Summary
Juggernaut Spend Agenda is a phrase coined by Business Owners Charter, Inc. for recurring deficit spending threatening systemic risk. That Bitcoin is up and coming since the launch of 10 spot Bitcoin Exchange Traded Funds (ETF’s) is undeniable. Boc Portfolio Newsletter believes the greatest systemic risk is disintermediation risk, or collapse of the US Money System from a Juggernaut Spend Agenda. None of the 10 spot Bitcoin ETF’s would ever be back stopped by any government with its own collapsing money system. Substantially all disintermediation risk is born by the client in the client’s brokerage account. For this reason, Boc Portfolio Newsletter Methodology Director recommends self custody.
According to Bloomberg on 1/18/2024: “After years and years of drama, the US Securities and Exchange Commission finally let 10 spot Bitcoin exchange-traded funds (ETF’s) begin trading last week. The launches have been wildly successful. On this Bloomberg Podcast episode (and Apple Podcast), Eric and Joel along with James Seyffart, ETF analyst with Bloomberg Intelligence, open up the mailbag to answer all your most pressing questions.”
In the Bloomberg Podcast Episode commencing at 6:34 and ending at 7:00, Eric Balchunas states: “If you are a hardcore crypto person and you believe Bitcoin is literally a currency and Bitcoin is there for when the system collapses, ‘No. This is not the same as direct ownership and you should buy it direct. Get your own Wallet.’”
From our 2023 Bitcoin a Special Report of BOC Portfolio Newsletter:
On 8/18/2023, units of time period 0, the US national debt of $32.7 trillion (“tn”), plus printed currency of $8 tn plus interest, results in a total of $42 tn that currently must be funded. For size comparison the amount of dollars in circulation in the world (M3) is $21 tn. If the $42 tn were paid off the amount of dollars in circulation would triple.
This directional only display is useful to understand directional outcomes in period 10, the US national debt of $109 tn, plus printed currency of $0 tn plus interest of $2 tn, results in a total of $111 tn that in period 10 must be funded. For size comparison the amount of dollars in circulation in the world (M3) is $21 tn. If the $111 tn were paid off the amount of dollars in circulation would rise to an alarming level 5 times greater at 531%.
If fiscal policy reversed to pay off US National Debt + Interest of $111 tn:
- a great recession may occur by consuming over 4 yrs of GDP at $26 tn/year
- a correlated collapse of all major asset classes may occur.
In the alternative
By Act of Congress, the currency could be revalued, old retired, and new declared. US National Debt would be paid off by printing more of the old currency. Starting over, the new currency would be issued like a reverse stock split 1 new for 5 old. Then the old currency would be retired. Worldwide everyone would give the old currency to the Fed for replacement. The Fed would destroy the old currency. A very messy process involving credit worthiness. A collapse of a money system is usually the result.
What other alternative could replace the old currency? Bitcoin self custody is pure scarcity. Only 21 million may be issued. Owning Bitcoin self custody may occur in stages.
Up and Coming
That Bitcoin is up and coming since the launch of 10 spot Bitcoin ETF’s is undeniable. Owning Bitcoin may occur in stages. Bitcoin is generally not considered suitable for conservative and moderate risk tolerance account profiles. For suitable risk tolerance account profiles, the first stage may be owning a Bitcoin ETF outright in an after tax brokerage account (Bitcoin ownership in a brokerage account is generally not practically available for IRA’s and retirement accounts.)
The second stage may be pluralistically adding Bitcoin self custody token amount just to set up trading capability. An open source multi signature routine may be used to do so. Multi sig means a safer procedure requiring for example 2 of 3 keys to move Bitcoin. (Bitcoin self custody is also generally not practically available for IRA’s and retirement accounts.)
The third stage stage may be pluralistically adding a small accumulation amount to existing Bitcoin self custody.
The fourth stage may be converting all Bitcoin ownership to self custody up to 10% of liquid assets of a suitable risk tolerance.
The largest ETF provider in the world is Ishares. The Ishares spot Bitcoin ETF uses an easy to remember stock symbol “IBIT.”
IBIT (Prospectus page 1 highlight) seeks to reflect generally the performance of the price of Bitcoin. A client’s account at a brokerage firm buys IBIT but never owns Bitcoin. The client’s account owns shares of a publicly traded entity. In a long and circuitous route only transactions may occur with conflicts of interest to which the client’s account agrees.
As an analogy, a sponge holds water. IBIT holds receipts for water. Bitcoin is the water. If you own Bitcoin self custody, you own the water. You own Bitcoin.
If you hold ETF receipts to Bitcoin, you can never get actual Bitcoin.
The receipts are based in US Dollars. If you sell IBIT at a profit, you get more US Dollars than cost. If you sell IBIT at a loss you get less US Dollars than cost. There the similarity ends. If you own Bitcoin self custody, you own Bitcoin.
