OK, I had this great idea in May — yes, the May that finished a mere six weeks ago — to start a business.
Not just any business, mind you.
However, before we get into the details of my new venture, Fat Tail Investment Research (formerly Port Phillip Publishing) is celebrating its 15th birthday, and you are the one receiving the gift.
You can subscribe to any service for a 50% discount. To see the details of the offer, please go here.
Now, back to today’s topic.
This new business idea is designed to capitalise on what everyone knows is an inevitable trend towards decentralised finance…or, as we in the industry call it…DeFi.
My pitch to prospective investors is still a work in progress. However, the central unique selling proposition (USP) of the offer is, well, rather unique.
I wanted to run it past The Rum Rebellion readership to see what you think of my newly-established enterprise…
Ready for it, here it goes…
‘“…as an early stage company entering a highly-competitive market with a limited operating history, the operations of [company name withheld] are nascent, unproven and subject to material legal, regulatory, operational, reputational, tax, and other risks.”…wait there’s more…“[company name withheld] has not yet fully developed, tested or launched any products.”’
Compelling story, isn’t it?
I can’t tell you how exciting it is to bring this truly unique business model to market.
OK, you’ve heard the pitch, what do you reckon it’s worth?
Do I hear $10 million? Oh, come on, even the crappiest of crypto is worth more than that.
What about $1 billion? Not a bad second offer. But still a little undervalued for such an innovative business.
Sharpen those pencils, folks.
Don’t waste my time…make me a serious offer…one priced in US dollars too.
Thank you, finally the visionaries amongst you have seen the true value in my business model.
You drove a hard bargain, but yes, I’ll accept your US$9 billion price tag. Deal done.
By the way, I want the deal transacted in actual dollars, NOT Bitcoin [BTC]. I ain’t that silly.
Is this a pretend company?
Yes and no. Mine is most definitely a pretend company. I could not fathom telling this story with a straight face AND people actually buying it. That probably explains why I’m not a crypto billionaire.
However, the company in the US — whose investor presentation did include the above sales pitch — is real and is going to list for US$9 billion.
Bullish Global is the latest in the list of crypto-related companies going to market. The founders want to take cold hard dollars (you know, that fiat stuff that’s going to be obsolete) off the table while the faithful still retain the utmost of faith.
As reported by Bloomberg on 9 July 2021 (emphasis added):
‘Bullish, which is preparing to launch a cryptocurrency exchange, has agreed to go public through a merger with special purpose acquisition company Far Peak Acquisition Corp.
‘The transaction will value the combined company at about $9 billion, which could be adjusted based on crypto asset prices at the close of the merger, according to a statement from Bullish on Friday.
‘Bullish was launched in May by Block.One, a blockchain software company backed by Peter Thiel and hedge fund managers Alan Howard and Louis Bacon, but is not yet operational.
‘The merger comes just a day after Circle Internet Financial Inc., part of the consortium behind the USDC stablecoin, said it will go public through a SPAC in a transaction valued at $4.5 billion.
‘This year has seen a spate of investments in the cryptocurrency space as token prices surged to record highs. Coinbase Global Inc. debuted on public markets in April with a valuation that soared above $112 billion. And in private markets, more than $17 billion of venture capital money flowed in as of mid-June.’
The business is NOT yet operational…but what the heck.
A couple of months to float a concept and trouser US$9 billion…great work if you can get it.
In this market, bigger fools can always be found.
If ever you wanted a sign that this is truly an ‘everything’ bubble, the proposed listing (and name) of Bullish Global surely must be it.
Cryptos are at the epicentre of this history-making bubble in asset markets.
Which is why investors — even those who, like me, have a healthy disdain for the crypto hype — should be watching this space very carefully.
The other two companies mentioned in the Bloomberg article were Coinbase and Circle.
On 3 May 2021, Coinbase released this statement (emphasis added):
‘Starting today, Coinbase supports Tether (USDT) at Coinbase.com and in the Coinbase Android and iOS apps. Coinbase customers can now buy, sell, convert, send, receive, or store USDT. USDT will generally be available in Coinbase-supported regions, with the exception of New York State. USDT trading is also supported on Coinbase Pro.’
Why is Tether [USDT] generally available ‘with the exception of New York State’?
In February 2021, New York Attorney General Letitia James released a statement which included this damning assessment of Tether’s operations (emphasis added):
‘Bitfinex and Tether recklessly and unlawfully covered-up massive financial losses to keep their scheme going and protect their bottom lines. Tether’s claims that its virtual currency was fully backed by U.S. dollars at all times was a lie. These companies obscured the true risk investors faced and were operated by unlicensed and unregulated individuals and entities dealing in the darkest corners of the financial system.’
Reckless. Unlawful. Scheme. Lie. Obscured risks. Unlicensed. Unregulated.
These are words you’d normally associate with a Madoff-style operation. But what would I know? My interpretations are old-school, not new world.
Old-school thinking tells me Tether — the largest of all stablecoins — could be one panicked selling session away from collapse.
If the NY Attorney General is to be believed, Tether is woefully short of the liquidity needed to meet an old-fashioned bank run.
I know Tether is not a bank. But I’m not so sure those who swap their cash for tokens are entirely aware of that not-so-subtle difference.
Then there’s Circle. Circle co-developed the second largest stable coin…USD Coin [USDC].
I recently watched an interview with Jeremy Allaire (co-founder, CEO and Chairman of Circle).
One of the interviewers asked Allaire, words to the effect, ‘What’s backing USD Coin?’
The question was asked not once, but three times, and each time he sidestepped it. Allaire talked (waffled on) about going above and beyond what the regulatory framework requires.
Maybe the money is there to back USD Coin, and he’s just not good with interviews. But maybe the money isn’t there in sufficient quantities to support the claim of dollar for dollar backing.
Supporters will say ‘Grant Thornton provide USD Coin with a monthly letter of attestation.’
True. But the letter states at this time, on this day, there’s $X in backing. What it doesn’t say is how the money got there before that time, what day, AND where it goes to after the letter is signed.
Is Circle a money-go-round enterprise? Kind of apt really.
The only way we’ll know whether Tether and USD Coin are the real deal or not is when they are put under some sustained selling pressure.
At present, in a market where people willingly hand over US$9 billion for a business without a business, there’s no real pressure being applied to these structures.
What could cause that sort of rout?
Oh, I don’t know…maybe a need for liquidity to cover margin calls, rumours of a ‘bank’ run (we saw that in the UK during the GFC, with people lined up around the block) or a story of wholesale fraud in corporate debt. Take your pick.
And when it starts, momentum can be like a force of nature.
Where the spark comes from is largely immaterial, the fact is, the tinder is piled high and it’s as dry as a Sahara summer.
The prices being placed on ‘investments’ of somewhat dubious value is a telltale sign of a market that’s lost all touch with reality.
Hopefully, before even more long-term damage is inflicted on the unsuspecting, this period of insanity ends sooner rather than later.
If you think my new business plan is basically worthless, then that pretty much sums up the value of a lot of the overhyped stuff that’s out there in the market.
My advice — before Tether becomes untethered, Circle swirls down the drain, and Bullish Global turns Bearish — is retreat to a position of safety…one that’ll enable you to sleep at night if markets fall hard and fast.
Editor, The Rum Rebellion
PS: The Rum Rebellion is a fantastic place to start your investment journey. We talk about the big trends driving the Australian Economy. Learn all about it here.