Keiser Report: Hedging Difficulty (E1387)



I am Max Keiser this is the Kaiser report are we entering an era the end of flagged money you know money with flags on it or the portrait of a potentate or royal person could be let's talk to Stacy I think you're and you're talking about the end of the nation-state currency the US dollar the euro the UM the ruble the durum the you know pay so all those nation-state currencies we're gonna talk about that because one of the things we have talked about over the years on Kaiser II for a trend we've noticed especially since the financial crisis is D globalization this happens all the time throughout history especially when an empire is falling we see a trend towards D globalization D globalization is a time also marked by the absence of trust people nations don't trust each other trading partners don't trust each other and of course Bitcoin and gold are the two trustless currencies out there so the first one we're going to talk about is the trade war going on between China everybody has said for years and years that Oh China is in control because they have 1.1 trillion dollars in US Treasuries and they'll dump them and you know this will hurt her harm the United States trade war may spur China to sell Treasuries as yuan tumbles the idea that China would dump its 1.1 trillion of Treasuries to retaliate against us tariffs is often dismissed as improbable it is seen as a nuclear option that would inflict more harm on China's economy than America yet the tensions rippling through global financial markets could still lead Beijing to reduce its stockpile in the fifteen point nine trillion Treasuries market not to retaliate but to defend its currency if it goes into a free fall the offshore yuan has slumped 2.6 percent this month to about six point nine two per US dollar as the trade standoff intensified well all these currencies are exiting a period when they were let's say post 1971 where it was a phrase I use often called infinite regress where the dollar is not backed by anything it's traded relative to other currencies that are not backed by anything and then those currencies in turn are backed by nothing and but it's a bit of a hologram a currency hologram that the central bank's according to Nomi Prins in her excellent book collusion all the central bank's collude to keep this floating Ponzi scheme going which is different than what we used to imagine the global economy working where countries were competing for export prowess and then trades would settle ultimately with a gold standard that was the way things were for a while then we went into this now all fiat money backed by nothing now we're entering a period where that Ponzi scheme can no longer exist it's run out of runway there's nothing more that these countries can do to boost exports they've already sacrificed their fiat money so the next thing they're gonna throw into the volcano of self-sacrifice would be their economies and that's why I can currently a couple of these countries are buying lots and lots of gold and preparing for this moment of ultimate Fiat bonfire the bonfire the fiat money's yeah it's a bonfire the Fiat monies and at certain point there should be game theory that comes into effect here because if if this global US dollar reserve system is falling apart why waste this money trying to support your own fiat of un rather than just buy gold or buy Bitcoin because Macari security says china is unlikely to let the UN slide get out of control as it could lead to capital outflows and sharper depreciation in 2016 Chinese authorities unloaded about 188 billion dollars of Treasury's 15% of the total as a UN sank almost seven percent amid capital flight so they see that perhaps happening again China of course has a currency peg they don't want to let it float freely and be easily convertible they're trying to defend this peg and the peg it always ends up bankrupting a nation to try to do this and try to sustain this where they should just take two dollars buy bitcoin buy you know gold well yeah the pecks usually always always collapse you know what's interesting about Trump is that before Trump was in office this cozy relationship this symbiotic relationship between US and China where they were allowed to export their way into growth at the sacrificing American jobs you know America shipped their jobs to China in exchange for really cheap TVs that was the quid pro quo then Trump actually kind of upset the applecart you know he's an anti elitist he's anti-globalization and so now he's caused chaos so is this a good thing or a bad thing I think ultimately it's a good thing because America was being drained of his economic vitality as were all countries around the world by a cadre of elite central bankers who were simply using the globe as their massive slush fund to hide all their garbage trades and get bailouts whenever they need it to and now we're into a new era it's quite ironic because of course here in New York City the biggest buyers of real estate I he is a real estate developer he builds products he builds apartments he builds luxury hotels and the biggest buyers are the Chinese are you know foreigners who are not American because Americans don't have jobs they don't have massive wealth like the Chinese do so it's against his own self-interest really to stem the flow of our jobs and our wealth overseas but again back to these nation states and the currencies you know again we go through periods of time throughout history going back thousands of years to the point when China was the Empire a couple thousand years ago and they were the leaders of global trade we've gone through many many many cycles many different global currency grids usually backed by gold or tally sticks or something else you know there's always been something but now the u.s. is the Empire we have the US dollar and it's just the US dollar backed by nothing but the Pentagon and now we have this headline Bitcoin threatens to take power from the US Federal Reserve this is from Forbes and this is following up on that brad sherman piece congressman brad Sherman of California he represents Los Angeles and we've talked about this we talked about this when we were at the magical crypto conference in New York in New York City last week and Bitcoin which has roared