#178: I have a Blockage

S2N Spotlight

Don’t worry, it is not the type of blockage you are probably thinking about. It is a mental blockage.

I have been making excellent progress with the development of an automated strategy I have been working on; before I knew it, the day had largely past. I had a few ideas that I wanted to test and write about. As I put each idea through a test, I came away with results that didn’t provide any signals, only noise, so I decided to just skip today’s analysis instead of writing for the sake of writing.

S2N Observations

I came across an unverified statement that it costs nearly $2 billion a month to run the Bitcoin ecosystem. The electricity, hardware, and running costs to produce Bitcoins and verify the transactions through the ledger are bloody expensive. I was wondering what about the economics of this $1.7 trillion new asset class? Do the numbers stack up?

As of November 2024, approximately 19.7 million bitcoins have been mined out of the maximum supply of 21 million. The remaining 1.3 million Bitcoins are expected to be mined gradually over the coming decades, with the final Bitcoin anticipated to be mined around the year 2140.

The obvious question is, once all the bitcoins are mined and the only incentive for miners is the transaction fee, why not reduce the complexity of the puzzle for the Proof of Work (PoW). There are a number of reasons why this is not built into the protocol as far as I am aware. The most obvious is exposure to malicious hackers.

I really didn’t expect to write what I just did; it just came out. I think this means that the system is highly dependent on a rising Bitcoin price. I am not an expert on blockchains, but that is my quick and dirty thoughts. Maybe the title of todays letter should have been a mild blockage. 😎

It has taken believers in Michael Saylor’s vision for MicroStrategy 24 years to break even from their investment in 2000. That is if they stayed the course. Not sure there are too many. Will it take investors today another 24 years to break even from these levels?

It turns out I have a little more to say. The equity risk premium has now gone negative. Yes, that means what you think. We are paying the market for the privilege of taking risk. Let that one sink in for a bit.

A final thought as the blockage unblocks. I am seeing a very smirkish smile from the Fed Fund futures. Traders in this instrument experience more whipsaws than a slave in ancient Rome. I will be very surprised if this chart’s right slope doesn’t climb higher much sooner than is currently being priced.