Whitney Tilson’s email to investors disucssing if Bitcoin about to collapse, and a story from Bloomberg, titled, “The Essex Boys: How Nine Traders Hit a Gusher With Negative Oil.”
Q3 2020 hedge fund letters, conferences and more
Bitcoin Price Is About To Collapse
1) I'm still looking into it, but if this article (by an anonymous author) is correct – and I think it is – then the price of bitcoin is about to collapse!
The author's argument is simple: roughly 70% of bitcoin's daily trading volume is in another cryptocurrency called "Tethers." This crypto is issued by a company named Tether Ltd., which appears to be a total fraud.
This doesn't mean that bitcoin itself is a fraud (I don't think it is) – rather, its price has been significantly inflated by fraud. What happens if 70% of the daily buying of bitcoin suddenly disappears? The Bit Short: Inside Crypto's Doomsday Machine. Excerpt:
Because Tether sounds exactly like a currency fraud, it may not surprise you to learn that Tether Ltd. is currently under investigation by the Office of the Attorney General for the Southern District of New York. That investigation was announced to the public on April 25th, 2019...
Beginning in September, Tether Ltd. begins to issue multiple large blocks of Tethers per day. The pace accelerates, with $2.3 billion worth of Tether issued in the first week of 2021 alone.
This was consistent with the possibility that, as Tether Ltd.'s various legal challenges failed one after another in the New York courts, Tether Ltd. was choosing to issue Tethers faster and faster to maximize the amount of value it could extract from the crypto ecosystem before being shut down. The pace accelerates closer to Tether Ltd.'s final disclosure deadline – January 15th, 2021...
The last nail in the coffin was when I found out about the lack of visible reserves. If Tether Ltd. really was taking in 1 USD for each Tether it issued, then it should have as many dollars in its bank account as there are issued Tethers. And it turns out we can check if that's true! Tether Ltd.'s bank is Deltec bank in the Bahamas, and the Bahamas discloses how much foreign currency its domestic banks hold each month.
The answer was – at least up to the end of September 2020 – not nearly enough...
From January 2020 to September 2020, the amount of all foreign currencies held by all the domestic banks in the Bahamas increases by only $600 million – going from $4.7B to $5.3B...
But during the same period, total issued Tethers increased by almost $5.4 billion – going from $4.6B to $10B!
The implication was shocking: there weren't nearly enough dollars in all the domestic banks in the Bahamas to back the Tethers that were floating around in the crypto market.
So this was crypto's big short: Tether Ltd. was short of U.S. dollars – to the tune of about $25 billion.
As I continue to dig into this, I'll keep you posted on what I learn...
The Essex Boys
2) What a rollicking great story! The Essex Boys: How Nine Traders Hit a Gusher With Negative Oil. It looks to me like they didn't do anything wrong – they were just great traders. Excerpt:
Among the many previously unthinkable moments of 2020, one of the strangest occurred on April 20, when the price of crude oil fell below zero. West Texas Intermediate futures, the most popular instrument used to trade the commodity, had started the day at $18 a barrel. That was already low, but prices kept tumbling until, at 2:08 p.m. New York time, they went negative.
Amazingly, that meant anyone selling oil had to pay someone else to take it off their hands. Then the crude market collapsed completely, falling almost $40 in 20 minutes, to close at -$38. It was the lowest price for oil in the 138-year history of the New York Mercantile Exchange – and in all likelihood the lowest price in the millennia since humans first began burning the stuff for heat and light.
Watching this spectacle unfold were traders, energy executives, and freight company employees – whose livelihoods are tied to oil's fluctuations. Regulators with the Commodity Futures Trading Commission in Washington stared at their monitors, stunned. "The screen was just going nuts," Tom Kloza, an analyst at the research firm OPIS Ltd., told Institutional Investor. The experience, he said, was like watching a film by surrealist director Federico Fellini: "You're able to appreciate it, but no one really knows what's going on."
