Month: March 2023

Every market period has a distinct bogeyman for when a trade doesn’t go your way. As we recently noted, “8 years ago, every most hated rally was “explained” with HFTs; 4 years ago it was gamma. Now it’s 0DTE.”

8 years every most hated rally was “explained” with HFTs; 4 years ago it was gamma. Now it’s 0DTE

— zerohedge (@zerohedge) February 5, 2023

Having previously discussed the issue of zero-day-to-expire options (we profiled 0DTE first in late 2022 in “What’s Behind The Explosion In 0DTE Option Trading“, and more recently here “Why 0DTE Is So Important, And Why The VIX Is Now Meaningless“), the face of this new fear has recently been JPMorgan’s Marko Kolanovic who warned that these ultra-short-term options could lead to ‘Volmaggedon 2.0’.

As we noted here, however, Bank of America’s derivatives gurus were quick to dismiss this fearmongering, who explained that “a closer study of intraday trade-level data suggests reality is more nuanced” than that laid out by Kolanovic.

Specifically, the performance of intraday momentum strategies has stabilized in recent months, a development that the team attributed to an increase in options selling.

In other words, the market is not the one-sided monolith that will set the stage for an incident such as the rout in February 2018. 

“The 0DTE space has likely absorbed the initial demand impulse but has also drawn in more sellers,” BofA strategists wrote.

However, these contracts, with shelf lives shorter than 24 hours, have exploded since mid-2022 to as much as 50% of trading volume, at times causing derivatives to amplify moves in underlying assets.

As Bloomberg reports, that’s unquestionably made the task of figuring out the market’s collective thinking on the economy an especially futile exercise of late.

In a study by JPMorgan Chase & Co. in November, strategists including Peng Cheng found that the market impact from those trades can vary from a drag of as much as 0.6% to a boost of up to 1.1%.

“These big swings like yesterday were a great example,” Jim Bianco, founder of Bianco Research, said in an interview on Bloomberg TV.

“We have to be ready for this idea that, ‘hey, look, the market’s up 1%. What does it mean? Wait an hour, it’s now down on the day. Wait an hour, it’s back up on the day.’ That’s where I think that the 0DTE options are really starting to play. It’s the market that’s confusing a lot of people.”

Despite all this concern, history shows the merit of owning 0DTE “lottery tickets” despite paying inflated vols…

Incidentally, it’s the lottery ticket aspect of 0DTE why, as we first revealed last week, 87% of all same-day options traded one Tuesday of last week finished at zero point zero value.

• 83% of 1 day calls expired at a zero (585k was total volume)

• 91% of 1 day puts expired at a zero (620k was total volume)

BofA concludes by noting that while 0DTE options could – in theory – be “weaponized” in the future to exacerbate intraday fragility and/or mean reversion, “thus far the evidence presented above suggests that SPX 0DTE option positioning is more balanced/complex than a market that is simply one-way short tails.”

Translation: those waiting for 0DTE to spark the next market crash may want to not hold their breath.

But fear remains, as Bloomberg points out that getting a handle on what the craze may mean is complicated by the enormous volume of the options marketplace, the short lifespans of these trades and uncertainty about just who is using them.

“When you get big disruptions like that, you always get people that say, ‘you know, you got to watch out because you’re going to create a big problem,’” said Malcolm Polley, president and chief investment officer at Stewart Capital Advisors LLC.

“I don’t think they really fully understand because we’ve never really seen this phenomenon before.”

But, Brent Kochuba, founder of SpotGamma, does fully understand this ‘new phenomenon’.

His view is simple – the explosive rise of 0DTE options has actually acted as a positive market force.

He conducted a study on the impact of the activity via a measure known as delta, or the theoretical value of stock required for market makers to hedge the directional exposure resulting from options transactions.

From the start of 2022 to mid-February this year, positive 0DTE delta was tied to market rallies, a sign that short-dated calls were mainly being used to place wagers on stock rebounds.

“0DTE does not seem to be associated with betting on a large downside movement. Large downside market volatility appears to be driven by larger, longer dated S&P volume,” Kochuba said.

“Where 0DTE is currently most impactful is where it seems 0DTE calls are being used to ‘buy the dips’ after large declines. In a way this suppresses volatility.” 

In fact, 0DTE appears to have lowered differences between intraday volatility and close-to-close volatility…

George Patterson, chief investment officer at PGIM Quantitative Solutions, got a whiff of that retail urge recently when some friends’ teenage kids asked him questions about 0DTE options.

“0DTE options trades are yet another fad for retail investors, who view these as lottery tickets,” Patterson said.

There is one other aspect of the market that 0DTE options have impacted. The recent decoupling of VIX from the equity underlying has some market participants questioning the value of the ‘Fear Index’ given that so much of the options volume is now missing from the index calculation (which is based on only S&P 500 options expiring 23 to 37 days).

