From the Desk Of A Trader #6
"You do not only need to consider your own actions, but also the actions of others who are in a similar situation."
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Today, we are happy to share the thoughts from the desk of a soft commodities trader. The following views are that of Martijn Bron and do not represent the views of his employer.
Some more reflections on yesterday's "Lehman moment" for crypto.
I thought a collapse of MicroStrategy would reflect the Lehman moment, but it turned out to be the FTX debacle.
I already raised the question "who is out next?"
MicroStrategy is the company to watch. It reflects the poster child of reckless speculation in Bitcoin specifically, executed by its owner, laser eyes and crypto guru Michael Saylor.
As per my latest info of Sep 19th, the company owns 130k Bitcoin, purchased for USD 3.98 billion, for an average price of USD 30.6k per Bitcoin.
At today’s Bitcoin price of USD 17.6k this reflects a loss of 42% or USD 1.7 billion. Boom!
The company is highly leveraged. You know what that means.
SBF is "swamped" for some time as he wrote to investors, and CZ has time to see what happens on the battlefield. Who is Saylor going to tweet? Probably not Buffett or Munger.
SBF never was a multi billionaire. Maybe marked to market in a spreadsheet on the basis of an arbitrary valuation of his home grown FTT token. But it vanished overnight.
This I have explained often to friends #investing in crypto. In addition to possible custody and hacking risks which are not my expertise, there is risk that the value of your crypto converted to fiat vanishes overnight.
This is highly unlikely if you invest in an S&P 500 ETF.
Marked to market means not only the number of assets you own times the price of that asset, but also the ability to sell that ownership and receive cash for it, in full, in time.
You need market access, liquidity, and a performing counterpart for that.
Many forget that. They look at their phone and only see the number, but do not consider what is required to actually cash out.
Leverage may make you forced to cash out into an abyss.
You do not only need to consider your own actions, but also the actions of others who are in a similar situation.
Herd behavior changes the market, and thus the marked to market of your exposure, very quickly.
SBF lost 94% of his net worth overnight. But he never really had that net worth. It was just a number in his spreadsheet.
Say I mint 1000 Dutchcoins.
I have a nice technical story about the future, I have a celebrity endorse it and my neighbor buys one coin at Euro 100.
In the crypto economy my net worth has now increased by Euro 100k. My neighbor sells it at Euro 150 to his neighbor. My net worth is now Euro 150k.
I hear you, this does not make sense, but this is how it works in cryptoland.
SBF did it and used FTT as collateral to do heroic stuff for his bro's.
Suppose MicroStrategy survives, and manages to buy all available Bitcoin, all 20+ mln. What is he going to do with it? It produces nothing, it just sits there as code on the internet.
No crypto enthusiast wants to own all Bitcoin. They want to own a lot, to sell it all at a higher price, in USD.
I am sure everyone would like to own all Apple stock due to its huge cash generating ability.
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