The Two Great Cons of the 21st Century…Bitcoin and Climate Change Part 1

Insanity is doing the same thing over and over and expecting different results.

Albert Einstein

Two things are infinite: the universe and human stupidity; and I’m not sure about the universe.

Albert Einstein

Albert’s wisdom is a source of great comfort to me.

The infinite potential of human stupidity has been on display this past week.

Net-zero emissions by (pick a date)…what does that actually mean, what will it actually achieve, at what cost and more importantly, who are the privileged few that stand to make a motza out of this massive con?

But very few ask the hard questions. Most just nod and go along with it. We’ll join some dots on this climate fraud in Part 2 tomorrow.

In recent days, the worthless Bitcoin [BTC] has soared back towards its April 2021 high. Last time I looked, the medium of exchange for fraudsters, criminals, and ransomware was over US$57k.

The speculators are speculating on the speculation of the US Securities Exchange Commission (SEC) potentially approving a futures-based bitcoin exchange-traded fund (ETF)…a product, if approved, that’ll facilitate even greater levels of speculation in a valueless offering.

The fact this product is even being considered shows just how far removed we are from common sense. Sadly, this is what happens when speculation has been actively encouraged to continue for so long. People lose their bearings. What was once considered absurd now seems reasonable. Why? Because, relative to other stupid schemes, this seems less stupid.

According to CoinDesk, a US$1.6 billion buying spree (lasting all of five minutes) contributed to a sharp lift in the bitcoin price:

As CoinDesk’s Muyao Shen reported Wednesday [6 October 2021], a buyer or a group of buyers entered an order on a centralized exchange to buy $1.6 billion worth of bitcoin.

That much supply hitting the market in under five minutes (13:11 to 13:16 UTC Wednesday) is a lot to jam into any one exchange (or three). It almost immediately sent bitcoin prices skyrocketing 5% to roughly [US]$55,500.

But there’s more to this story. Where did the US$1.6 billion come from?

As reported by CoinDesk (emphasis added):

While the purchase is denominated in the press as $1.6 billion, it wasn’t actually $1.6 billion in greenbacks paid for bitcoin.

…dollars themselves were most likely not the currency used but instead the transaction appears to have been largely done using the stablecoin USDT, issued by Tether, which was an on-ramp for many in China to trade on exchanges like Binance or Huobi.

“Most trading volume was from BTC/USDT,” Ki told CoinDesk regarding Wednesday’s trade, “which means buyers already had USDT coins.”

The whale/s punting on bitcoin ‘already had USDT (Tether) coins.’


They liquidated US$1.6 billion of Tether [USDT] stablecoins on the same day this article was published by Bloomberg…hmmm…

Anyone Senn Tether's Billions?

Source: Bloomberg

[Click to open in a new window]

As the story goes, every US$1 stablecoin Tether creates is supposedly backed by US$1 of liquid assets.

That’s the fairy tale Tether spins. But in reality, no one (other than those cooking Tether’s books) knows where the supposed US$69 billions of backing really is.

The author of the Bloomberg article went in search of the money (emphasis added):

Elsewhere on the [Tether] website, there’s a letter from an accounting firm stating that Tether has the reserves to back its coins, along with a pie chart showing that about $30 billion of its dollar holdings are invested in commercial paper—short-term loans to corporations. That would make Tether the seventh-largest holder of such debt, right up there with Charles Schwab and Vanguard Group.

To fact-check this claim, a few colleagues and I canvassed Wall Street traders to see if any had seen Tether buying anything. No one had. “It’s a small market with a lot of people who know each other,” said Deborah Cunningham, chief investment officer of global money markets at Federated Hermes, an asset management company in Pittsburgh. “If there were a new entrant, it would be usually very obvious.’’

A journalist not taking things on face value and doing just a bit of background checking.

Hmmm…sounds familiar.

This is from the 29 September issue of The Rum Rebellion:

In 1920, Charles Ponzi achieved lasting notoriety with his international postal reply coupon arbitrage “opportunity”.

Ponzi convinced people he was buying postage coupons abroad at a discount and selling them at face value in the US. Tremendous profits were to be had.

A half-truth was all Ponzi needed to germinate the seed of his scheme.

Throw in the promise of a 50% return in a matter of weeks and money poured in.

A journalist named Richard Grozier sensed all was not right.

In theory you could make a profit from the arbitrage opportunity.