back over the last few weeks after what many feared was terminal decline senses peak in late 2017 has been called a threat to the existing financial system and the central banks that run it though these claims have in the past and largely fringe ideas of course you and I here in Kaiser report have said that for years you said that and you could look at our documentary series to the moon and we you you could see that you were saying that in 2011-2012 but here Forbes is identifying that the fact that now us Democrat congressman Ben Sherman has urged his colleagues to consider banning Bitcoin and cryptocurrencies due to the threat they pose to US international financial power saying Bitcoin needs to be nipped in the bud and I want to say it can't be nipped in the bud at this point because it's too late I think the fact that as you and I have been covering the fact that Russia China several other nations – or for the first time over the past few years accumulating massive quantities of gold and publicly China only started publicly announcing this four or five months ago and that's the beginning of the run to Bitcoin as well is this is the sign that the trust is gone never here they named brad sherman now in my mind there's a soundtrack that goes oh you know it's like oh the story takes a turn a politician starts realizing that the game is over and the nation-state is finished and that fiat money is over and that his power base is going to go the way of the dodo and bitcoin is now firmly in place intractable you can't get rid of it it's part of the fabric of our reality and it's going to succumb it's going to consume every fiat currency out there it's going to concern 98% of all the altcoins out there and brad sherman is like has that moment you know the camera swoops in like a massive pan onto a close-up of disguised brad Sherman and the music comes up don't-don't-don't yeah it's like oh my god coins the law is coming because it's like yeah duh you're freaking moron we've been saying this for years it's hard money okay I want to turn to his actual quote just in case you out there listening or watching this do not had not heard it we had played it a week ago but I'm gonna read the text again just to show you the significance that he uttered these words in public is just like Trump always says things he's not supposed to say here's the quote here is the quote max an awful lot of our international power comes from the fact that the US dollar is the standard unit of International Finance and transactions clearing through the New York Fed is critical for major oil and other transactions it is the announced purpose of the supporters of cryptocurrency to take that power away from us to put us in a position where the most significant sanctions we have against Iran for example would become irrelevant of course I would restore us to what the founding fathers George Washington as he you know left the I think it was in his last inaugural address or when he exited the White House he said basically we should have trade with all nations and war you know in foreign entanglements with none yea the dollar is an edifice that is getting ready for somebody to scream pull it it's heading into the controlled demolition phase and we won't be seeing much of that much longer and bitcoin is in the ascent I would imagine some point in 2019 a major central bank will announce they're building a huge position of Bitcoin and then it's going to be the hash Wars where nation-states are going to be mining for strategic purposes hash rate quintuple x' the price goes to 150 hundred two hundred thousand etc we did hear a rumor here during blockchain week in New York that Belarus is mining they are mining bitcoins so there is one nation mining Bitcoin brad sherman said the advantage of crypto over sovereign currency is totally to aid in the disempowerment of the united states and the rule of law which is remarkable and about this quote anthony pop leon o of Morgan Creek digital assets was asked on CNBC what he thought of this pomp is a good friend you follow my Twitter pomp while he said this is his quote on CNBC while many people will claim brad sherman doesn't know what he is talking about I would argue that his statement highlights that the congressman knows exactly what is happening pump Tiana wrote in a blog post sorry it wasn't on CNBC he wrote this he says the increased probability that we are moving to a world where non-sovereign currencies are the default and it sounds like he is scared it should be clear this is not anti the United States or anti-america this is anti current kleptocratic America this is pro Constitution which guarantees free speech and remember that code is speech and therefore it's protected by the Constitution and therefore as part of my inalienable right to pursue happiness liberty and freedom I as an American embrace hard money Bitcoin as it says in the Constitution to embrace hard money called to exert my rights as an American to free speech / code and we only have 5 seconds but I'll say that it's beyond American it's just the fact it's beyond truth decay it's just the fact this is the fact and you have to get with it you have to buy gold and Bitcoin or hang on to you yuan or other for don't be fact challenged and don't buy into truth decay listen to Stacy I do stay tuned for the next bit after the break more coming your way welcome back to the Icaza report I'm Max Keiser time now to turn to Jack Mahler's of zap a lightning Network wallet for the community Jack welcome Thank You max thanks for having me it's great to have you on I'm glad to be here I'm a big fan of the Kaiser report your youthful your full energy you've got the zap okay that's me Jack tell us about first time to get into Bitcoin my father actually so I have a really big finance history in Chicago my dad was the one that got me into it in 2013 he ran a futures brokerage for every currency trader and he saw Bitcoin as a big opportunity that it became to be so amazing amazing enormous financial hub in this country and the futures and the Chicago Options Exchange and and you're part of that culture and it's a real culture in Chicago that whole part of the economy is amazing talk to us a little bit about zap on lightning what's that all about yes well so Bitcoin and this whole blockchain