Although a look at short-dated VIX (9d – so still notably beyond the 0DTE expirations) suggests little systemic difference…

Nevertheless, as Nomura cross-asset strategist Charlie McElligott, the less controversial issue is that 0DTE options add yet another layer of noise to intraday markets, noting that “US equities are such an untradable mess right now,” as the battle between bulls eying a “no landing” and bears warning over “higher for longer” rates pushes more and more into short-dated, highly-levered trend-following ‘lottery tickets’ via 0DTE.

Authored by Bruce WIlds via Advancing Time blog,

Mortgage rates have doubled over the past year and this has hit housing affordability hard. How much housing prices will retrench is still up in the air. Consider the whole premise housing prices in America are about to fall like a stone may be overdone. Hard economic times could very well take a greater toll on the price of intangible assets and paper promises than on things like housing.  

Whether a person is better off renting or buying is often directly linked to rental rates that are related to cost. Feeding into what a landlord charges are things such as taxes, insurance, maintenance, utilities, and a slew of fees. If landlords cannot make money, they exit the business and the number of housing rental units is reduced. This puts a bottom under the market and/or drives rents higher. Yes, a lot of new rental units are coming online but how easy will it be to rapidly fill them with good tenants? Simply filling a unit at a huge discount or with tenants that want a new unit but fail to pay or tear the hell out of it does not work. 

What many renters fail to consider is that landlords have far more to risk than tenants. It is the kiss of death to lower your standards just to fill units up. Doing so simply destroys a property’s reputation while creating a slew of evictions, costly turnover, and an explosion in maintenance costs. Adding to this ugly path forward is the fact our costly legal system has lost its teeth when it comes to collecting on small claim judgments.

Much of the problems we see in housing stem from a lack of starter homes and new small houses at a reasonable cost. Several reasons exist for this situation. First and foremost is that builders and realtors like bigger more exotic homes because that is where the money is. Another factor is zoning, this includes tightening rules and restrictions in plotted additions. These are often intended to keep standards and values high. People are seldom excited to see less expensive homes being built in their area. 

Millennials Have Been Locked Out Of Buying Because Of Affordability 

The cost of shelter has skyrocketed and the face of housing ownership is changing.

Over the last several decades starter homes have become a thing of the past. This has created a shortage of low-cost housing that will put a floor under housing prices. The areas where housing will drop the most are areas where prices have increased the most with the bigger most expensive houses taking the brunt of the hit. This is partly because they cost more to maintain and are more heavily taxed.

Low-Interest Rates Have Pushed Prices Higher

The decision of the Fed to buy mortgage-backed securities years ago added to soaring prices and the mess we face today. Buyers are out there, many are speculators and inflation believers, these buyers are circling each new listing like hungry sharks. They are driven by the idea interest rates will soon fall and they will be able to refinance. If rates drop prices are likely to soar again. This could put a strong floor under most of the housing market. 

One problem causing an issue for those looking at the low end of this market is that lenders have little interest in making small dollar loans because they are less profitable. This means these properties are often picked up by cash buyers. Many of these now go to big players that at times may buy without looking at the property but simply have it inspected by a company that sends them a report. Others are sold on contracts that often give the buyer little protection. 

As stated many times in previous articles here at AdvancingTime, it could be argued the government holds huge responsible for many of America’s housing problems. Our government makes the rules by which builders and landlords must play. This includes some of the factors I have moaned about in the past, a big one is that roughly 80% of new apartment construction has been for the high-end luxury market. 

The government has its finger prints all over the housing sector and also causes problems for renters. This is because its policies avoid dealing with the growing number of tenants that are irresponsible. In short, Government housing cherry-picks the best of the low-income renters providing them with very low rents and nice apartments while dumping the worst of these renters on the private sector. This makes housing more expensive for the rest of the population.

The number of units being built during inflationary times with higher interest rates also plays into this market. Who buys homes greatly depends on who can afford them and how these buyers envision the future unfolding. In short, if buyers think prices will continue to rise this is very supportive of higher prices.  

And then, there is the decision of the Fed to buy mortgage-backed securities years ago, this has added to soaring prices and the mess we face today. Following 2008, big money from Wall Street got behind a move to have Fanny Mae and other big lenders bundle foreclosed properties. Selling them in packages eliminated and locked out small concerns and individuals from participating in buying. In recent years, a small but mighty group of corporations have purchased hundreds of thousands of homes. 

These Wall Street funded corporations are just one of the forces shutting people out of the home-buying market and locking them into being perpetual renters. When it comes to financing, short of some government giveaways to certain segments of the population, Wall Street has a huge advantage over individuals. This is why even though managing the renting of individual houses is challenging, Wall Street may not retreat from the task. It is important to remember this is about the real rate of inflation.

