BTC #9: IS ETHER 2.0 QUEEN'S GAMBIT?

The crypto King is BTC.  The Queen is ETHER.  What is the queen's gamble?  

The one line pitch for Ethereum is that it has become the financial internet.  An internet where apps can send money back and forth to each other just like they can send information.  And this can be done faster than it can be done on the BTC blockchain.  

Ripple's founders (XRP) enriched themselves by granting themselves a massive pre-mine and pretending they weren't launching a security. The SEC gave them a free pass for years.  Ethereum's founders enriched themselves in very much the same way. The SEC gave them a free pass for years......for one reason.  They do not have a CEO.  This raises the question.......is ETH really decentralized?  

We must always question our assumptions.  ETH 2.0 is a question you should be posing to yourself and your friends before you jump in.   

The hunch from smartmoney types is that BTC is a perfect collateral layer right now,  but ETH might be bigger in market cap terms in 10 years for the reasons above.   Although cite one below argues against this.  Money and collateral likely will just be the base layer. Everything builds on top of the "Monopoly" board down the road.  The store of value is collateral, the trust layer and exchange of value might be larger. This is a speculative bet right now.  

Right now ETHER is getting the push in price because of February's promise from the Chicago Mercantile Exchange.  The CME is the world's largest financial derivatives exchange.  The CME has finally announced the launch of Ether (ETH) futures on February 8th, 2021. Just like its Bitcoin Futures, the CME Ether Futures will be cash-settled based on the CME CF Ether-Dollar Reference Rate.  This announcement is driving the price we've seen since mid December in ETHER. What does this mean for price in the short term?  

Many expect that the launch of ETH derivative product next year will bring more institutional funds into the market, thus the price of ETH is very likely to see a rise.  

What other questions should we be asking about ETH 2.0 now as a tribe? 

Might the future is a super network of blockchains with the most pristine being bitcoin and the risk curve moves out from there?  Another question to consider:  Is any other outcome accruing to one winner anything but false hopes and dreams? 

What will macroeconomic trauma waves do under Biden do to the business cycle now?   To push the business cycle from merely soft to full recessionary usually takes one event beyond just rate increases. Might the shattering of global supply chains will likely prove to be the trigger and the corporate credit market will be the ugly thing this downcycle is remembered for?

ETH 2.0 value:  I am implying that the sheer size of the macroecosystem is something people don't generally understand and there is lots of value capture in the ETH 2.0 network.  The key is when will the investor capture it and will the return be the same as BTC in 2021?    There is an operational risk for ETH too.  Because of the recent XRP news there is regulatory risk too.  

Ray Dalio always says look to reality of the present.  What do we know about the present?  Bitcoin is the rock on which the fertile ETH layer stands. Everything is part of the same ecosystem. Everything has its place, but not everything is valued the same.  You the investor have to see where ETHER fits into your portfolio given these ideas.  Here is a thought of wisdom you need to remember with respect to the Metcalfe's effect and ETH 2.0.  

Network effects tend to compound as time elapses, so the winning networks get better hardware, better apps, and more institutional interest, than smaller networks.  This is why Twitter trumps Parler now.   And that gives them more users, more security, etc.  So, success compounds into more success, unless a major tail risk occurs.  This is important when comparing BTC to ETH as long term investments.  

In economics, the market dictates success or failure.   For years it has spoken, and BCH and BSV have devalued vs BTC in terms of price and hash rate. The market says it likes small blocks, lots of nodes, and Bitcoin as store of value and settlement.  

This might be a problem for ETH 2.0 given what we know TODAY.  

There’s an old Zen koan that goes, “if you meet the Buddha, kill him.”   In other words, when something is self-verifiable or self-iterating, looking too heavily towards the originator can be a distraction along the path. Results speak for themselves.  BTC is king now.  It is not debatable.

People can and should debate about what the market “should” want, or what Satoshi’s intent was, but so far, that’s what hundreds of billions of dollars of capital said it wants as the pics above shows.  It is BTC and not ETH.   And the market gets what it wants, unless or until it wants something else.  The future winds might favor ETH when the Monopoly board axis is built out.  Right now, all investing experts are really just amateurs, guessing what will happen in the future. 

Globally, with zero yields everywhere, more people have a “store of value” problem than a “medium of exchange” problem.   We have no shortage of quick ways to pay (The STRIKE App), but we have plenty of difficulty finding things to store wealth in for a long time.

