Lately, I've become more open to the possibility that Bitcoin and the entire crypto space might all be bullshit. The asymmetric opportunity could be alive and well however. It could be total BS and still go up 10 or 20 fold from here.
I've been referring to the biggest proponents of Bitcoin as shills and touts for a long time. Here's me, earlier today on Twitter:
Don't listen to shills. Want to make a small bet on asymmetry, realizing it could go to $0? Go for it, right there with you. But don't listen to the shills and touts. They need bagholders if it all turns out to be bullshit.
I Tweeted that out along with this video of Michael Saylor saying to mortgage your house and your business to buy more Bitcoin back when it was much higher. It's terrible advice, more like reckless encouragement even if Bitcoin turns out to be everything the shills say it will become. He carries sway and influence. My bet is plenty of people bought more when that video first hit.
This video of Saylor and Max Keiser is even worse. It's from some sort of Bitcoin conference. I'm not sure if it is the one where immediately after, El Salvador started buying Bitcoin or not. That sort of over the top rah-rah about anything, make me cringe. My response to that:
If Bitcoin turns out to be bullshit, it will have been nonsense like this that was a tell.
If it is real, they shouldn't need this sort of cultish hype.
Last point on Bitcoin that I may have mentioned before. Bitcoiners have taken to using the term low time preference to mean delayed gratification or playing the long game or having patience while holding, or HODLing Bitcoin. While I love the concept, I've essentially built my life around it, if Bitcoin is indeed BS, then the touts and shills need "plebs" to be the bagholders, they need the plebs to hold on so they, the touts and shills, can sell. That's a cynical view of course but the odds of this outcome are greater than zero.
I also want to talk for just a minute or two about risk parity. Risk parity is a fascinating strategy. In overly simplistic terms it tries to match the amount of risk taken in equities to the risk taken in fixed income. I suppose it can own other assets too? Again, overly simplistic but if owning $20,000 worth of stock equated to risking $3000 of capital, how much would have to be invested in bonds to risk that same $3000? A lot more than $20,000 in bonds. So much more so that risk parity often relies on leverage to own enough bonds for the two risks to balance out.
I've known about risk parity and have been reading about it for ages. I am convinced there's plenty to learn from it in terms of fine tuning risk between asset classes in a diversified portfolio but levering up to buy bonds at very low or merely lowish yields has never made any sense to me.
The two ETFs I am aware of are the RPAR Risk Parity ETF (RPAR) which includes commodity exposure and identifies its allocation to TIPS as a separate asset class too, and the Simplify Risk Parity Treasury ETF (TYA) which based on its description looks nothing like any risk parity strategy I've ever seen. It only owns bonds, it uses futures to lever up on 20 year treasuries such that at $10,000 allocation to it would be like holding more than $10,000 worth of 20 year treasuries. The fact sheet talks about capital efficiency but I did not see how much leverage it uses. It is actively managed so maybe the amount of leverage changes. So here's what this all looks like.
Yahoo has RPAR down 20% and TYA down 32% which compares to a decline of 21% for the S&P 500 and 25% for the iShares 20+ Year Treasury ETF (TLT) which I threw in to try and get some context for the leverage used in TYA.
If risk parity is supposed to be some sort of lower vol equity proxy and it just so happens it isn't working out that well on this go around, ok, that happens, no alternative can always work as investors would hope. Here is RPAR in 2021 vs the S&P 500, TYA was only around for the last three months of 2021.
I think RPAR could make the argument as a sort of equity proxy if it had been up, maybe 15% in 2021 but you might draw a different conclusion. Not all alts are equity-ish proxies, I'm just saying that if RPAR wanted to make that claim, it would have needed to be up quite a bit more than 3% in a 29% world.
The other day I mentioned risk parity making more sense if interest rates were high. Wherever you think interest rates are now, I assure you they are not high. I think we're a long way from high. We may never get to high, I don't know, but we are not there now.
There are some circumstance where risk parity will "work" but there may not be a lot of such circumstances. Whenever interests fall meaningfully, regardless of the starting point, I'm sure TYA will be a moonshot. Just as managed futures is having a glorious run lately, I'm sure there will come a time when risk parity does the same, so I will continue to watch and learn.
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