Not only have institutional buyers with deep pockets hijacked some markets by buying whole neighborhoods but the market is changing in other ways. The U.S. housing market has become a speculative investment and now homebuyers are competing with I-Buyers that have lots of low-cost capital. An I Buyer is an “Instant Buyer” in the real estate industry who uses data-driven online home value assessment tools to determine what your house is worth and then makes you an offer.

Returning to the subject of inflation and the benefits of buying tangible assets as a way to protect ones buying power, as it becomes more obvious inflation is only going to get worse, those that can afford to buy houses will continue to do so even at higher prices. The point is, we should not be surprised if housing prices prove far more resilient in a slowing economy than many experts think. In an inflationary environment, these houses fall into the category of a tangible asset capable of earning a positive return. Few investments meet this criteria and those that do will be in strong demand. 

Note, housing prices are much higher in many parts of the world. One thing for certain, it will be interesting to see what happens next. Before you just assume housing prices are going far lower consider who will be buying those units that come available. All of what you have read above feeds into why those homeowners that have a low-interest rate mortgage may not be in a hurry to sell their home if they are not in distress. Expect how people handle their investments in the future to play a huge factor in future housing values.

Authored by ‘BTCCasey’ via BitcoinMagazine.com,

The Treasury’s statements explore the potential forms and implementations of an American CBDC…

The U.S. Department of the Treasury has released comments from Undersecretary for Domestic Finance Nellie Liang on the “Next Steps to the Future of Money and Payments,” addressing CBDCs and the approach the American government is taking to their potential implementation.

The original Treasury report released in September 2022 described the formation of a CBDC working group that would advance work on a CBDC. Liang’s remarks confirmed the formation of that group.

“One of the central tasks for the CBDC Working Group is to complement the Fed’s work by considering the implications of a U.S. CBDC for policy objectives for which a broader Administration perspective is helpful,” Liang said.

“To give you a sense of how we are pursuing this work, I will describe our approach to thinking about CBDC options, the policy questions we are attempting to answer, and the kinds of recommendations we hope to develop.”

Highlights from this description include a look at the potential forms that a CBDC could take, the potential for a separate retail and wholesale CBDC and the possible core features of the CBDC.

Also discussed is the idea that a “potential U.S. CBDC, if one were created, would best serve the United States by being ‘intermediated,’ meaning that the private sector would offer accounts or digital wallets to facilitate the management of CBDC holdings and payments. In terms of technology, a retail CBDC might involve a different architecture compared to a CBDC that is intended solely for wholesale use.”

In his piece for Bitcoin Magazine, Mark Goodwin described how Bitcoiners may have “spent so much time looking for CBDCs, we missed the private-entity stablecoin monster right in front of our eyes.”

The Treasury’s released remarks suggest that a CBDC may well come on the backs of private entities, with major incentives to participate. The United States has gotten serious in regards to its consideration of a CBDC. And all this just as legislation has been introduced by Republican lawmakers that would “prohibit the Federal Reserve from issuing a CBDC directly to anyone.”

Although this bill may not have much of a chance of passing, notable is the specific angle of preventing a Federal CBDC, potentially leaving free those “intermediated” by private parties.

The remarks also described how a CBDC is one of many directions for the government to take, another being real time payment systems. The Federal Reserve, according to Liang, “has indicated that it expects to launch the FedNow Service this year, which will be designed to allow for near-instantaneous retail payments on a 24x7x365 basis, using an existing form of central bank money (i.e., central bank reserves) as an interbank settlement asset.”

This would differ from a CBDC in that it would utilize an existing form of central bank money versus the new form a CBDC would introduce, in addition to a potential new set of payment rails.

Regardless of the path that the Treasury takes, new payment systems are seemingly on the horizon for the United States. 

Wagner Group is heavily involved in fighting to capture the eastern city of Bakhmut, and its head, Yevgeny Prigozhin, has said at this point the strategic city on Donetsk Oblast is “practically surrounded”. 

Prigozhin issued a video message to Ukrainian President Volodymyr Zelensky on Friday. Donned in military fatigues, he urged for the order be given for Ukrainian forces to retreat in order to save soldiers’ lives. “Units of the private military company Wagner have practically surrounded Bakhmut. Only one route (out) is left,” he said. “The pincers are closing.”

⚡️Wagner forces walking around Bakhmut this morning showing an RIA reporter the destroyed bridges.

They say that almost all the bridges in Bakhmut have been destroyed by Ukrainian forces. pic.twitter.com/WMlOhjY4mo

— War Monitor (@WarMonitors) March 3, 2023

Wagner has further claimed that the Ukrainians have destroyed the majority of bridges leading in and out of the city center.

