Q: Should I be long bitcoin miners over results?
Thanks to the advent of Ordinals and BRC-20s, miners are presumably having an excellent quarter, so I see why you’re asking.
NYDIG estimates that transaction fees now account for 40% of miners’ revenue, up from just 2-3% before bitcoiners embraced NFTs and memecoins.
Normally, I’d say that, by the time any information has found its way to me, it will 100% have been priced-in to stock prices.
And seeing as I’m aware of Ordinals and BRC-20s, I’d normally say there is therefore no alpha in buying miners ahead of their quarterly results.
Some of my crypto-native colleagues disagree: They think TradFi normies can’t possibly be following the PEPE trading on Bitcoin, so maybe there is still alpha there?
Personally, I’m confident that TradFi’s sell-side analysts know what Ordinals and BRC-20s are (you don’t stay in that job long if you’re not on top of that sort of thing). And that they have a good idea what the impact on earnings will be, too.
The question is whether anyone is listening: Crypto is so out-of-favor with traditional investors that good news may take a lot longer than it otherwise would to find its way into stock prices.
So, if nothing else, it’ll be a fun out-of-sample test of the efficient markets hypothesis.
My guess is that markets will prove efficient (not financial advice).
Q: Should I buy stocks at 10 pm when no one else is paying attention?
Robinhood thinks you might want to: They’ll be offering 24-hour trading in US large-cap stocks, five days a week because “market-moving news can also break anywhere and at any time.”
But you have to be a hard-core believer in the inefficient markets hypothesis to think stocks are so slothful that you can make money by reacting to news that comes out in the evening.
This might, in theory, work in crypto where there is 24/7 liquidity passively provided by automated market makers.
Robinhood, however, will be routing your orders to professional market makers — like Virtu and Jane Street.
People complain about how much money those types make during normal market hours when spreads are measured in cents — imagine how much they’ll make outside of normal market hours when spreads are measured in dollars.
According to their press release, “Robinhood’s 24 Hour Market levels the playing field.”
I expect it’ll be more like a killing field.
If you really, absolutely have to trade something at 10 pm, trade crypto instead, it’s more fun.
(Not investment advice.)
Q: Will the debt ceiling issue get peacefully resolved?
Having just outed myself as a believer in efficient markets, I have to assume there is an extremely high probability it will — simply because the stock market, back at year-to-date highs as of this morning, seems so sanguine.
But markets are not so good at pricing-in tail risks. And a US default is about as tail-risk as it gets, so we may not want to assume the market is being efficient in this particular case.
(Let’s hope so, though.)
Q: Is it safe to keep using my Ledger?
I think it is, but I have no understanding of how hardware wallets work. I’m just trusting that Ledger is a good actor and will generally do the right thing — which is a reminder that there is still a lot of trust involved in trustless crypto.
If you use a hardware wallet, you’re trusting that the installed software will work like they say it will. Ledger’s Twitter account explained yesterday that “you have always trusted Ledger not to deploy such firmware whether you knew it or not.”
If you did happen to know it and chose for that reason to run your own bitcoin node instead, you’d still have to trust that the bitcoin core devs are good actors and haven’t overlooked any dangerous bugs in the code (Bitcoin is software, too, albeit open source software.)
And even if you read the code yourself and live in the woods and run your bitcoin node on solar panels, you’d have to trust that your internet provider will continue to provide you with internet.
In sum: it's trust all the way down.
Trustlessness (and self-custody) is a core principle of crypto, but it won’t be a core use case: If crypto ever goes mainstream, there needs to be a lot of trust involved.
Q: What is the core use case of crypto then?
So far, the core use case remains regrettably circular: crypto is for trading crypto.
The hope is that all of this crypto trading is funding the development of infrastructure for a new financial system that will enable novel use cases with a larger purpose.
But patience (and trust) is required: We’re still very much in the infrastructure phase.
Q: Who should crypto’s primary regulator be?
The Nevada Gaming Commission.
A UK Treasury committee yesterday recommended that crypto be regulated “as gambling rather than as a financial service, consistent with its stated principle of ‘same risk, same regulatory outcome’.”
Because crypto remains primarily about trading crypto, I tend to agree: At this still-early stage, investing crypto is more akin to gambling in Vegas than investing in the stock market.
Asserting that all cryptos other than bitcoin are securities, as the SEC insists on doing, risks conferring undue legitimacy on the many thousands of memecoins, Ponzis, and scams that unavoidably proliferate in crypto markets.
Crypto tokens should mostly be labeled as entertainment and regulated as gambling, just so that everyone is clear about what they’re getting into.
There are, of course, dozens (hundreds?) of crypto tokens of real substance — a few of which are not even related to trading other tokens!
And for those, we will need a new set of rules, as Coinbase and others keep arguing.
Whether that would make crypto markets any more efficient is up for debate.
