[1]: 1.07/(1-0.12) = 1.22
He’s essentially gambling $46/yr to get a $450 payout if Tether collapses.
Just around 100%. That's not massive for crypto gambling.
You could just buy BTC and have 600% in less than 3 years if only BTC won't break out of its 12 year trend.
And that's a very conservative gamble.
BTC doesn't have to win mass adoption for it to set new highs, it just has to be the "store of value" (i know, i know) for enough people and for the next QE cycle to start in 3 years to get going again
That's like putting a match to gunpowder and claiming based on the trend of the first few microseconds, the flame will engulf the world.
It's more like putting a match to a gunpowder and theorizing that at some point some equilibrium will be reached at greater volume than currently observed.
Future returns on BTC cannot be compared to the S&P!
Do you believe a popular pyramid scheme has demonstrated utility? If a pyramid scheme made people a lot of money in the past does that suggest it has long term value?
I do speculate that part of the appeal of a non-loan/investment based store of value to very rich people is that hey wish they could keep all their wealth in a vehicle that didn’t involve investing in the overall good of society, but that is a childish wish - wealth is inextricably linked with the prosperity of the society in which it is enmeshed. A billionaire in a society ravaged by disease, hunger, and conflict, shorn of the comforts of science and technology, will be poorer by far, in terms of objective measures, than a billionaire in a society where the people are educated and science and medicine are widely available, especially over he generations.
That's why NFTs are not scarce even though they are unique.
Personally I would also wish that billionaires kept their wealth in things unrelated to the real world. Because when they put it in the real world they hike up the price for everybody by creating illusion of demand that really isn't there because they won't use what they bought.
(1) - If you buy bitcoin now you might be part of increasing the price of a bitcoin by increasing its rarity through the means of losing your private keys. But this doesn't benefit you.
(2) - We're reaching the point where our carrying capacity is starting to hit limits. Maybe in a few hundred years we'll have space colonies to keep increasing the population, but: 1) This won't benefit you, as you probably won't be around then; 2) There will be other collectibles that the then population may be more interested in. It is the case that certain collectibles are incredibly rare (single digit numbers), but also cost less then $10k, simply because there are not that many interested collectors.
(3) - If you sink most of your investments into crypto this limits the ability of your wealth to grow outside of your collection.
That's where the tulip analogy comes in. Not an implication that crypto is useless, just like tulips, but that a speculative mania can leave a novel and in-demand product (asset class, in this instance) with prices that are much higher than they will be at the steady-state in the future where both adoption and production is much higher.
I will probably buy Coinbase stock if Tether finally blows up, but before that the speculation is too much for me to commit to anything.
It took COVID to get Bitcoin back up. That's it
Not history, just a rare event.
No one cares about Bitcoin anymore.
(But feel free to short bitcoin of course - not the kind of risk I would take.)
Error. 1 long streak before COVID and a large decline then too.
And 2 times jumping around during COVID-19 = over a very short period.
The ~$300 one immortalized in this parody music video :
"Blame it on MT.GOX" :
(Note that this one was NOT about MT.GOX going bankrupt...)
Now you are seeing the opposite: Eg. https://www.barrons.com/articles/banks-fleeing-crypto-bitcoi...
I'm not replying here again fyi. I don't care about crypto anymore ( went out at 2018 before the crash), I do care about others losing money :).
If you think it will rise again, fine. Go for it.
As you say, borrowing was cheap. There was no reason for it to decline after 2018 till 2020...
Reminder: other speculative assets didn't decline then :)
As I said before, Covid, with boredom and free money. No one used Bitcoin as investment and not many would borrow money for buying crypto.
Still: no one cares about Bitcoin anymore except some select people that live in the past.
VTSAX-and-chill is gambling also. But the risks are so wildly different that Tether is closer to buying lottery tickets than index funds.
Everyone does what they want with their money but there seems to have been an explosion of “massive returns” content that I think is generally harmful.
(I’m neither saying that this post is or isn’t harmful.)
If your VTSAX ends up being worth nothing long-term, there is almost certainly no chance that your currency survived the same event.
Why do you think it’s similar to holding cash?
Basically, a bet on VTSAX is underpinned by faith in the dollar. If either one crashes the other is worthless.
It always sounds weird to me when someone uses the present continuous tense to refer to the rate of change of stock prices. Like, how are you taking the one-sided derivative of a fractal?
However, what it really means is that nobody can predict future performance, even with historical data. I think it's negativity bias that this phrase is used to apply to downside; it should also be used when considering upside. (The reason, I think, is many people prefer to miss out on upside rather than experience downside, ie we are risk-averse.)
Over some future time frame, the S&P will go up again. It doesn't feel like that will be soon, but as I always admit to myself: I am really bad at predicting the future.
Where it goes next is anybody's guess.
At such high interest rates, you need to close the deal soon otherwise you are bleeding your capital really fast. The interest compounding also means you are losing your money in a compounding fashion.
If the author started shorting Tether 5-6 years they’d never turn cashflow positive and they’d be nearing bankruptcy where they lose all their monies.
Hence the last line - "for the eventual pleasure of saying “I told you so”."
Which is actually 10% if you include dividends. But it's about 6.56% if you adjust for inflation.
Tether effectively has a risk-free golden goose, it seems quite foolish to slaughter it in an attempt to gain slightly more alpha.
2. if they're not doing anything shady, how come they can't be more transparent than they are?
That's easy. I can assume US treasuries will be here in 3 month, or a year or 10 years, and almost everyone will agree with me.
Almost no one would agree with close to 100% certainty that Tether will be here in 10 years or a year or even 3 months.
Now, that does subject you to uncontrollable variation, but if you look at the chart, it's historically stayed at a very low level. Even the occasional spike you see is only for a day or two and has little impact on the annual average. [2]
Furthermore, the whole time, you're getting credited for interest accrued on your collateral. (1.18% on the USDC here -- so, all in all about a 2% annual carrying cost, not a bit issue if you think the crypto market are on borrowed time!)
"But what about the case where USDT borrowing surges and you have a persistent high rate?"
If that happens at all, it's probably because everyone else is dumping Tether, meaning its price is probably falling, and it's a great time to close the short anyway!
[1] https://app.aave.com/reserve-overview/?underlyingAsset=0xdac...
[2] People often miss that "omg high interest rate" for a few days translates into a very little expense in absolute terms. It was especially bad when banks were complaining about having to do one-off overnight loans on a very temporary basis for 4% rather than 2%, supposedly meriting Fed intervention!
That is assuming crypto rates are like USD bank rates.
Do you know any structural reason the rates can’t spike to a Megapercent (annualised) rate or higher? If you are being charged interest, and the rate spikes, you could lose your collateral quite quickly (and it seems likely trading would be stopped so you might not even be able to close out).
https://compound.finance/markets/USDT
It saturates at a pretty low level.
I have no idea what you mean by the expression "like USD bank rates" though. Fixed? (bank rates aren't that, necessarily)