Commenting on the aforementioned video by Wagner’s leader, Reuters describes another scene as follows:

The camera panned to show three captured Ukrainians – a grey-bearded older man and two boys – asking to be allowed to go home. From visible buildings, Reuters determined the footage was filmed in Paraskoviivka, a village 7 km (4.3 miles) north of the centre of Bakhmut.

As we reported earlier this week, Zelensky and his top aides have lately issued statements appearing to pave the way for a ‘strategic withdrawal’ – or in reality a retreat – as better-armed and numerically superior Russian forces have the city almost completely encircled.

Russian firepower has also been relentless and reportedly greater in supply with Volodymyr Nazarenko, a deputy commander in the National Guard of Ukraine, telling a public radio station in a fresh statement that fighting has been occurring “round the clock”.

“They take no account of their losses in trying to take the city by assault. The task of our forces in Bakhmut is to inflict as many losses on the enemy as possible. Every meter of Ukrainian land costs hundreds of lives to the enemy,” he said.

Kiev has used the devastating scenes out of Bakhmut to press its Western backers for more artillery shells and heavier weaponry immediately. “We need as much ammunition as possible. There are many more Russians here than we have ammunition to destroy them,” Nazarenko said.

In a Pentagon briefing Thursday, Air Force Brig. Gen. Pat Ryder told reporters the US is still seeing “intense fighting near Bakhmut.” 

⚡️Wagner force’s confirmed to be crossing the bakhmutka river pic.twitter.com/ugTfNPK3Ix

— War Monitor (@WarMonitors) March 3, 2023

“Russian forces and Wagner [Group] mercenaries continue to press their attacks around Bakhmut, and Ukrainian forces continue to hold the line,” Ryder said. “It remains a very fluid situation.”

But again, all signs are pointing to a likely retreat already being in progress. The below unverified footage was first published on Thursday…

⚡️Unconfirmed video reportedly showing a Ukrainian unit withdrawing from Bakhmut this morning. pic.twitter.com/2Irgf3Rp8P

— War Monitor (@WarMonitors) March 3, 2023

On Tuesday for the first time the Ukrainian presidency’s office began significantly shifting its rhetoric. “So far they’ve held the city, but if need be, they will strategically pull back because we’re not going to sacrifice all of our people just for nothing,” Zelensky aide Alexander Rodnyansky conceded earlier.

Since then, Zelensky has admitted the extreme difficulty of the situation, as he’s likely moment by moment mulling giving the order for withdrawal. The Kremlin will see in Bakhmut one of the single and most strategic victories of the war so far, and it will likely open up momentum and will be a key logistics hub for pacifying all of the Donbas.

And yet for now, Ukraine’s military is still sending signals it’s trying to hold out its positions…

Ukrainian Commander of Eastern Forces Col. Gen. Oleksandr Syrskyi visited troops in Bakhmut today, proving there’s still a road into the city. He said Russians increasing forces, including units of Wagner & regular army. “Intense fighting in and around the city.” via Land Forces pic.twitter.com/vbG7MTd83k

— Christopher Miller (@ChristopherJM) March 3, 2023

But without doubt the overwhelming momentum is in Moscow forces’ favor at this late stage.

Authored by Lance Roberts via RealInvestmentAdvice.com,

Gen Zers, according to a recent Magnify Money survey, are overly optimistic about being wealthy. In fact, according to the survey, they are THE most financially optimistic generation. To wit:

“Nearly three-quarters (72%) of Gen Zers believe they’ll become wealthy one day, making them the most financially optimistic generation.”

But, interestingly, that optimism, as noted by the firm’s executive editor, is “more than just youthful optimism.”

“We are surrounded by extremes of wealth and poverty, and I think younger folks naturally gravitate to the more positive extremes. What’s more, the concept of investing is so much more accessible today, and I know many Gen Zers believe they can harness the power of the market to build wealth.” – Ismat Mangla

Interestingly, Gen Zers are optimistic they can use the stock market to build wealth. Unfortunately, that hasn’t worked out well for the generations before them.

Since 1980, there have been three major bull market cycles. The first started in the mid-80s and culminated in the Dot.com bust at the turn of the century. The early 2000s saw the inflation of the “real estate” bubble heading into the 2008 “financial crisis.“ We live in the third “everything bubble” fueled by a decade-long push of monetary and fiscal interventions.

However, 80% of Americans are still not “wealthy after these three major bull markets.”

That is according to some of the most recentsurveys and Government statistics:

• 49% of adults ages 55 to 66 had no personal retirement savings in 2017, according to the U.S. Census Bureau’s Survey of Income and Program Participation (SIPP).

• The latest Federal Reserve Survey of Consumer Finances found that the median savings in Americans’ retirement accounts were $65,000.

• Less than half of those surveyed saved $100,000. Not enough to support a median retirement income of around $40,000 a year. 

• One in six say they have saved nothing. A third currently makes NO contributions. 

