Ty

Ty Shinn, CFA. CIO @amphibiancap & @HylaFunds. Co Founder @_perceptive. Prev. Portfolio Manager @GoldmanSachs

[Ty @tyshinn]

Bad day to be a $USD.

[Ty @tyshinn]

@SplitCapital Congrats Z - good things ahead!

[Mike Selig @ChairmanSelig]

As America cements its position as the crypto capital of the world, clear rules of the road for software developers are critical. Today’s staff no-action letter delivers long overdue clarity for non-custodial digital wallet software providers.

[Ty @tyshinn]

Nice idea but Muni CDS is basically non-existent. Super thin and usually bespoke contracts. Minnesota GO is AAA-rated. Muni CDS doesn’t function like Corporate IG/HY CDS.

[Chamath Palihapitiya @chamath]

I think this is the most asymmetric upside bet in the market now. Position yourself smartly and you can make 10-1000x with relative ease.

How?

Even if politicians try to bury the fraud, the bond market can’t ignore it. Their math will show that even if the fraud is only 10% of total state and municipal budgets, it’s already way too much and should go to paying back debt holders.

Right now spreads don’t reflect this and are too tight - ie look at California Credit Default Swaps - it doesn’t reflect any fraud, budget shortfalls or the billionaire exodus.

There is little chance these spreads don’t move as the bond market comes back to work and processes the events of the last few days.

Now, if instead of 10% fraud, they believe that fraud is 20-30% of all tax dollars, the cost of borrowing will escalate sharply until federal, state and local governments are forced to act.

This is when the CDS trade becomes the most asymmetric profit opportunity of our lifetime.

Buy the CDS -> wait for politicians to try and bury it -> ie in California -> see the bond market increase borrowing costs -> see the CDS blow out -> asymmetric bet pays off.

The takeaway here is that the bond market lives in an alternative and adjacent universe from the politicians and media. The latter group can try to bury an issue but when the former group is asked to fund it, a reckoning happens and the former group always wins.

[Ty @tyshinn]

@cryptopunk7213

[LondonCryptoClub @LDNCryptoClub]

Don’t get too involved in FX these days (because it’s boring) but seeing all the calls for lower USDJPY on account of the BoJ

The driver for lower USDJPY most likely comes from the Fed rate cutting cycle driving broader dollar weakness plus the cheaper costs of hedging incentivising Japanese lifer and pension funds to increase hedge ratios

THERE WILL BE NO JPY CARRY TRADE UNWIND

The big Japanese investors won’t materially adjust portfolios, just adjust fx hedges

However, be inclined to fade lower USDJPY on account of the BoJ hiking

The BoJ are in an impossible situation and every hike which pressures the bond market raises the chances of the BoJ simultaneously needing to step up purchases of JGB’s to “smooth” bond volatility

Furthermore, Japan have pi5sed China off with the naive comments from the new PM on defending Taiwan

China will weaponise JGB’s as a result, selling them in the way they sold UST’s after Pelosi crossed a red line by going to Taiwan

Either way, BoJ hikes are coming for the “wrong” reasons as they’re battling stagflation (largely as a result of spiralling rice prices)

Certainly, this toxic mix is not going to encourage a large repatriation trade

In fact, more likely to encourage flows the other way and greater exposure to US assets

USDJPY then we think will continue to go higher and think we see USDJPY at 200 over the next year

The BoJ will have to sacrifice the currency to save the bond market

That will trigger flows INTO US assets, not out of them

Rather than get involved in FX, still think you stay long Nasdaq and of course Bitcoin

The big “carry unwind” the usual macro bears call for is not only not going to happen, but the domestic flows from Japan into foreign (particularly US) assets are likely to accelerate

[Ty @tyshinn]

Great article deconstructing the Poverty Line and the real cost of participation in American Society, along with impacts to the American Deal and its effects on the electorate: https://t.co/Yc9oaeX4Ea

[Ty @tyshinn]

Fantastic convo between @RyanSAdams & @crossbordercap on latest @Bankless pod

[Ty @tyshinn]

@KSimback Güd post

[Kevin Simback 🍷 @KSimback]

Is this time different?