Disintermediation Risk
Disintermediation Risk would occur if a currency collapsed. It is true that the IBIT spot Bitcoin ETF uses Coinbase as Custodian. The Custodian holds the keys. There is a saying “Not my keys, not my Bitcoin.” If you own Bitcoin self custody you get to choose in which currency you wish to transact, Japanese Yen, US Dollars, etc. You are not at any currency’s disintermediation risk from a Juggernaut Spend Agenda.
Conclusion
That Bitcoin is up and coming since the launch of 10 spot Bitcoin ETF’s is undeniable. Boc Portfolio Newsletter believes the greatest systemic risk is disintermediation risk, or collapse of the US Money System from a Juggernaut Spend Agenda. None of the 10 spot Bitcoin ETF’s would ever be back stopped by a government with its own collapsing money system. All disintermediation risk is borne in the client’s account by the client. For this reason, Boc Portfolio Newsletter Methodology Director recommends self custody.
Risks
A prospectus is meant to disclose risks to buyer. The IBIT Prospectus of this leading ETF Issuer is no different. Please read the entire IBIT Prospectus not just the following excerpts (in which the prospectus has been highlighted by page # for ease of reference):
THE PRIME EXECUTION AGENT AND THE TRADE CREDIT LENDER Page#83
The Prime Execution Agent
“The Prime Execution Agent Agreement provides that the Coinbase Entities may have actual or potential conflicts of interest in connection with providing the Prime Execution Agent Services including that (i) orders to buy or sell bitcoin may be routed to the Prime Execution Agent’s platform (“Coinbase Platform”) where such orders may be executed against other Coinbase customers or with Coinbase acting as principal, (ii) the beneficial identity of the purchaser or seller with respect to an order is unknown and therefore may inadvertently be another Coinbase customer, (iii) the Prime Execution Agent does not engage in front-running, but is aware of orders or imminent orders and may execute a trade for its own inventory (or the account of an affiliate) while in possession of that knowledge and (iv) Coinbase may act in a principal capacity with respect to certain orders (e.g., to fill residual order size when a portion of an order may be below the minimum size accepted by the Connected Trading Venues). As a result of these and other conflicts, when acting as principal, the Coinbase Entities may have an incentive to favor their own interests and the interests of their affiliates over the Trust’s interests and have in place certain policies and procedures that are designed to mitigate such conflicts. The Prime Execution Agent will maintain appropriate and effective arrangements to eliminate or manage conflicts of interest, including segregation of duties, information barriers and training. The Prime Execution Agent will notify the Trust of changes to its business that have a material adverse effect on the Prime Execution Agent’s ability to manage its conflicts of interest. The Coinbase Entities shall execute trades pursuant to such policies and procedures; provided that the Coinbase Entities (a) shall execute in a commercially reasonable amount of time (i) any marketable orders appropriately entered by the Trust and (ii) any other pending orders by the Trust received by the Coinbase Entities that become marketable, (b) for any order that the Prime Execution Agent receives from the Trust, the Prime Execution Agent will make commercially reasonable efforts to route orders for execution to the Connected Trading Venue offering the most favorable price for the Trust’s bitcoin sale orders, including consideration of any gas fees or similar fees related to a particular blockchain at the time that such orders are routed for execution, and (c) shall not knowingly enter into a transaction for the benefit of (x) the Coinbase Entities, or (y) any other client received after the Trust’s order, ahead of any order received from the Trust. For purposes of the foregoing, a marketable order is a sell order equivalent to or better than the best bid price on any Connected Trading Venue (or any venue that a Coinbase Entity may use) at a given moment. The Prime Execution Agent agrees to direct the Trust’s orders in a manner that does not systematically favor the Coinbase Platform or Connected Trading Venues that provide financial incentives to the Prime Execution Agent; provided, however, that under certain circumstances the Prime Execution Agent may choose to intentionally route to the Coinbase Platform due to temporary conditions affecting Connected Trading Venues (e.g. connectivity problems of the Connected Trading Venue or funding constraints).