•  80% of people expected to see their living standards fall in retirement. 10% feared they wouldn’t be able to retire at all.

Will it be different for Gen Zers in the future? Unfortunately, it likely won’t be for the same reasons that using the stock market to build wealth didn’t work for the generations before them.

80% Of Americans Aren’t Wealthy

According to the Magnify survey, Gen Zers defined “being wealthy” by several measures:

Most surveyed define “wealthy” as living comfortably without concern about their finances. As shown below, that goal has eluded all but the top 20% of income earners.

While 72% of Gen Zers believe they will be wealthy, the net worth of the bottom 50% of Americans has remained relatively unchanged since 1990. While the middle 50-90% of Americans have seen an increase in net worth, it has not been enough to keep up with the “standard of living,” which, as discussed previously, continues to push Americans further into debt.

“The current gap between savings, income, and the cost of living is running at the highest annual deficit on record. It currently requires roughly $6,300 a year in additional debt to maintain the current standard of living. Either that or spending gets reduced which is the likely outcome as a recession becomes more visible.” – The One Chart To Ignore

Another Magnify Money survey supports this bit of analysis by showing that roughly 50% of working Americans live “paycheck-to-paycheck,” meaning they have no money left after expenses. While that was common among those making less than $35,000 annually (76%), 31% of those making more than $100,000 experienced the same.

The critical point is that it is hard to count on the stock market to build wealth when you don’t have excess savings with which to invest.

The Stock Market Won’t Make You Wealthy

Generation Z, born between 1992 and 2002, was between 5 and 16 years old during the financial crisis. Such is important because they have never truly experienced a “bear market.” Any advice they might have received from financial advisors suggesting caution, asset allocation, or risk management was repeatedly proven to underperform the market.

“Ha….Boomers just don’t get it.”

However, since they became old enough to open an investment account, they have only seen a “liquidity-driven” bull market that fostered a generation of “Buy The F***ing Dip “ers.

However, while the lack of savings was one of the key points in “The One Chart To Ignore,” the other key point, and why 80% of Americans didn’t build wealth, is that “markets don’t compound returns.“

“There is a significant difference between the AVERAGE and ACTUAL  returns received. As I showed previously, the impact of losses destroys the annualized ‘compounding’ effect of money. (The purple shaded area shows the “average” return of 7% annually. However, the differential between the promised and “actual return” is the return gap.)“

While 26% of Gen Zers think that investing in the stock market and 19% in Cryptocurrencies will be their ticket to financial wealth, a lot of financial history suggests this will not be the case.

While Gen Zers are very optimistic they will be wealthy in the future, a mountain of statistical and financial evidence argues to the contrary. Will some Gen Zers attain a high level of wealth? Absolutely. Roughly 10% of them. The remainder will likely follow the exact statistical breakdown of the generations before them.

The reasons for that disappointing outcome remain the same. If investing money worked as the mainstream media suggests, as noted above, then why, after three of the most significant bull markets in history, are 80% of Americans so woefully unprepared for retirement?

The crucial point to understand when investing money is this: the financial market will do one of two things to your financial future.

1. If you treat the financial markets as a tool to adjust your current savings for inflation over time, the markets will KEEP you wealthy. 

2. However, if you try and use the markets to MAKE you wealthy, the market will shift your capital to those in the first category.

Experience tends to be a brutal teacher, but it is only through experience that we learn how to build wealth successfully over the long term.

How Money Really Works

It isn’t just about investing money. There are also vital points about the money itself.

1. Your career provides your wealth.

You most likely will make far more money from your business or profession than from your investments. Only very rarely does someone make a large fortune from investments, and it is generally those that have a business investing wealth for others for a fee or participation. (This even includes Warren Buffett.)

Focus on your career, or business, as the generator of your wealth.

2. Save money. A lot of it.

“Live on less than you make and save the rest.” Such sounds simple enough but is exceedingly difficult in reality. Given that 80% of Americans have less than $500 in savings tells the real story. However, without savings, we can’t invest to grow our savings into future wealth.

3. The true goal of investing money is to adjust savings for inflation.

As investors we get swept up into the “casino” called the stock market. However, the true goal of investing is to ensure that our “savings” adjust for future purchasing power parity in the future. While $1 million sounds like a lot today, in 30-years it will be worth far less due to the impact of inflation. Our true goal of investing is NOT to beat some random benchmark index by taking on excess risk. Rather, our true benchmark is the rate of inflation.

4. Don’t assume you can replace your wealth.

The fact that you earned what you have doesn’t mean that you could earn it again if you lost it. Treat what you have as though you could never earn it again. Never, take chances with your wealth on the assumption that you could get it back.

5. Don’t use leverage.

When someone goes completely broke, it’s almost always because they used borrowed money. Using margin accounts, or mortgages (for other than your home), puts you at risk of being wiped out during a forced liquidation. If you handle all your investments on a cash basis, it’s virtually impossible to lose everything—no matter what might happen in the world—especially if you follow the other rules given here.

