Long Reads Sunday #96

Hong Kong, Protests, Trump Vs. Twitter...How was this just one week?

May 31, 2020

Happy Sunday from the Hudson Valley,

What a goddamn week. It started normally enough; just the tectonic plates of the global economy shifting as we come to the end of a debt supercycle. In bitcoin world, we even had Goldman Sachs weird diss webinar to get up in arms about. Then it got crazy. Twitter vs. Trump. Hong Kong’s changing status. The explosion of the most visceral, destructive, widespread and as of this writing incomplete protests in more than a generation.

Derek Chauvin Charged in Death of George Floyd in Minneapolis ...

Let’s somehow make it quickly through the top crypto news and podcast links and then we’ll get in to all that.

This Week’s Top Bitcoin & Crypto News

Speaking of China, a new book from China’s Communist Party identifies Libra as a threat
Coinbase acquires Tagomi for estimated $70m-$100m in race for crypto prime brokerage
Calibra rebrands to Novi to avoid confusion and distance from Facebook
Polkadot has gone live to mainnet
India’s central bank has confirmed that banks can provide services to crypto companies
Coinbase Ventures and Polychain have invested $2.5m into Indian crypto exchange CoinDCX
The long arm of the SEC continues - BitClave agrees to pay back $25m in settlement
Led by former CFTC Chairman Christopher Giancarlo, the Digital Dollar Project releases a detailed white paper
A new NBA game has just launched on its own blockchain from the CryptoKitties crew
BlockTower more than doubles its returns this year, despite crisis
New crypto trading platform Floating Point Group has closed a $2m round including Naval Ravikant
Gemini becomes the first US exchange to integrate with Samsung’s blockchain wallet

This week on The Breakdown podcast

Monday | Best of April/May (not included in Weekly Recap)
Tuesday | Deglobalization and Other Narrative Violations, Feat. Geoff Lewis
Wednesday | Why Innovation Matters (and How Not to Screw It Up), Feat. Matt Ridley
Thursday | The Geopolitical Implications of a Too-Strong Dollar, Feat. Brent Johnson
Friday | The Battle for the Future of Money, feat. Lawrence Summers, CZ, Michelle Phan, the Winklevoss brothers, The Chainsmokers and more. [Money Reimagined Episode 4]

Subscribe to The Breakdown

Nathaniel Whittemore @nlw

"The United States military enforces the use of the dollar as the global reserve currency." It's impossible to look at the role of the dollar in the world without discussing the geopolitical (& yes, military) context. @SantiagoAuFund on @BreakdownNLW plnk.to/nlw/e/10004761…

Our Main Themes

1. Goldman tries to cancel bitcoin

Goldman Sachs CIO of Wealth Management held a webinar to talk bitcoin (and gold) this week. Unlike the Paul Tudor Jones excitement, this would not be a major institutional conversion to the BTC space. Instead, it was a full throated endorsement of the status quote. There were a few thing bitcoin Twitter noticed.

First, the arguments presented against bitcoin felt…not convincing.

Cameron Winklevoss @winklevoss

Hey Goldman Sachs, 2014 just called and asked for their talking points back. Bitcoin was declared a commodity by the CFTC in 2015 in the Coinflip order...so yea it's an asset whose price is set by supply and demand. Just like gold. Just like oil. It's a commodity.

Second, there was a clear background context of GS being at the epicenter of the financial system that is increasingly in question.

Tuur Demeester @TuurDemeester

This slide from Goldman's investor call today exemplifies the income & expansion focused philosophy that benefited Wall Street so much since 1913. When the economy is irreparably overleveraged though, it becomes important to look at assets from a wealth preservation perspective.

Third, there was an interesting question of “why now,” with at least some positing that this might reflect a growing number of questions about bitcoin and gold from GS clients.

Larry Cermak @lawmaster

What’s worth pointing out though is that if Goldman Sachs thinks Bitcoin is not a good investment, they must be getting a ton of interest from their wealth managemeny clients. Otherwise they would never be talking about it this prominently

Finally, some evidence for that point of view…

Kevin Rooke @kerooke

Grayscale's Bitcoin Trust bought 18,910 Bitcoins since the halving. Only 12,337 Bitcoins have been mined since the halving. Wall Street wants Bitcoin, and they don't care what Goldman Sachs has to say.

2. The end of a debt supercycle

Of course, going back to Tuur’s point above, it’s impossible to divorce Goldman and the bitcoin question from the macro context. Lyn Alden updated a Dalio chart about monetary expansion at the end of debt supercycles

Lyn Alden @LynAldenContact

Ray Dalio had a great chart in mid-2019 that showed the expansions of the monetary base during the endings of long-term debt supercycles. Here's my updated version for May 2020, based on current data:

Raoul Pal published again about how the dollar complicates the global picture...

