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We sold the remaining 25% of our Bitcoin this morning.
A little under 3 token at an average price of USD 18,810. 

The sale was to capture the run-up from the CME opening for business. 

Our view is that there is little reason for a market maker to be long Bitcoin at anything near current levels. The holding can now be widely replicated through either futures or options with built in margin, a much lower regulatory capital requirement, and perhaps even a lower carry cost as well. RAROC favors investment via derivatives - not via a long position in Bitcoin.

The presence of CME/Cboe derivatives has now made Bitcoin investment 'scaleable'. Institutions can now trade in/out, with liquidity, without materially impacting the price of Bitcoin itself. The result is that the only natural buyers of Bitcoin are now 1) those that actually need it, and 2) investors who can't use a derivative.

To get USD18,000+/Bitcoin, existing owners have to hold back their Bitcoin in anticipation of higher prices - much less likely now.
But any small increase in supply will rapidly accelerate as price starts collapsing; with circuit breakers and global trading actually helping the process by damning up prospective sales as word gets out around the world. Global waves of selling feeding a brush fire until the fuel eventually burns out - is a harsh but desirable outcome, and the earlier it is - the better for everyone.

At USD5,000+/Bitcoin, it's much easier for a market maker to justify holding a few Bitcoin directly - but until then; the market maker has to justify that high price/high maintenance holding daily, to an increasingly nervous senior management. Career risk suggests that there are real limits as to how long this can go on for.

If we're right, we do very well. If we're wrong, we don't think we're giving up much.
We live in interesting times.

SD

     
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General Discussion / Re: Best Way to Short Bitcoin
« Last post by rkbabang on Today at 08:07:15 AM »
I'd short a basket of the indirect plays like FRMO that don't have nearly the same upside, but have rallied 100%+ on BTC rally. Find indirect plays, quantify the underlying BTC exposure and  downside (upside to the stock) if BTC goes up another 1x 2x 5x 10x, size appropriately and wait for the hype in those types of names to abate. I'm sure there are/will be some penny stock fraud / promotes around coins too.

I haven't done this, but maybe keep an eye out for companies that add "Blockchain" to their name.
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"The companies would remain under government control until privately backed competitors emerge and gain market share, a process that could take years, the people said. "

Well that doesn't sound too good

Moelis page 29...

Q4 2017: Announce future, not immediate, exit from conservatorship

Year 2020: GSEs emerge as rebuilt organizations and taxpayers profitably exit their only remaining financial crisis federal financial assistance program.

+1

This is not going to be an immediate windfall when resolved. Will take long term investment to reap rewards, particularly if pref are converted to common.

Perhaps, but page 29 of Moelis also states "agree to terms to equitize remaining SPS balance, and partially equitize JPS" (JPS being Junior Preferred Shares) around the same time an announcement that the conservatorship will be ended in the future.  If they equitize them at par or close to it (as recent articles suggest) and then convert to common then it could be an immediate windfall for preferred shareholders.

It includes footnote 3: Conversion price and terms can be pre-established (consistent with the approach used by Treasury in AIG), or can be set at the IPO price.

Agree. I guess I just mean it will take time to reap even larger rewards with common and dividends post conversion, if that is what happens. As I anticipate Fannie/Freddie will still have a large moat even with new competition, they seem like good long term holdings to reinvest dividends in.
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General Discussion / Re: Best Way to Short Bitcoin
« Last post by thepupil on Today at 07:53:41 AM »
I'd short a basket of the indirect plays like FRMO that don't have nearly the same upside, but have rallied 100%+ on BTC rally. Find indirect plays, quantify the underlying BTC exposure and  downside (upside to the stock) if BTC goes up another 1x 2x 5x 10x, size appropriately and wait for the hype in those types of names to abate. I'm sure there are/will be some penny stock fraud / promotes around coins too.
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Investment Ideas / Re: RTK - Rentech Inc
« Last post by Patmo on Today at 07:35:04 AM »
You bet
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Investment Ideas / Re: ALS.TO - Altius Minerals
« Last post by linealdin on Today at 07:22:00 AM »
LIF up another $1 this morning, breaks through to C$26.20. Altius's publicly revealed LIF position at the end of October is worth C$82.53 million at that level. I believe the big block purchases in mid-November, which I think were made by Altius, were at the C$21.65 level.

Iron ore prices rose 6% in overnight futures trading.
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General Discussion / How Do Machines Learn? (CGP Grey video)
« Last post by Liberty on Today at 07:20:49 AM »
http://www.cgpgrey.com/blog/how-do-machines-learn

Good introduction for those not familiar with machine learning/neural networks.
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Why is a $25 preferred share going to convert to 2.5 $2.70 FNMA shares?  I get that if there is an exchange and a recap procedure the fnma shares are going to move in price.  However where does the $10 FNMA share price that is implied come from?
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Investment Ideas / Re: ALSK - Alaska Communications
« Last post by kab60 on Today at 06:38:21 AM »
And now we have an activist onboard. It has run up a bit but it might be even better value than before. There seems to be quiet a lot of costs to cut (just look at CEO pay) if it was taken over and I see that happening eventually.
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Investment Ideas / Re: BAM - Brookfield Asset Management
« Last post by Shane on Today at 06:29:59 AM »
Question for the group - what are your thoughts if inflation is unexpectedly high?

On one hand, cost of capital is likely to go up so the assets will be devalued and the accommodating credit environment would end, growth will likely slow dramatically....

However - management has commented that the cash flow streams are largely protected from inflation via the contracts.... so cash flows should keep up with inflation without an issue.

What would happen with the value of the floated subs?  I would assume market cap comes down in this environment meaning the stream of cash flows declines as well (~125bps X market cap is the formula, off memory).

Thoughts?  I don't think the market is considering inflation so this could be interesting.
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