Feb 24, 2022
On this episode of Bitcoin Bottom Line, host Steven McClurg is joined by Greg Foss and Josh Olszewics to discuss bonds. Steven and Greg met while being co-investors in the same company that is responsible for bringing ETFs into Canada. This company gave people in Canada comfort that a spot Bitcoin ETF will work and cannot be manipulated. #Bitcoin #Bonds #Investing #Crypto McClurg mentions that the last time he was with Greg they discussed gas flaring. Greg mentioned what had been happening in Alberta and shortly after, China decided to shut down all of its miners. McClurg asks how Foss has seen this progress in Canada. Foss states, “We do not have much flare gas in Canada. The US has more flare. We have 400 megawatts of power that are former peaking plants. They're located right along the TransCanada natural gas pipeline and we will be mining Bitcoin at those plants.” McClurg and Foss go on to discuss the two different Bitcoin audiences. The first is the intermediary audience, which consists of financial advisors and wirehouse platforms. The second being institutions. McClurg says, “Oddly enough, nobody wants to own Bitcoin directly.” Which is how both McClurg and Foss recommend owning Bitcoin. While Valkyrie was looking to productize Bitcoin rather than holding it directly in a product, they found that there were two ways to do it. “Number one was miners, but even that is relatively niche for a lot of the wirehouses. The ETF we launched in December is actually way more suitable for those people and those companies that hold Bitcoin in their balance sheet. They want the correlation to Bitcoin, but they don’t want the miners, nor t to hold Bitcoin. I think a lot of these shops are a little too far off to still get there” says McClurg. McClurg states, “Life insurance is another area that you look at and are like ‘okay, well they are not going to hold Bitcoin directly.’ They can’t, but when it comes to junk bonds, life insurance agencies are governed by the rating agencies. These agencies determine how much capital they have to reserve against each one of their investments, which is why they are so filled up with investment rate bonds and treasuries even though it is technically a negative yield at the moment.” McClurg questions what the FED is going to do and what they are thinking. “They have never traded risk and they are always very backward looking. They are waiting for data from months ago to make decisions on what they can do a month from now that can affect the economy in two to three years.” Foss believes, “it is a true lack of understanding about how the markets work. You can job-own all you want, but at the end of the day when volatility exceeds thirty percent annualized in the equity market, that implies moves of plus or minus two percent average daily volatility. New issue markets and everything close when volatility is above thirty percent. Volume is creeping up and if new issue markets close, access to capital closes and growth stops.” He continues, “There are no returns left in bonds so everybody’s pentiant is relying almost entirely on equities as a performance generator. If pentiant funds go into the underfunded status, there are going to be a lot of upset pensioners and an upset president.” Olszewics brings up that Bitcoin’s decline is smaller than Nasdaq. Foss believes, “Bitcoin will be a long volatility asset...Bitcoin’s insurance is essentially being short credit. When you have short credit, you have long volatility.” He continues that Bitcoin is the best asymmetric return opportunity that he has seen in his thirty years of managing risk. As the episode wraps up, McClurg and Foss return to discussing the FED. McClurg believes that there will be one rate hike. He predicts that the FED will do something in March and there will be two, maybe three rate hikes that the market will not be able to take. Foss says that high yield bonds are the worst investment he has seen throughout his years of managing risk and believes that all bonds are bad with the exception of volcano bonds. Foss ends the episode by telling listeners “sell your bonds and buy Bitcoin.” Listen to the full episode for more!