technology has some technical limits and lightning its ambitious goal was to increase the transaction throughput of the network right and so zap we want to take a lot of this fancy protocol work that some great developers are doing and humanize the tech and make it relatable make it translatable and a lot of this fancy stuff turn into buttons that people can use and make Bitcoin more retail friendly and usable for everybody and why does lightning matter well if we want to scale this technology to some of the ambitious use cases that people envision and I mean traditional commerce internet commerce or even just fast and efficient settlement right increasing the velocity of the asset we saw this with clearing houses in the OCC in Chicago and how other assets have increased velocity and efficiency and lightning is that in a very cyberpunk way for Bitcoin all right now let's get into some meaty issues here because and we match in Chicago we mentioned your you know background in that culture and you're working on a Bitcoin derivatives product so many hear the word derivatives they think 2008 financial crisis bankster fraud what is a derivative how can it be a useful tool yeah so derivative is a separate asset sometimes even a security that settles to an underlying the underlying can be an actual physical could be an index but it's used to transfer risk that is the original value proposition and the folks that created these derivatives was to allow the producer of the asset in agriculture for in Chicago at least we're talking the corn soybean to transfer risk as they're not speculators or not market makers and they have a default inherent position on the asset and don't want to be so overexposed you know I think of it terms of similar to Einstein you know he created the difference between energy and matter with equals MC squared and a derivative for the first time you're separate you're ending a risk separately like the options market was really built on the options volatility formula they monetize or they quantify volatility and now you're buying and selling of volatility itself but when you separate volatility from the asset and when you can trade risk independently sometimes that leads to a lot of problems because if one part of the market is hedged against risk and another is not it's asymmetric and that's how led to a lot of these problems we've seen with the wealth and income gap and everything like that but when it comes to Bitcoin you know to get to a mature state to get to a level where it's more widely traded risk management and risk tool development is essential and that that's your background so you know when we're kind of leaving the techno cypherpunk era into of this now derivatives trading era which it I think should be welcomed on many levels how do you see the problems in this asset class it's a brand new asset class in developing those types of risk management products yeah well so as you know the monetary characteristics and policies that come with Bitcoin are fascinating and they're new we have things like difficulty we have having's right what Satoshi did and this digital version of gold is fascinating and the production of the asset and what it takes to produce can the risk profile on that is new and we need a risk transfer market in this asset we don't have a credit market we have no forward pricing miners are the only natural organic participant that we can use to actually price the asset bring in some more advanced market participants so what I'm trying to do is start this risk transfer industry within Bitcoin and analyzed the risk profile of these miners and create a derivatives market where they can transfer that risk to some of the market participants that are looking to make markets there let's talk about the difficulty adjustment for a second short for example recently when the price was cratering the difficulty adjustment went down yeah and that is remarkable in any asset class be usually in the gold mining you know the price would crash and gold miners would go offline and then you would have a period of well now we're going to go through a recession in that industry which would take some time until the price recovers and then they would go back online so it's a it's predictable but it's very lengthy here this protocol responds within a two-week cycle every two weeks a difficult adjustment is made and so it creates how do you see that now you're in this culture of derivatives and financial markets in Chicago what when you saw that that's unlike anything else in any other market in the world and so how do you explain it to a pit trader you know it's been there for years like how do you explain Bitcoin to a guy who's been in a legacy financial trader for a long time there how you explain it well it's hard first of all but the points to get across are bitcoins defined scarcity and what traders know is assets that act outside of a central party are and are uncorrelated from traditional markets that's a huge deal and then they wonder well how can that be accomplished right if oil were to see returns of Bitcoin thousand X 10,000 acts surely someone will buy my house and will start all digging for oil and the stock to flow ratio and the issuance rate annually will go up right and scarcity will be affected and now what Satoshi did is to cement the scarcity aspect to it inflation rate is predictable issuance is predictable and we know how much Bitcoin will exist in a year in ten in two weeks and that's a absolute breakthrough and in any asset class in any scarce commodity right every ten minutes you have issuance of coins yep and as the example we just gave whether it's gold miner oil that that valley to trough in terms of production financing and production it's wild swings could take years and decades and so they don't focus on the act that not the completed version of what you'd expected any other commodity so how do you know let's you mention mining there and this is the only set of data we can use to price the asset hmm so okay last I heard it costs roughly four thousand bucks to produce a Bitcoin these are in terms of electricity and in terms of the the equipment is what where are we is that is that number outdated or what is that number and is that part is that a key number for you or what are the numbers you look at