Because of this, the market likes BTC’s high hash rate settlement network.  The market data on this point is clear, even if your beliefs aren't. That’s where most small money and big money flowed to in the space.   The market has said rather clearly that it is uninterested in bigger block sizes and trying to expand transaction throughput on the base layer.  ETH 2.0 specializes in both of those things.  What does this mean to you now?  

Some parts of the globe, however, do have a medium-of-exchange problem as well. People sending small international remittances, and folks that get de-platformed or sanctioned come to mind.   And for them, there are solutions, including potentially Lightning on BTC over time will bridge that gap now.  They won't have time to wait for the promise of ETH 2.0.  

And as things develop, the market will dictate who wins in the medium-of-exchange or smart contract race as well. There are Bitcoin layers, there are apps on those networks, there are DeFi projects, other projects, etc. It will be what it will be.  We all need to help each other pay attention to the market with our eyes, brains, and thoughts to see where our money should be invested.  This is investing in the wisest way.  Sharing what we find.  

Among blockchains, the BTC base layer is essentially an already finished project (no longer beta) with of course ongoing gradual improvement, while most other blockchains remain experiments in rapid change (alpha/beta versions), with less security and less finality.  This is a ceiling to ETH price, in my opinion.  ETH 2.0 still has regulatory risk and operational risk.  Are you willing to allocate capital here first before you have built your colonial position in BTC?

Only in an inflationary environment is the exchange layer bigger.  In a Bitcoin future, value will stay at base SoV layer.  Right now, inflation expectations are now above 2%, while the 10-year yield is now above 1%.   Still, that's a real rate of -1%, even by official measures.  What happens in a deflationary environment to ETH?  Do you see inflation yet?  Here is an email I got from a contractor I am using to sell my beach house in Destin right now. 

What do I think is a more wise investment right now, BTC or ETH 2.0 or a taste of both?  

Debating over what was intended in the past is not generally the ideal path for allocating new money.   Listening to the market in the long run, through multiple cycles to clear out temporary malinvestment and see what sticks over time, is generally the ideal path to winning.

SUMMARY

A 2008 history lesson is in order to understand where all of you stand now in January 2021.  

Tim Geithner endorsed the US government’s response he helped craft. That is ironic.  In his book, Mr Geithner himself admits what the Fed did in 2008 could be seen as an “out-of-control” rescue of the financial system – as “a correct view”. 

However, the US Treasury was successful in inducing private-sector participation in bank capital-raising because markets perceived its recapitalization pledge as credible. Surely America’s status as sole issuer of the global reserve currency helped, as did the Fed’s insatiable demand for government securities. 

Is the rest of the world equivalent?  

Would a similar pledge by eurozone policy makers, at the height of the sovereign debt crisis, have solicited a similar market response? It is very unlikely. On the contrary, it might have sent yields on peripheral countries’ debt soaring even higher, reinforcing the (doomsday-like) sovereign-bank negative feedback loop.

The biggest lesson not learned of the 2008 financial crisis was the mispricing of risk. In fact, I will say mispricing risk is always the biggest error made in any financial crisis.  Remember that when Biden takes office because his administration will be in chronic crisis mode come January 20th, 2021.  

Under the current system banks can look safer than they are simply by increasing their sovereign debt exposure, without raising additional capital. MMT has allowed banks to survive by feeding on freshly printed money which allowed them to remain flush with cash, but this cash never gets to the public or businesses fast enough in a financial crisis like COVID.  This reinforces the bank-sovereign feedback loop, and only makes us more, not less, crisis-prone.  Does this loop analogy sound an awful like circadian biology mismatches?  This is why I have lost my faith in the government and in its fiat money.  

Numbers don‘t lie. Politicians, journalist, and technology companies with social platforms now do.  This is why the first amendment is dead now and we have to rely on amendments two, four, and six for our coming safety. It means the SCOTUS is where our trust lies. The executive branch lost all of its potential power on 11/3/2020.  Politicians will make it a religion in lying to us, and they have undermined all of my trust.  This is especially true with respect to government fiat debt based money.

“When you tear out a person’s tongue via censorship you are not proving them a liar, you’re only telling the world that you fear what they might say”

Always fight for the liberty of people and your freedom in your money.

2020 vs. 2008

To sum up 2020:  $9 Trillion of monetary stimulus worldwide in a single year.  The US printed 25% of all circulating dollars in 2020 to combat COVID.  It was by far the highest amount we’ve ever seen.   3 times the size of money printing in 2008.  Do you really think that this virally induced stimulus won't get the patient (taxpayer) ill?