The Trade Credit Lender Page#87
“The Sponsor does not intend to fund the Trading Balance at the Prime Execution Agent with sufficient bitcoin to pay fees and expenses and instead intends to utilize the Trade Financing Agreement for such fees and expenses. To avoid having to pre-fund purchases or sales of bitcoin in connection with cash creations and redemptions and sales of bitcoin to pay the Sponsor’s Fee and any other Trust expenses not assumed by the Sponsor, to the extent applicable, the Trust may borrow bitcoin or cash as Trade Credit from the Trade Credit Lender on a short-term basis. This allows the Trust to buy or sell bitcoin through the Prime Execution Agent in an amount that exceeds the cash or bitcoin credited to the Trust’s Trading Balance at the Prime Execution Agent at the time such order is submitted to the Prime Execution Agent, which is expected to facilitate the Trust’s ability to process cash creations and redemptions and pay the Sponsor’s Fee and any other Trust expenses not assumed by the Sponsor, to the extent applicable, in a timely manner by seeking to lock in the bitcoin price on the trade date for creations and redemptions or the payment date for payment of the Sponsor’s Fee or any other Trust Expenses not assumed by the Sponsor, rather than waiting for the funds associated with the creation to be transferred by the Cash Custodian to the Prime Execution Agent prior to purchasing the bitcoin or for the bitcoin held in the Vault Balance to be transferred to a Trading Balance prior to selling the bitcoin. The Trust is required by the terms of the Coinbase Credit Committed Trade Financing Agreement, which is part of the Prime Execution Agent Agreement, to repay any extension of Trade Credit by the Trade Credit Lender by 6:00 p.m. ET on the business day following the day that the Trade Credit was extended to the Trust. The Trade Credit Lender is only required to extend Trade Credits to the Trust to the extent such bitcoin or cash is actually available to the Trade Credit Lender. For example, if the Trade Credit Lender is unable to itself borrow bitcoin to lend to the Trust as a Trade Credit, or there is a material market disruption (as determined by the Trade Credit Lender in good faith and in its sole discretion), the Trade Credit Lender is not obligated to extend Trade Credits to the Trust. To secure the repayment of Trade Credits, the Trust has granted a first-priority lien to the Trade Credit Lender over the assets in its Trading Balance and Vault Balance. If the Trust fails to repay a Trade Credit within the required deadline, the Trade Credit Lender is permitted to take control of bitcoin or cash credited to the Trust’s Trading Balance and Vault Balance (though it is required to exhaust the Trading Balance prior to taking control of assets in the Vault Balance) and liquidate them to repay the outstanding Trade Credit. Trade Credits bear interest.
Resolution of Certain Conflicts Page#96
“The Trust Agreement provides that in the case of a conflict of interest between the Trustee, the Sponsor and their affiliates, on the one hand, and the holders of Shares, on the other, the Trustee and the Sponsor will use commercially reasonable efforts to resolve such conflict considering the relevant interests of each party (including their own interests) and related benefits and burdens, any customary or accepted industry practices, and any applicable generally accepted accounting practices or principles.
“The Trust Agreement provides that in the absence of bad faith by the Sponsor or Trustee, such a resolution will not constitute a breach of the Trust Agreement or any duty or obligation of the Sponsor or Trustee. Notwithstanding the foregoing, in no event will the Sponsor or the Trustee or their respective affiliates be required to divest themselves of, or restrict their services or other activities with respect to, any assets they currently or may hold, manage or control on their own behalf or on behalf of any customer, client or any other person.
Issues Relating to the Valuation of Assets Page#96
“The Sponsor will value the Trust’s assets in accordance with the valuation policies of the Sponsor; however, the manner in which the Sponsor exercises its discretion with respect to valuation decisions will impact the valuation of assets of the Trust. To the extent that fees are based on valuations, the exercise of discretion in valuation by the Sponsor will give rise to conflicts of interest including in connection with the calculation of Sponsor’s Fees. In addition, various divisions and units within BlackRock are required to value assets, including in connection with managing or advising other accounts for clients, such as registered and unregistered funds and owners of separately managed accounts (“Client Accounts”). These various divisions, units and affiliated entities may, but are under no obligation to, share information regarding valuation techniques and models or other information relevant to the valuation of a specific asset or category of assets. Regardless of whether or not the Sponsor has access to such information, to the extent the Sponsor values the assets held by the Trust, the Sponsor will value investments according to its valuation policies, and may value an identical asset differently than such other divisions, units or affiliated entities.
“The Sponsor reserves the right to utilize third-party vendors to perform certain functions, including valuation services, and these vendors may have interests and incentives that differ from those of Shareholders.”
End of Special Report
Our BOC Portfolio Newsletter Special Reports cover matters that superior investing returns may require. For example, a 2008 Special Report thesis stated: “With respect to the 2008 bailout) the money to fund $1.4tn (trillion) dollars won’t be there, much less $9tn to $16tn dollars. If the money isn’t there and the government still wants its stimulus, the government has no choice except to print currency.”
And as predicted the money really wasn’t there. Printing fiat currency to fund the bailout was present, and was given the name Quantitative Easing.
Whether you are an Outsourced Chief Investment Officer (OCIO), Registered Investment Advisor CEO, Franchise Owner, a provider of a separately managed account (SMA), or other type of Financial Professional, we are an investment methodology fiduciary to investment firms like yours serving all risk tolerances. Call Dan at 708-825-7301 or email Dan@BusinessOwnersCharter.com.
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