google search on promintent "failed" currency processors:

Bitpay user growth google searchcoinbase user growth google search

But wait a minute! Goldman's business business is growing at a fraction of this pace, and actually negative in some areas. So, if Bitcoin as a currency and payment system is a failure, what the hell is Goldmam? Of course, Business Insider goes on to report...

For most users what matters is not the comparison with other currencies, but a comparison with the volatility of the currency that they hold (dollars in the US for instance) in terms of the things that they need to buy. The volatility of consumer prices (in dollars) has been even lower than FX rates, even if measured over a period including the 1970s. Put simply, if you hold cash today in most developed countries, you know within a few percentage points what you will be able to buy with it a day, a week or a year from now.  

This is Bullshit! Say it to the more mathematically challenged, my bonus hungry friends. Let's run the math using the

Dollar as a store of value

As you can see, if you measure things from the '70s as the esteemed, erstwhile Wall Street aficiaondo from Goldman recommended, then you would have less than 17% of your buying power left. Yes, bitcoin is volatile, but its volatility stems from the price going up and down, while the USD has primarily just went down. You know that saying about the frog in the slowly heated boiling pot of water, right?

In addition, both of the largest Bitcoin payment processors absorb the exchange rate volatility for their customers, or did the best of breed Goldman analysts somehow overlook this pertinent fact?

How it Works - BitPay

Back to those Goldman guys...

Wilson and Ursua include this graph showing volatility of Bitcoin versus the Argentine peso, the yen, the euro, the pound, and U.S. inflation. It's not even close. 

bitcoin volaitlity

But wait a minute! If the largest payment processors absorb the volatility and market risk of their customers, then Goldman must assuredly be referring to the currencies above from an investment perspective, no?

Yes! Bitcoin is truly volatile, indeed, but the guy at Goldman are cheating, hoping that the rest of us don't know our finance and/or basic common sense. You see, they are looking at just one side of the equation - the side that favors fiat currencies and disfavors bitcoin. You see, risk is the price of reward. For every reward you seek, you pay a price in risk. The goal, as a smart investor, is to pay little risk for much reward. Goldman is trying to make it appear as if you are paying nothing but risk for bitcoin and getting little reward in return. Let's see how that pans out when someone who knows what they're doing chimes in. From the BoomBustBlog research report File Icon Digital Currencies' Risks, Rewards & Returns - An Into Into Bitcoin Investing For Longer Term Horizons:

Bitcoin risk adjusted returns

You see, with high volatility (aka, risk), it's hard to earn your cost of capital, not to menton surpass it. Isn't that right, employess of Goldman Sachs? Let me jog your collective memories, as excerpted from the BoomBustBlog post on When the Patina Fades… The Rise and Fall of Goldman Sachs???

GS return on equity has declined substantially due to deleverage and is only marginally higher than its current cost of capital. With ROE down to c12% from c20% during pre-crisis levels, there is no way a stock with high beta as GS could justify adequate returns to cover the inherent risk. For GS to trade back at 200 it has to increase its leverage back to pre-crisis levels to assume ROE of 20%. And for that GS has to either increase its leverage back to 25x. With curbs on banks leverage this seems highly unlikely. Without any increase in leverage and ROE, the stock would only marginally cover returns to shareholders given that ROE is c12%. Even based on consensus estimates the stock should trade at about where it is trading right now, leaving no upside potential. Using BoomBustBlog estimates, the valuation drops considerably since we take into consideration a decrease in trading revenue or an increase in the cost of funding in combination with a limitation of leverage due to the impending global regulation coming down the pike.



 Now that we see how hard it is to truly produce Alpha, I query thee... What do you think would happen if a financial maverick, an out of the box thinker who's different from all of those other guys, got a seed round of funding for the most disruptive product to hit the finance world since the printing press? What if that seed round was for enough money to make UltaCoin one of the best capitalized Bitcoin entities, ever - with a preferred A series coming right behind it? What would such a cash flush company do with that maverick guy whose been getting all of these trends right at the helm? Hmmmnnn!!!

Speakin' of Goldman Sachs...

I anticipate being in the market very soon for (I'm not thier yet, but hopefully very soon):

  1. CTO - Chief Technology Officer
  2. COO - Chief Opertating Officer
  3. General Counsel
  4. CMO - Chief Marketing Officer 
  5. CFO - Chief Financial Officer
  6. As well as skilled Java and Blockchain developers.

Hit me via reggie at if you have an interest in coming on board.

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