Let’s explore the 3 most recent analogs for when the Fed stimulated into similar macro conditions (1984, 1989, and 2007)

In all 3 prior periods we had a setup of Fed reducing rates into:

-stock markets around ATHs
-gold around ATH
-growth was positive
-inflation higher than target

In 1984 and 1989 after the Fed began stimulating we saw a melt up on the stock markets (+52% and +25% respectively on the S&P after 24 months) while gold mostly moderated after a big run up preceding the Fed stimulus

2007 was the outlier with a stock market meltdown (-27% in the S&P 24 months later) while gold surged 43%

Anyone who’s watched The Big Short knows why 2007 was different, and I acutely remember it as a consultant working on Goldman’s risk team in 07-08

The massive US housing bubble and associated intertwined leverage in the system made that time unique

But this time we have arguments for an AI infra bubble that is showing signs of intertwined leverage 🤔

So the key question is - do we go the path of 84/89 and enjoy a melt up, or do we go the way of 07 and suffer a melt down?

That all depends on whether we enter a credit crisis, so all eyes need to be on the early warning signs

I don’t think the recent commotion in the repo markets is the canary in the coal mine, at least not yet, and broader credit markets still look pretty good

So for the time being, I’m leaning more towards a melt up, and what we should be paying attention to are real interest rates

If real rates compress as bank reserves expand, that should provide the fuel for the melt up scenario and I expect crypto to follow (BTC and some tagalong from majors and select alts, but not all your shitcoins - sorry no alt szn is coming)

TLDR; too early to tell if we do a melt up or melt down so pay attention to credit market weakness and real rates for early signals but for now the melt up is the highest probable outcome imo

[Ty @tyshinn]

@KSimback @BullpenFi @0xikalgo Boy do I have some trade ideas for you…now with hindsight 20/20.

[The Giver (Plumber) @lazyvillager1]

I say this as someone who was speaking nearly every day with Kevin at some point on LUNA falling, and works in distressed

Zero. That is the chance you get an “unwind.” These vehicles can run to 0.1x mNAV and there is nothing shareholders can do anything about it. At a significant enough discount a competing business can offer to buy the treasury out. In fact the very LPs that contributed to the PIPE may do that. You could get a big sell off in the actual equities themselves. But that contagion doesn’t necessarily spread to the underlying assets bc there is no forced estate sale from a liability management POV.

The more realistic scenario is that these vehicles just stop doing anything, and equity is held captive like a GBTC situation

If you are hoping for a contagion style blow up in the underlying reserve asset - you will likely be waiting a while. SBET has been below 1.0x NAV for under a month now. You would think they would stop pressing the ATM then right to maintain equity value? WRONG. They continue to press

[matthew sigel, recovering CFA @matthew_sigel]

ETH is starting to trade more like BTC: Citi data here show its beta to ETF flows is accelerating.

[Ty @tyshinn]

@cryptopunk7213 🙏🏼🙏🏼 always down to discuss these DAT peculiarities!

[Ty @tyshinn]

There is a big difference between a DAT financing their growth with Equity or with Debt.

To me, the key thing to focus on is debt service; Can the company cover their periodic (quarterly, semi-annual, yearly) interest payments (or none if bonds are 0%) and repay debt principal at maturity? Does the company have cash revenue from legacy business to cover periodic interest payments, or are they earning revenue elsewhere (eg staking rewards) that can be repurposed to service debt?

Equity investors can go to zero. They cannot force a company into selling assets. Bondholders can during receivership. Equity shareholders can try to influence that decision, but public float of common shares may not hold governance voting supremacy.

Selling tsy assets when mNAV is <1 and buying back shares in open market is value accretive to all existing/remaining shareholders. It is the prudent thing to do when the discount is wide enough (eg mNAV 0.80x).