But nothing like the alleged “profits” Ponzi was delivering to investors. Why? Well, how could Ponzi claim to be trading US$10 million to US$15 million in coupons, when there only a few hundred thousand dollars’ worth in circulation?

The numbers did not add up.

The rest, as they say, is history…and so was Charles Ponzi.

Tether has all the look, feel, and touch of a modern-day Ponzi scheme. If Tether does have the money, where is it invested? Certainly not in US investment grade corporate bonds or US treasuries.

Rumour has it that a good chunk is invested in Chinese corporate debt…specifically debt which has been issued by near-insolvent property developers. Tether denies this of course.

Maybe the whale/s with US$1.6 billion in Tether stablecoins didn’t buy this denial…instead they bought worthless bitcoins with their worthless stablecoins.

Ah, the stupidity of mankind.

The foresight of Ray Dalio

In the 14 September issue of The Rum Rebellion I wrote:

Ray Dalio (founder of Bridgewater Associates) recently published an article titled
What I Really Think of Bitcoin(emphasis added):

“Although Bitcoin is limited in supply, digital currencies are not limited in supply because new ones have come along and will continue to come along to compete so the supply of Bitcoin-like assets should, and competition will, play a role in determining Bitcoin and other cryptocurrency prices. In fact, I assume that better ones will come along and displace this one because that is the way the evolution of everything works—i.e., new ways of doing things and new things always have and always will replace old ways of doing things and old things. Since the way Bitcoin works is fixed, it won’t be able to evolve and I presume that a better alternative will be invented and pass it by. I see that as a risk.”’

Even a computer-illiterate dunce like me could see some kid/s somewhere coming up with something better than what’s already out there.

Last week, this article was published in Seeking Alpha:

Ethereum: Death By 1000 Paper Cuts

Source: Seeking Alpha

[Click to open in a new window]

Ethereum is at risk of being surpassed by new upstarts…who would have thought that could happen with a piece of computer code?

With tongue now removed from cheek, this is from the article (emphasis added):

It seems like the world’s second largest cryptocurrency is losing some of its shine, and this could be due to the fierce competition in the crypto space. There are hundreds, if not thousands, of crypto coins out there that promise to do just what Ethereum does, only better. If things don’t change quickly, or more specifically if Ethereum doesn’t adapt quickly, it could end up becoming the MySpace of cryptocurrencies.

With this crypto stuff, people are punting on nothing more than an idea. And this idea can be improved upon by those with better ideas.

Then there are those on the inside, who came up with the idea of marketing this worthless junk to those who have no idea what they are betting on. Brilliant.

Not to mentioned the ideas legislators might have on how this stuff should be really ‘tethered’ to some form of securities regulation and oversight.

A century ago, Charles Ponzi showed us how this ends…yet, people keep falling for the same story, expecting a different outcome.


Vern Gowdie Signature

Vern Gowdie,
Editor, The Rum Rebellion

PS: Vern is also the Editor of The Gowdie Letter and The Gowdie Advisory — investment services designed to help everyday Australians avoid the financial pitfalls of a volatile economy and make informed decisions to grow their wealth for generations to come.

Vern has been involved in financial planning since 1986.

In 1999, Personal Investor magazine ranked Vern as one of Australia’s Top 50 financial planners.

His previous firm, Gowdie Financial Planning, was recognised in 2004, 2005, 2006 & 2007, by Independent Financial Adviser magazine as one of the top five financial planning firms in Australia.

In 2005, Vern commenced his writing career with the ‘Big Picture’ column for regional newspapers and was a commentator on financial matters for Prime Radio talkback.

In 2008, he sold his financial planning firm due to concerns about an impending economic downturn and the impact this would have on the investment industry.

In 2013, he joined Fat Tail Investment Research as editor of Gowdie Family Wealth. In 2015, his book The End of Australia sold over 20,000 copies and launched his second premium newsletter, The Gowdie Letter.

Vern has since published two other books, A Parents Gift of Knowledge, all about the passing of investing intelligence from father to daughter, and How Much Bull can Investors Bear, an expose on the investment industry’s smoke and mirrors.

His contrarian views often place him at odds with the financial planning profession today, but Vern’s sole motivation is to help investors like you to protect their own and their family’s wealth.

Vern is Founder and Chairman of The Gowdie Advisory and The Gowdie Letter advisory service.

The Rum Rebellion