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Paper Bitcoin Summer - Economic Forceswww.economicforces.xyz/p/paper-bitcoin-summer
1615 sats \ 12 comments \ @Scoresby 31 Jul econ
First off, it's our meme world and I love seeing Bitcoin memes show up in tradfi stuff.
Second, I usually find Economic Forces pretty interesting, but this article was surprisingly bland. Normally, I wouldn't share a link to a bland article. So what's going on?
It's possible that that answer to this weird question of why bitcoin on the balance sheet of a Bitcoin Treasury Company is worth more than bitcoin in your hardware wallet is itself pretty bland: regulatory arbitrage. This seems to be the opinion of the folks at Economic Forces:
The existence of segmented markets that prevents some investors from simply buying or selling bitcoin directly.
[Saylor's] objective was to accumulate bitcoin at scale to exploit regulatory arbitrage. There are countless other investors who would like exposure to bitcoin, but are prevented from doing so due to either their declared investment strategy or some sort of legal restriction on what they can purchase.
I believe some other stackers have observed that it's not just regulatory arbitrage, but also familiarity arbitrage.
Bitcoin is a novel asset. People are scared by the concept of self-custody. They are scared by cryptography. They are scared by exchanges. The result is that they are not willing to buy and hold real bitcoin. They are used to paper assets, their whole lives have been chasing paper assets. And now that paper Bitcoin is here, they're buying it up because it looks just like all the other things in their portfolios.
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135 sats \ 4 replies \ @Undisciplined 31 Jul
If regulatory arbitrage is the bulk of the explanation, it points to enormous inefficiencies in our capital markets.
Familiarity arbitrage begs the question of why so many people would believe in bitcoin as an investment while being scared of it as a product.
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42 sats \ 1 reply \ @denlillaapan 1 Aug
true.
and does anybody doubt that we have "enormous inefficiencies in our capital markets" between a) jurisdictions, b) those markets (really: pension accounts, mandates) and bitcoin itself?
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0 sats \ 0 replies \ @Undisciplined 1 Aug
I had no real sense of the magnitude though. 100% is higher than I would have guessed.
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92 sats \ 1 reply \ @Scoresby OP 31 Jul
begs the question of why so many people would believe in bitcoin as an investment while being scared of it as a product.
As I see it, this is the same question as why so many people buy bitcoin but don't hold their own keys. Every value proposition of bitcoin is downstream of holding your keys. I would go so far as to say that bitcoin is worthless unless you hold the keys to it (really just a reformulation of not your keys, not your coins). Yet, many people seem willing to buy the thing without holding the thing.
perhaps it's the same reason people throw money at Tesla or NVidia: they don't actually care what it does except that it goes up.
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102 sats \ 0 replies \ @Undisciplined 31 Jul
Good points, although you may be holding custodial bitcoin for the sake of using it and not as savings.
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123 sats \ 1 reply \ @Akg10s3 31 Jul
Yes, and banks will sell people "the illusion of security" and, on top of that, they'll brand self-custody as "suicide"...
The banks' advertising slogan will be...
"In our bank, money has evolved; it's now called BITCOIN."
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0 sats \ 0 replies \ @028559d218 1 Aug
Is this is a bot account?
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202 sats \ 1 reply \ @SimpleStacker 31 Jul
There is also a question about the end game. This strategy can only work if bitcoin becomes more firmly integrated into the global financial system and perhaps even the global trading system. If these treasury companies are correct about this, at some point major market participants will want to acquire bitcoin at scale. In that case, these treasury companies would become targets for acquisition since acquiring a treasury company would likely be cheaper than trying to acquire a large stock of bitcoin in the market.
Hmm, this is interesting. If acquiring the treasury company is cheaper than acquiring a large stock of Bitcoin in the market, wouldn't that make the investors losers because they aren't getting fully compensated for the market price of the bitcoin holdings that the treasury company has?
Ultimately, these companies are betting on a joint hypothesis: (1) that bitcoin will play a major role in global finance, and (2) that the current regulatory and market segmentation will persist. For those interested in financial markets and financial history, it should be fascinating to watch.
The segmentation is likely to persist in the near future, IMO. Still too many normies with anti bitcoin views.
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30 sats \ 0 replies \ @Scoresby OP 31 Jul
The statement "since acquiring a treasury company would likely be cheaper than trying to acquire a large stock of bitcoin in the market" seems pretty difficult to evaluate.
If we can all imagine that acquiring a large stock of btc on the spot market might distort the price, wouldn't there be enough of a bid for the acquisition of bitcoin treasury companies that their stock also carries a premium?
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102 sats \ 1 reply \ @denlillaapan 1 Aug
People are scared by the concept of self-custody. They are scared by cryptography. They are scared by exchanges. The result is that they are not willing to buy and hold real bitcoin. They are used to paper assets, their whole lives have been chasing paper assets. And now that paper Bitcoin is here, they're buying it up because it looks just like all the other things in their portfolios.
True, very true. And Saylor is right there to hold their hand -- at a nice, cushy cost equal to the difference between bitcoin's CAGR return and what the prefs are paying paper investors.
Not sure why you disliked with this piece? It was funny, it was illustrative, and it got to something that critics haven't touched on yet: HOW exactly these schemes fall apart.
Strategy is conservatively-af financed: all the BTC is "unemcumbered"; they can print as many MSTR shares as they want to satisfy converts. Hendrickson points out the two ways that this play can fall apart: 1: bitcoin itself collapsing (which nobody here thinks) 2: the regulatory moat/arbitrage that Strategy is profiting off shrinks or goes away:
these companies are betting on a joint hypothesis: (1) that bitcoin will play a major role in global finance, and (2) that the current regulatory and market segmentation will persist.
P.S.: very happy that Mr. Scoresby is taking over my role of covering Economic Forces for ~econ!
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0 sats \ 0 replies \ @Scoresby OP 1 Aug
I'm not happy. I do a very poor coverage of economic things, most likely half of it is wrong. I'd much prefer to get my economic updates from a purple monkey.
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0 sats \ 0 replies \ @4dcfa2e179 1 Aug
Great points. It’s wild how comfort with traditional structures like paper assets ends up boosting paper, Bitcoin demand. Regulatory and familiarity arbitrage really show how early we still are.
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