no so what I look at as a minor so minor has a long bias on the asset they're also inherently short difficulty and then their hardware position is interesting because Hardware ends up expired right their hardware is constantly innovating and it decays with time it's analogous to a call option almost so trying to price that risk for a minor and product so right now the low hanging fruit is this difficulty it's like the weather for a corn farmer and trying to price that so for us we actually aren't interested in how much it costs for a minor to produce right now we're looking to price difficulty to a market maker and build a market where they can then transfer that risk they can long difficulty as a cash total product in Bitcoin all right so let's back into that for a second so saying that the equipment is is like out of the money call option it's gonna go to zero okay so that's not helpful all right then you have so we're also saying that the energy costs are not the variable you look at either you look at this difficulty adjustment and you're their price transfer mechanism is based on the difficulty and you're saying the miners are short difficulty inherently inherently short difficulty so explain what do you mean by that sure so just like a corn farmer like a minor if difficulty goes up difficulty is how hard it is to produce the Bitcoin if it goes up they're not going to produce as much coin right and so when they plug in their hardware they have a goal to produce X amount of Bitcoin and difficulty is they're inherently short because as it goes up they're losing value on their production right so they need to somehow offset that the volatility there is high and miners are more or less margin traders on Bitcoin if you look at hash rate on the network and its correlation to spot you can see these catastrophic tanks at times because they're totally naked swimming out there and market so we want to be able to create a way for them to hedge that hedge their production so if difficulty does run away from them to the upside that they can have a long difficulty derivative position that pays them out similar to the way the corn farmer would open a show I get it all right so there you're creating difficulty futures contract hmm right yeah to wave at miners the hedge at the moment it's a ODC structure note because as I learned the hard way we have to build this market from the ground up even educating folks like Citadel Susquehanna some of the bigger firms in the world what difficulty is how to price it how to layoff risk and so it's been a very very interesting experiment so for now we're OTC but hopefully one day this can be a publicly listed futures product it is can you create a like a beta neutral portfolio of these types of assets in other words can you have a somewhat you know predetermined outcome if you wanted to go neutral for example is that possible I hope so I think that there's an array of mining financial products that we can create in theory you can also maybe have a spot hash rate product where mining pools are allowing people to buy in and out of hash rate running on their pool so I think that it's an untapped market I think my Chicago exciting I'm buying I'm bought at all let me ask you this about proof of keys yes right so this is another unique aspect I wanted to get your thoughts on this in the financial futures markets the players have the ability to effectively asymmetrically issue let's call it naked short sales or unlimited counterfeited products you know paper to manage the price and we have a huge issue with this and we talk about it all the time on this show people like trace Mayer and myself and Caitlin long who's got a big Wall Street history we there's something different here because the the Cobblers of last resort as tres mayor calls them have the ability to take their private keys off the markets and even in the derivative portfolios ultimately they have to refer to something so whether it's a 10-year note doesn't mean if they're if they're counterfeiting trillions of ten-year notes they're still at the base layer some those notes but if you have proof of keys and I can pull the rug out from underneath that Ponzi scheme of derivatives bad derivatives let's call them is that adequately priced by traders do they are they aware that risk it seems like to me that they're not and or and three is that a little real risk yes it's a real risk our traders aware of it I think that we're going through a huge education process and the type of sophisticated traders that we have in capital markets don't really understand Bitcoin and how the blockchain is this transparent ledger and we can have cryptographic signatures that prove solvency of everything so I I think it just is going to come with time it's something that I believe in and I work on I'm very much on the Caitlin long side of the debate right well I have a friend a very highly placed man in the space you know and he's been around for a while he tells me that the mark is really unsophisticated and he sees the people in Chicago New York trying to create markets and futures and options and they are really unaware of what's going on here and the premiums are huge and he's just scalping them you know he's scalping the scalpers which is great to see and this is unusual because it's usually the other way around is usually a Wall Street in Chicago figuring out the game first and then it trickles down to Joe baguette doughnut to the get scalped as you know mm-hmm is that true it's a revolution yeah the shower you do hi are you in demand in Chicago I mean you down you're like get Jack milers on the phone get him down here immediately we need to know what's happening are you are you a man to see down over in Chicago I don't know I can't speak to that I just do me going yes I'm out of the Blackhawks doing I don't know I'm not a big hockey guy I know you're freaking millennial all right you gotta go Jack we got it black notes note I got a I got a gun now that's it this interview is over thanks man skies report thanks for having me okay great to have you back on the show all right this is it for this edition the Kaiser report with me max Kaiser and Stacy I'd like to thank our guest Jack Mahler's of ZAP and if you want to catch us on Twitter it's guys report the next time bye yell