Raoul Pal @RaoulGMI

The Dollar Standard: The US Economy fell from 40% of World GDP in 1960 to just 25% today. However, 79.5% of all world trade is conducted in US dollars. 84% of all non-domestic debt globally is US Dollar debt. Around $100trn of global debts are denominated in US Dollars.

Although Brent Johnson, a guest on The Breakdown this week, still argues that other currency dominoes fall long before the USD.

Santiago Capital @SantiagoAuFund

This is how you get hyperinflation...when you print a currency with no external demand. And that is why you will have hyperinflation in periphery economies long before you have it in the US Dollar.

Raoul Pal @RaoulGMI

as money in hoarded. All other central banks print more to offset their own systemic strains. Dollar rises since $1 of QE from ECB is worth 4x in liquidity adjusted terms as $1 from the Fed. The Fed can't win. And that in turn slows global growth, making the dollar shortage

There is a growing tone of the conversation recognizing that these are structural issues, and that the prosperity we’ve experienced is more of a mirage than it seems.

Eric Weinstein @EricRWeinstein

That’s *not* the real stunner; that “wealth” is largely debt of numerous different types that our older generations ran up. And they‘ll die leaving the debts to those who NEVER benefited from the mortgaging of assets, national sovereignty & our future. Just don’t speak about it.

Yonah Freemark @yfreemark

This is the real stunner: Americans who are 25 to 54 are significantly less wealthy than 25 to 54 year olds 30 years ago. The only age group that is significantly more wealthy are those 65 and up. Those also happen to be the people who vote and the people who run the country... https://t.co/87YoOEV13n https://t.co/Owmbf5Ei3O

Demetri Kofinas @CoveringDelta

We live in a society where a lot of people have borrowed a lot of money and confused that with capitalism.

ft.comSubscribe to read | Financial TimesNews, analysis and comment from the Financial Times, the worldʼs leading global business publication

Sven Henrich @NorthmanTrader

"Powell Says Fed Policies ‘Absolutely’ Don’t Add to Inequality" That is such a bold face lie & willful denial. The Fed will never admit this because to do so would reveal their entire policy construct to be an absolute shambles. Despicable.

bloomberg.comBloomberg - Are you a robot?

3. Twitter vs. Trump

I don’t want to spend too much time on this one, but when you have a sitting US president going to war with a private company over highly contentious questions of censorship, you have to pay attention at least a little. My read on the TL;DR on the intellectual sides (hold aside partisan mapping) is: 1) positing of social media as a public commons that needs free speech; 2) belief in the rights of private companies to set policies without governments interfering.

Erik Voorhees @ErikVoorhees

Disagree... They cannot be a “public square” for they are funded privately. They are private property and can set their own terms. Those who dislike the terms are free to not use them. Those who see market demand for alternatives are free to build them.

Cameron Winklevoss @winklevoss

Social media companies are natural monopolies that have become public utilities. They are the the town square. The terms of service of the town square is the First Amendment.

Whatever the case, this battle is going to get nastier - with potentially big implications - before it gets resolved.

Naval @naval

Just hope that the upcoming war between governments and big tech doesn’t destroy startups too.

3. Sayonara Hong Kong?

In the wake of a new security law that would China more control over Hong Kong, the US is making moves to distance itself from both HK and the Mainland. I’ll have a number of upcoming episodes on this on The Breakdown, but by way of primer:

Secretary Pompeo @SecPompeo

Today, I reported to Congress that Hong Kong is no longer autonomous from China, given facts on the ground. The United States stands with the people of Hong Kong.

Reactions:

Sven Henrich @NorthmanTrader

"Trump warns of major response if China passes Hong Kong security law" China passes Hong Kong security law Trump tweets "China" and terminates relationship with WHO. China: ROFL.

Cartogropher Balding 大老板 @BaldingsWorld

A couple of thoughts about the Trump announcements. First, the changing of the Hong Kong status is simply a recognition of reality. Second, China cannot however both claim that it is bringing Hong Kong law in line with the Mainland and that Hong Kong maintains uniqueness 1/n

POLITICO @politico

Trump said he’s making good on his threat to leave WHO, which he says failed to raise the alarm over #Covid19. The U.S. has been the largest funder of the United Nations’ health body, which is organizing worldwide vaccine & drug trials to fight the virus https://t.co/vV7wGHVbE1

4. The protests

They deserve more space than I can possibly give them, but since Substack is telling me I’m running short on room - and since you might be overloaded at this point - I’ll just share a couple worthy notes.