Aside from public market ops, the DAT could issue a Tender Offer, to take shareholders out at a premium to current share price. They’d accomplish by selling tsy assets, buying back shares from participating shareholders at a premium to the share price, but presumably still at a discounted mNAV (eg Tender Offer at share price equivalent of 0.90x mNAV).

Share buybacks are more value accretive than a tender, as the company and shareholders capture the entire discount, as opposed to giving some/all of it up in a Tender offer (eg DAT sells tsy assets at 1, buys back shares in open market at mNAV 0.80, captures the spread).

In theory, a DAT could go so far as to wind up the entire business, file with regulators, and liquidate all tsy assets, and repay all shareholders at a premium to the last market price. But I think unlikely since operators are self-interested and wouldn’t shut down their business when they see a logical path to recovery.

Yes, liquidating any tsy assets puts downward pressure on the asset’s price, but the company would likely execute sales in stages, letting the market re-rate their mNAV higher after each sale after accounting for new shareholder value created (additional assets per share since shares were trading as a discount).

You rightly pointed out that MSTR’s mNAV traded down to 0.5x. That was a screaming-good buying opportunity. Effectively every investor got $2 worth of BTC for every $1 invested into MSTR. I doubt we see BTC on sale like that again now that many market participants have woken up to how the trade works. Remember that discounts for DATs are not the same as for GBTC, et al. A DAT can take active market maneuavers to close and benefit from the discounted share price, whereas GBTC could not. DAT liquidity is also superior vs assets held in trust for GBTC et al.

Again my major concern is whether or not the DATs can cover their debt service (periodic interest payments and principal repayment). If they are only or primarily financing growth via Equity (not Debt) then they will *never* be "forced sellers". Regardless of their mNAV being at a discount. Thats just a great buyback opportunity for them.

Right now, most companies have healthy coverage ratios (debt service coverage ratio, interest expense coverage ratios, or basic asset coverage ratios). The $ value of the assets would need to fall precipitously for most, and remain down until interest & maturity expenses come due, before the company would need to liquidate treasury assets to service their debt. And that’s only if the DATs were incapable of “kicking the can down the road” by refinancing, extending or rolling their debt. Happens all the time in fixed income markets. I wouldn’t hold my breath waiting for that cascading liquidation.

Risks still worth monitoring: ballooning debt service, risky yield strategies (eg on chain degen) that may suffer an exploit/slashing event, etc. and results in DAT losing assets and cooresponding Asset Coverage Ratio to declining meaningfully.

[Ty @tyshinn]

To me these treasury cos sit somewhere between trust products like GBTC and Mining companies, but structurally distinct. The trusts couldn’t pursue financial ops/treasury actions to increase units per share (staking, capital markets maneuvers, etc.), mining cos can do capex financing but had more significant costs and went thru a period of M&A where stonger teams consumed weaker rivals, eg in ‘22. In the end the treasury cos have valuation optionality like the trusts, with the capital structure/flexibility and M&A potential of the miners.

[Ty @tyshinn]

@will__price Complete the call back or risk financial ruin

[Ty @tyshinn]

Finally - and done the right way. The team behind WCM are some of the most talented, upstanding people I’ve ever encountered. Psyched for the success this project is about to have.

[World Markets @worldmarketsinc]

DeFi still can’t deliver on its most obvious trade: Leveraged Basis Trade.

Start with $10, borrow $90. Sell $50 ETH Perps. Buy $50 ETH Spot.

FREE MONEY, on Leverage.

Only possible on WCM: spot, perps, and lending.

All CLOBs. All cross-margined. Fully onchain. Fully audited. And fully deployed on MegaETH.

[Ty @tyshinn]

@dunleavy89 Huge congrats Tom!

[Ty @tyshinn]

Only solvent nations can truly be sovereign nations.

[Ty @tyshinn]

@andy8052