Patrick McKenzie: belief

Transcript context

…Crypto questions. Why hasn’t Tether collapsed yet? We’ve run at it many times. Not too long ago, I think the price fell even to $93, which is dangerously low. It bounced back. It seems they could always redeem. What if it isn’t a fraud? I pre-commit that if it is not a fraud, I should have enormous egg on my face. On the other hand, there exists sufficient evidence on the public record in the CFTC case and et cetera that, at times in the past, it has been an out-and-out fraud that had essentially no backing, and that they had done forensic accounting on it. Their examination period was about 18 months and said that it was less than backed in more than 75 days in the examination period. From one sense, I can claim victory. It’s a fraud. I was saying it was a fraud before it was cool. The government now acknowledges that they did funny things at some point in the past. But I think it should also collapse. It is not just a tinkering-around-the-margins fraud. There is a huge amount of actual criminal activity there. One sort of naive answer is, do we expect frauds to collapse quickly? Probably, no. Madoff was active for 17 or 18 years, and the only thing that actually brought his fraud to light — well, various cognoscenti knew about it — the thing that made it undeniable was being unable to meet redemption requests in the wake of the global financial crisis. Madoff, importantly, did not cause the global financial crisis. Of all the crimes in the world, he was innocent of that one. But people said, “Bernie, you have all this money for me. You alone among all the people I invest my money with have avoided this crisis, which is great because now I need money. Can you wire it to me?” He did not have the money to wire, and that’s how his crimes came to light. To a certain extent, it not collapsing is like . . . the thing that we expect to happen everyday until it collapses catastrophically. The thing that we would expect the collapse to happen with — my dominant narrative — is some form of government action against their reserves that were custodied in some financial institution in New York, followed by the public disclosure of that action, which might not be a total freezing, but enough to start the domino, and then a classic run on the bank, and then the pipes get overwhelmed, yada, yada, yada, and price goes down substantially below $93. In a famous interview on Bloomberg, Tether’s character witness — one Sam Bankman-Fried — said that he believes that it is astoundingly unlikely that Tether is worth, in a true sense, $30, but you could quibble as to whether it’s worth 99 cents or a dollar and a penny. I think there is a material chance it is truly worth something like $30, potentially negative after you add government fines and other actions that happen. I continue to expect that to happen. Circa late October 2023, Bitcoin is priced as high as $33,000. Why is that? Surely it’s good for many things, then, right? It’s been through a lot of price knocks. It’s not a bubble in the sense that no one has ever asked why is the price so high. It’s been crushed — what — five, six times since its origin, and it keeps on coming back. Is it a proven asset class?…

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