The Fed bought $2.4 trillion in Treasuries in 2020 (blue) & largely funds the deficit (black). Had you told me in 2019 this is what 2020 would be, I'd have predicted big disagreement among economists. Instead, there's near universal support, which to me is the biggest surprise of 2020.  This tells me they know a massive depression is coming and they are getting ready to take a lot of assets of the taxpayer to set the stage for the Great Reset that the World Economic forum has been calling for since the Clinton administration.  Every democratic president since Clinton loves the World Economic Forum and Davos.  It is where bankers plan to steal wealth from taxpayers without any justice.  

The Great Reset is an idea where the human taxpayer will be a unit to be managed by a governmental algorithm, a digital file to be moved at will and, when necessary, deleted.  When you delete the file you scoop up all they own.  It worked in Nazi Germany and it appears history will be repeating itself in the next four years courtesy of the bankers.   Biden will help them do this.   

As for COVID:

I am not afraid of any virus that has over a 99% survival rate and no amount of media-coverage, data manipulation or forced testing among asymptomatic people will change my mind.

Lions cannot understand the mentality of sheep. This is why I teach my flock quantum biology and why BTC is a life raft for the coming medical algorithms being built by the industrial military complex in Washington DC under Biden.  The next algorithm will be in a syringe injected into fools for something that has a 99.98% survival rate.  Higher still if you just get your skin in the game.  Any doc pushing this vaccine needs to understand they are putting themselves out of business in the future.  Few of them see this logic now.  

As the face of medicine at the point of contact where the rubber meets the road physician's must absorb the angst and anger of the patients about the USA’s failed HC system while the insurance, MedMal, PBM, hospital, EHR and MOC industries laugh all the way to the bank as their profits expand and physicians go broke.  

Today’s money lesson: Fahrenheit doesn't make much sense, but we're all familiar with it. Fahrenheit is a lot like gold currency.

Celsius makes sense to people on Earth, because it's based on the freezing and boiling points of water (and there's a lot of water on Earth).  Celsius is a lot like fiat paper money.

Kelvin is probably closest to an absolute truth, universally. Kelvin is Bitcoin.   ETH is not.

Lesson over.

BTC is the more wise way to allocate capital right now than ETH........unless you like to gamble. 

Why?  Many of the assumptions I have heard from smart people (even in my tribe) make to me about ETH are not true.  Here is one I researched.  

Ethereans say, "ETH will be fast and have more transaction power than the BTC blockchain."  Is this true?  Tell me Ethereans, why relying on Infura is different than, say, a SaaS company relying on AWS or Azure.

In some debates I have had recently, Ethereum investors were insisting to me that Ethereum nodes are easy to run.  That picture above should does not support that belief does it?   If that's correct, why does Infura highlight how difficult it is, and have so many customers?   For folks technical enough to launch a Dapp, shouldn't running nodes be trivial?  What does this mean longer term to an ETHER investment?  

I'll tell you what I think right now on January 9th, 2021.  

Why is BTC fundamentally a better investment now?  

IT IS DECENTRALIZED 100%.  

Is there something else, Uncle Jack?  

Why is BTC considered deflationary at a 30,000 foot level?  For decades, under the fiat system prices for basic consumer goods have increased and quality decreased. This is because increased productivity (technology) requires a constant monetary base to be felt through prices. Fiat money is the unit that measures this process. Fiat is not Bitcoin. 

In a monetary measuring system with a constant base (i.e. Bitcoin), increased productivity will translate to decreased prices. However, if the monetary measuring stick is tampered with (i.e. the Fed’s printing presses), then prices will increase year after year despite massive increases in productivity. This is what will happen under Biden.

When you cannot refi to lower your payment you are headed to having your home stolen by a banker when the house of cards falls.  Most of the USA main asset is their house.  Don't be a sheep.  Be proactive and get your cash out of your house before the masses realize what is head our way under Biden.

Asset bubbles will expand in the tech stock market, in certain real estate markets (Malibu/Hamptons), in rare art and in yachts. The last place to feel the inflationary pinch will be in goods that the middle and lower classes face in their daily lives.  This is why the CPI is no indicator of the coming tsunami.  It is being used to keep the public in their pens afraid of a virus that is less virulent than a simple sexually transmitted disease.   If you want a metric to follow when the shit is close to hitting the fan it will be when the middle class can no longer refinance their real estate loans. That process has already begun because interests rates are already artificially low, so refinance cannot be used to lower a payment when you get locked in because the politicians closed your economy down because they need to bail out the bankers from their mistakes and are using you as the pawn.  

CITES:

https://jimmymow.medium.com/announcing-strike-global-2392b908f611

https://infura.io/faq