22 thoughts on “Keiser Report: Hedging Difficulty (E1387)”

  1. Bitcoins' going to zilch eventually. Keiser's a pump-n-dumper, e.g. Maxcoin. Precious metals are still the long term precious safe haven. Get rich speculating in cyber [email protected] coins while you can. Just realize they're not going to put up exit signs before the drop.

  2. The irony…" americans don't have jobs, americans don't have money, they can't afford anything"… It's true, i'm laughing because it's true!Worked since fourteen years old, all i've got is debt. No new cars, no luxuries, live in the ghetto, paid the bank twice what the house is worth, still not paid, and no work. No new loans, nothi ng…just Taxed to death in Taxachusetts. Oh, and the State is bankrupt, even with billions in lottery money. You can't beat this system, usury capitalism, compound interest, it's got us bent over by the ankles.

  3. Questions: as the perfect storm approaches, which poses the most immediate threat to the financial system – national bond defaults, currency collapse, stock market crash or corporate bond defaults? Or is it all so interconnected its too hard to say? Who is sitting on the majority of risk/liability/exposure – central banks, investment banks or pension funds? And, how much of the burden do you envisage being underwritten by governments at the expense of tax payers?

    PS. E6 of To the Moon: 25 Dec 2014 clip with RB, blatant 33 tattooed on Brand's wrist – are you involved in any of that conspiratorial Luciferian Freemasonic bullshit? From what I can gather 19/12/14 seems to have been little more than a celebrity Satanist's attempt to lure me into their ranks – offering me the world for the price of my soul. Given your hindsight, is that a fair evaluation of the event?

