I realised I didn't notice this last Episode of Stephan Livera with Plan B.
https://stephanlivera.com/episode/243/Bitcoin price has been rising and some argue that it is tracking along with the S2F model! Others argue that this is statistically invalid. PlanB, pseudonymous analyst and creator of the S2F and S2FX models rejoins me on the show to talk:
- S2F and S2FX vs recent market action
- Critiques and spurious correlations
- Comparison with past cycles
- PlanB’s thoughts on whether this is the final cycle
- Macro factors – Tether
- Negative rates
- Cash and carry trade
This was by far one of the most intriguing podcast.
I strongly recommend you to listed to the whole podcast, but here one excerpt from the transcripts ( I think Stephan messed a little bit with the transcipt, waiting for him to fix them).
Cash and Carry
Stephan Livera [49:27]: As we are entering this whole Phase 5 thinking, are there any other broader macro themes that you think are worth commenting on in terms of things like, What other kinds of entities we might see entering the space? What kind of vigor will they be entering the space with? Will they be cautiously dipping their toe in, or will they start to really dive in in a more deep way to Bitcoin?
PlanB [50:02]: Two things I’d like to say about that: one is the institutional investors are really lining up now to buy Bitcoin! I’ve been invited almost weekly to join meetings with hedge funds, family offices, banks, insurance companies, to talk about Bitcoin, not only the stock to flow model, but just the whole Bitcoin thing and how you can buy it and how you can hedge it and how you have to look at it as an investor. So there’s really a lot of demand from investors, and one of the things that I find very interesting—also for myself — is the derivatives markets. So if you look at the futures market for example, you can now buy Bitcoin for, say, $35,000, and you can sell it at the same time for a year later — you can future sell it for more, I don’t know what the price is, but $36,000. So you get a certain $1,000 profit, you only have to wait for a year! And of course you give up your upside and you also have no downside so there’s really less risk, but you really have to know what you’re doing. But anyway, if you do it like that—it’s a cash and carry strategy — you can make a 20% return annualized, and that is the kind of returns that Warren Buffett and famous hedge funds get! But not banks or insurance companies — they’d be happy with maybe 5%. So 20% in an easy trade like that is something that cannot be ignored and is seen by more and more people, and some people pop their toes in the water and of course it works. It is too good to be true! And after that in a negative interest rate environment that I’m living in in Europe, -0.6%, you can actually borrow money for negative interest rates if you’re an institutional investor. But even as a private individual you can lend against your house for 1% or lend without collateral for 3%! Well if you use that money — and I’m advising not to do that, but for professional investors this is candy that is too good to be true! And then if we look at option markets, we see implied volatilities of over 100%, which means there’s call premiums from 40–50%. So you can do volatility harvesting strategies which are very very profitable and cannot be done on other asset markets! So the whole derivatives markets and the relation between the spot markets, derivatives markets, futures, options, etc., I’ll be watching them like a hawk—actually participating in them! I see a lot of people entering those trades and looking at it. I think the future and option market prices will give us a lot of information about the future, so it’s really interesting if the base rates of the futures stay that high, if the implied volatilities in the options markets stay that high, and yeah so that’s one thing that cannot be denied anymore by the more traditional investors and that will be seen by more and more. The other thing — it’s not so much investing but more society thing — it’s a very positive thing: good money, sound money is very important for humanity! It’s good for trade, it’s good for specialization, it’s good for capital allocation and allocation of scarce resources, where the investors were not. And to have sound money, a measure, a unit of account that can be counted upon, it can be depended upon, is very interesting! And very important! And we don’t have that at the moment, because central banks are printing the money at will, they’re using it for political purposes, they’re weaponizing it, and it’s like an architect that uses a measure like the meter or an inch that changes every day! Imagine how a building like that looks after the architects are finished! And that’s our economy at the moment! So we’re building with a measure that is changed every day, and Bitcoin will — for the first time — introduce a constant. And that is the 21 million coins. So that will for the first time ever, be a constant in finance like there is a constant in physics — the speed of light, for example. In mathematics. So that is from an Austrian perspective and I talked about this with Saifedean lately. It could be very interesting, this constant! And maybe with that comes a sort of predictability, but at least a totally different kind of economy, separation of money and state, and in my opinion it will even unleash the next Renaissance with science at the very heart of it, but also with art and freedom and a totally different society than we have at the moment that is dominated by governments and states. And this one will be more sovereign individual and math and art-based! So yeah I find that a very hopeful perspective, and that’s maybe, apart from the investing, the main reason why I find Bitcoin so very very interesting!
A lot of very interesting topics have been touched, I stongly recommend the whole episode!