6. Whenever you’re in doubt, it is always better to err on the side of safety.

If you pass up an opportunity to increase your fortune, another one will be along soon enough. But if you lose your life savings just once, you might never get a chance to replace it. Always err on the side of caution. Always ask the question of what CAN go “wrong” rather than focusing on what you “HOPE” will go right.

Investing money in our future is not as simple as much of the media makes it seem. We all want to be able to under-save today for tomorrow’s needs by hoping the markets will make up the difference. Unfortunately, there is no magic trick to building wealth.

The process of saving diligently, investing conservatively, and managing expectations will build wealth over time.

It’s boring. But it works.

No matter your age, it’s not too late to start making better choices.

For the past several years, almost every weekend we have presented readers with the weekly note of unconventional market (and life) insights from One River Asset Management founder and CIO, Eric Peters, who among other things was not only one of the first institutional investors in bitcoin via One River Digital, but also managed to time his exit perfectly selling most of his holdings by the end of 2021, just as the crypto sector was peaking and generating a $1+ billion profit for his investors.

Well, today we learned that he has perfected the art of selling not just his asset holdings but his entire crypto fund: none other than the only credible crypto exchange left, Coinbase – reeling from a plunge in retail trading volume and flight of skittish retail capital – has purchased One River Digital Asset Management for an undisclosed amount.

Why? Because as Bloomberg’s Eric Shatzker notes, One River Digital has built a business to serve only the needs of long-term institutional clients such as pension funds, while avoiding fickle retail customers altogether: “That focus on long-term capital and money management over trading has left it less exposed to the kinds of wild swings in token prices and crypto exchange activity that others, including its new owner, are wrestling with now.”

“This is about wanting to bring more institutional capital into the world of crypto,” Greg Tusar, Coinbase’s head of institutional product who formerly headed up Goldman’s entire electronic trading platform, told BBG in an interview. “We expect to build — on the other side of this crypto winter — an awesome asset-management business.”

As we reported at the time, in late 2020 One River Digital emerged as one of the then-largest investors in Bitcoin. Alan Howard, the co-founder of Brevan Howard Asset Management, was an early backer, and a financing round in 2021 added Coinbase, Goldman Sachs and Liberty Mutual as investors. That deal valued One River Digital at $186 million.

One River Digital will be renamed to Coinbase Asset Management with Peters serving as its chief executive officer and chief investment officer, while deputy CIO Marcel Kasumovich, a veteran of Goldman, Merrill Lynch and Soros will continue in his role as well.

In a curious twist, Peters will retain his old hedge fund and continue as CEO and CIO of his Stamford, Connecticut-based hedge fund, One River Asset Management, which remains a separate firm. “Having a dual role gives me insight into the worlds of digital and traditional assets,” Peters said. “I’m betting on convergence between the two over the next decade.”

In a note sent to clients this morning (attached below) Peters described his relationship with Coinbase, starting with One River Asset Management’s first Bitcoin and Ether purchases in November 2020; by the end of 2021, he had mostly cashed out, generating more than $1 billion in profits for his clients and neatly sidestepping the crypto carnage that soon followed, including the collapse of the TerraUSD stablecoin and failures of Voyageur Digital Ltd., Celsius Network and FTX. As he evaluated the future for One River Digital, Peters concluded that building out asset management at one of the dominant players in the industry was simply too attractive (not to mention lucrative) to pass up.

“Did I want to compete with these guys or be in business together with them?” Peters said. “It was a pretty easy decision for me.” The negotiations began about a year ago and dragged on through the crypto wipeout that erased almost $1.5 trillion in token values in 2022. Coinbase was among the hardest hit, and with revenue and trading volume both plummeting in 2022, and the company reported a full-year loss of $2.63 billion.

What is also notable about the deal is that Coinbase – the largest US crypto exchange – already has several businesses dedicated to institutions, among them crypto custody, trading, staking and prime services, as well as a spot market for tokens and a derivatives exchange. However, many of these businesses have come under increased regulatory scrutiny. Coinbase Asset Management will be a separate division with appropriate controls and barriers to ensure client confidence and regulatory compliance, Tusar said.

In a recent tweet, Coinbase CEO Brian Armstrong – realizing that the fight with regulators is about to get firty – decided to turn activist, and urged his twitter followers “to advance pro-crypto policy in all 435 Congressional Districts across the U.S. Introducing #Crypto435, our campaign to grow the crypto advocacy community and share tools and resources to make your voice heard. Become an advocate today.”

1/ It’s time to advance pro-crypto policy in all 435 Congressional Districts across the U.S.

Introducing #Crypto435, our campaign to grow the crypto advocacy community and share tools and resources to make your voice heard.