  4. While I generally side with the spirit of the sovereign individual and decentralized money systems I think it’s important to point out that while it’s easy to assume what the congressman is saying is pointing out the threat bitcoin poses to the existing monetary control structure as in, central bankers and just generally a group of controlling elites, it seems to me it’s just as easy to see what he is saying is that bitcoin is a threat to American prosperity in general as a free and independent Nation. If we as a country lose our significance in the global organizational structure it isn’t necessarily a guarantee that we will exist in some free and independent, decentralized global economic marketplace. Regardless of what the financial system looks like moving forward the truth is we don’t even know who created and thus possesses a very large amount of the total supply of bitcoin. I want everything to change.. I believe in free markets, liberty, individual sovereignty in many profound ways and generally the originally proposed spirit and vision of bitcoin but I still very much doubt our ability as a world of greedy, undisciplined, unprincipled people(overpopulated world at that) to create and maintain such a world and the immediate threat I think it is important to consider the congressman is pointing out is the impact on our nation as a whole and not immediately assume he is representing the threatened global financial elites who currently control the money supply. Assuming that the promise of bitcoin and decentralized money and personal sovereignty over ones own money and assets and identity and just generally more freedom for the individual, a truly free and truly global marketplace and global liberty is actually what we stand to inherit from adoption of cryptocurrency, dlt, and blockchain technology then I am of course all for it and excited for the future. I just find it terribly hard to believe that such altruistic technological development and global adoption of such a technology is something we should expect or assume is going to happen. I mean historically it seems extremely unlikely and in that case you’ve got to consider what the future ACTUALLY looks like and whether or not you want to voluntarily give up your country’s current status in the world with such an uncertain future. Are we really to assume that if bitcoin is the future of money and a world financial system that there necessarily can’t be a controlling power on the world? There is so much to think about, so many important debates and conversations to be having right now. The one thing this congressman’s comments do show is that as a nation, our leaders are clearly not well positioned in this potential future digital financial system. They don’t understand it and clearly aren’t in an advantageous position to thrive in it moving forward whereas I would bet that several other nations leadership is. THAT is truly concerning. I sure hope that central powers no longer matter in this new world we are not ready for because if they do well, we are in trouble. I think to assume there will not be a ruling class or ultimate authority wielding control over the people of the world is an enormous assumption that history certainly doesn’t support. Either way I’m ready to move forward into a different world cause the one we currently experience is less than inspiring for the individual.

  5. Bitcoin, the art of rampant consumption of materials and burning of massive amounts of energy for something that is make believe requiring someone stupider than you to come along after you in order to ensure the value remains stable at leas should you need to withdraw

    Perhaps it once may have truly been intended for the little guy, but like all such things is becomes the folly of the super rich eventually.

  6. This guy says" Bitcoin is hard money. Really, backed by what exactly? They really are "fresh air tokens" in my opinion. And yes the end is near of the old financial system. These coins are a system by the c_a with the appropriate back doors to control it just like the current system. News Flash…all the central banks are broke…See Manna World Holding Trust which controls all the planet's assets now, but be careful just like the MSM debasing Pres Trump"s draining the swamp many c_a websites are flooding google with lies and attempts to discredit the Trust. Truth, Honesty and Integrity youtube with Thomas Williams is the go to site for the TRUTH. The truth doesn't care if you don't believe it, because it continues being the truth and the public will be gradually informed of this and soooo much more. WWGOWGA…enjoy the show !  Oh and by the way, try cashing in these wonderful tokens and see what happens. Good luck with that.

  7. There are tribes all around the world, who think that 'money' is a very stupid idea. We call them 'primitive'. … and they feel deep pity for us.

  8. Bitcoin, "hard money"? Us Government could shut it down as fast as it did Napster. This is exactly what will happen when Bitcoin creates a financial problem.

  9. Schizophrenia Max. The dollar isn't backed by anything and Bitcoin is backed by less. Bitcoin is backed by greed, period, end of story.

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