Become an advocate today 👇 https://t.co/TPJhtoP9eC

— Coinbase (@coinbase) February 28, 2023

To that end, purchasing One River Digital may strike two birds with one acquisition stone: One of Peters’s early hires at One River Digital was recruiting Jay Clayton, former SEC chairman, as an adviser. It was Clayton who led the SEC crackdown that effectively killed the market for initial coin offerings, or ICOs. Clayton, who’s staying on through the sale together with other members of One River Digital’s advisory board, predicted there will be more consolidation as crypto matures.

“We’re going to see a lot more strategic combinations,” Clayton said in an interview. “Traditional financial players are starting to think about acquisitions of distributed ledger or blockchain companies, especially those that don’t have any legacy regulatory risk.”

Below is Eric Peters’ letter describing the Coinbase deal:

Coinbase acquires One River Digital

Hope all goes well. Wanted to share exciting news. Coinbase has acquired One River’s subsidiary, One River Digital Asset Management [here]. In November 2020, One River purchased cryptocurrency, making an investment in digital assets to express an emerging macro theme. We quickly realized the potential for blockchain technologies to replace antiquated infrastructure across the financial industry. It became evident that digital and traditional finance would likely converge in the coming decade. Shortly thereafter, we formed the subsidiary, One River Digital Asset Management, with the goal of building the industry’s leading institutional digital asset manager. Since then, we have created an extraordinary team and a suite of digital asset management products, some of them industry firsts. We also recognized that a few key pieces of infrastructure would be critical for the digital industry to scale and merge with traditional finance. We have been building these. Playing the long game, we concluded that by aligning ourselves with Coinbase, the clear industry leader, we could more fully realize our potential and deliver the greatest possible value to our clients and the industry. Coinbase and One River are both founder-led, innovative, entrepreneurial firms, and are culturally well-aligned. Following the acquisition, I will continue to lead both One River Asset Management (“ORAM”), which will remain independent, and Coinbase Asset Management (“CBAM”). I couldn’t be more thrilled with this outcome. 

That’s the short of it. For the longer story of how we arrived here, please read on… 

One River made its first investment in digital assets in November 2020 [here]. At the time, it was one of the largest institutional allocations to these assets in history and was driven and funded by one of our most prominent investors, a true iconoclast. Underlying the investment was a belief that bitcoin and ether represented highly convex expressions of a global macro investment theme that unfolded post-Covid: Monetary Debasement. We worked exclusively with Coinbase to execute and custody those investments [here]. It was extraordinary to complete such a massive trade without materially moving the market, all while maintaining complete confidentiality. I was left with a deep respect for the team and capabilities that Coinbase built. It was also one of the most exciting periods in my career. 

We quickly came to believe that blockchain technologies would replace the antiquated infrastructure across the financial industry. In that world, all assets would become tokenized, and enormous value would accrue to digital assets and the firms focused on this infrastructure in the decades ahead. In January 2021, I articulated my thoughts in The Case for Digital Assets [here]. As a highly opportunistic investor with an entrepreneurial team, our partnership decided to launch One River Digital Asset Management.

We needed deep regulatory expertise to realize our goal of building the leading institutional asset manager in this nascent field. I asked for an introduction to Jay Clayton shortly after he left the SEC in late December 2020. We met, and over the first few months of 2021, found common ground in the potential importance of the technology underlying digital assets to the financial services industry and U.S. national interests [here]. We believed that the technology gap between digital and traditional finance would be bridged, and that One River could contribute to a positive outcome. Jay worked with me to build a profoundly experienced and diverse Academic and Regulatory Advisory Council for One River Digital, including Jason Cummins, Courtney Simmons Elwood, Harold Ford Jr., Kevin Hassett, and Jon Orszag [here, here, and here]. The Council’s focus on the interests of investors, prudential considerations, and national security matters, all with a pragmatic perspective, has been and will continue to be invaluable. Jay will continue to chair the Council following the transition to Coinbase Asset Management.

We also knew we would need substantial working capital to achieve our ambitions, especially in such a volatile emerging asset class. In September 2021, Coinbase Ventures led a Series A investment round in One River Digital Asset Management that included participation from Goldman Sachs and Liberty Mutual Insurance [here]. This gave our firm years of working capital to achieve our ambitions. We grew our headcount at a modest pace, focusing on finding uniquely talented and passionate individuals that fit well into our culture. When the Fed embarked on one of the fastest tightening cycles in recent history in 2022, and digital asset markets along with most other long-duration assets came under severe pressure, we were thankfully well-prepared. 

The team we assembled has been building a suite of institutional digital asset management products throughout this period that now includes index, income, systematic trend-following, and credit. We had crystallized over $1 billion in gains from our early investments in bitcoin and ether and returned that capital to our investors by the end of 2021. Some of what we built were industry firsts like 365-day fund liquidity [here], a carbon-neutral bitcoin fund [here], and an institutional ether staking fund [here]. Our investment strategies delivered on their objectives through even the most severe dislocations during the 2022 market declines. I’ve spent my career focused on taking risks while carefully watching our flank. We avoided any exposure to Luna, 3 Arrows Capital, Celsius, Voyager, BlockFi, FTX, FTT, and other high-profile failures in the space. Our digital income fund received a return of 100% of its loan capital plus interest when others lost everything. Enormous credit is due to Marcel Kasumovich, our Deputy CIO, and the exceptional investment and operations team that we have assembled. 

But our team was not only focused on investments. We also recognized that a few key pieces of infrastructure would be critical for the digital industry to scale over time. The team’s dynamism shone by designing and building this infrastructure, with the severe market downturn the perfect environment to execute. The first project, initially announced last year [here], leverages Coinbase Prime technology and is kicking off a pilot program with a few select clients. I expect that nearly all of us will use this infrastructure in the next decade. If it is not ours that is used, then it will be a competitor’s; we intend to win this race, and our combination with Coinbase makes it a far more likely outcome.

Last year, we started discussing opportunities for further collaboration with Coinbase. They are the leader in this industry and, like us, have built their business with an eye toward playing the long game. Both firms have prioritized customer protection and recognized the importance of working with regulators to bring this asset class into the mainstream. With so much shared history and the formation of strong bonds of trust and mutual respect, I developed a strong conviction that we would more fully realize our ambitions as a pillar within Coinbase. Our equity partners, advisors, and employees strongly approved. 

Coinbase and I agreed that my highest value would be in continuing to straddle the traditional finance and digital finance worlds in a balanced manner. Few people have this vantage point, and thus few can glean the insights that come from such a unique role. I expect this will create substantial benefits for all our clients in the decade ahead. I will lead Coinbase Asset Management, working closely with my Deputy CIO, Marcel Kasumovich, and our amazing team. I will also continue to lead One River Asset Management, a firm I founded 10 years ago that is now fully independent of CBAM and manages $3 billion for institutional investors across the globe. Supporting me at One River will be my Deputy CIOs, Ryan McRandal and Stephen Prajna, and our extraordinary team. 

The decade ahead will be fascinating and exhilarating, and I am incredibly grateful for this opportunity. 

All the very best, 

Eric Peters
Chief Executive Officer & Chief Investment Officer

 

 

 

 

Authored by Paul Joseph Watson via Summit News,

During an interview with MSNBC, Vice President Kamala Harris’s husband Doug Emhoff spoke out against ‘toxic masculinity’ and the expectation that men have to be “tough”.

“Can we just talk about masculinity for a moment? Has being second gentleman changed your view of perceived gender roles and what it means to be a man?” Emhoff was asked by MSNBC’s Jonathan Capehart.

“This is something I have thought about a lot, I’ve spoken about a lot. There’s too much of toxicity — masculine toxicity out there, and we’ve kind of confused what it means to be a man, what it means to be masculine,” Emhoff responded.

“You’ve got this trope out there where you have to be tough, and angry, and lash out to be strong.”

Doug Emhoff, husband of Kamala Harris, joined the crowd by condemning ‘toxic masculinity.’

There’s no such thing as toxic masculinity, only toxic behavior. Toxicity is not gender specific. However, no one goes around talking about ‘toxic femininity.’ pic.twitter.com/d7tmBHa1iF

— Bishop Talbert Swan (@TalbertSwan) March 1, 2023

While Emhoff characterizes “masculine toxicity” as being “tough,” he seems to think that men can’t be “tough” without being “angry” and lashing out.

Indeed, references to ‘toxic masculinity’ innately suggest that natural masculinity itself is a negative trait that has to be socially engineered out of young men.

This of course has the impact of making young men feel ashamed of their own gender, immediately putting them on a guilt trip that diminishes their confidence.

When he was previously asked about the issue, the lawyer said, “Masculinity is loving your family, caring about your family and being there for your family and supporting them each and every way.”

Someone who has been indoctrinated by society and hysteria over ‘toxic masculinity’ to be overly emotive, emotionally brittle and generally weak-minded will only find it harder to love and care for their family because they will be infinitely more self-absorbed and will lack strength of character.

This message doesn’t appear to have reached those who constantly drone on about ‘toxic masculinity’, as they constantly denigrate normal male behavior as something dangerous that must be brainwashed out of young men.

Far from being an example of ‘toxic masculinity’, being “tough” is an absolutely necessity for men to get through the hardships that life brings.

One could go further and argue that from time to time it is also vitally important for men to get “angry” in order to ward off threats to their family.

How on earth can you love and support your family if you’re not prepared to be “tough” and sometimes get “angry” to defend and protect their interests?

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