Reggie Middleton is an entrepreneurial investor who guides a small team of independent analysts, engineers & developers to usher in the era of peer-to-peer capital markets.
1-212-300-5600
reggie@veritaseum.com
People have been asking me, "How did you manage to score such a monumental crypto patent before all of these billion and trillion dollar companies?". The answer is actually quite simple. I understood what crypto and blockchain were, early on.
These videos were all made in the first week of 2014 - over 7 years ago - before the birth of Ethereum!
Foresight and understanding enabled me to see what many others couldn't or didn't. That was back in 2013. Fast forward to 2021, and some of the biggest names on Wall Street still don't have a clue. This means that I still have a distinct advantage!
Reuters reports: Bitcoin is 'economic side show' and poor hedge against stocks: JP Morgan
For one, you know there's a problem if someone is trying to value a paradigm shifting, inter-industry protocol by using its "production costs"!
It shows a blatant misunderstanding of how platform-based, paradigm shifts behave - or even of what they are.
Let's take a look at using that logic as applied to the last protocol-based paradigm shift.
What is the "production cost" of the Internet? We can back into that by quantifying the complete operating costs of those entities that actually supply the Internet.
This is the Internet Protocol's applied production cost (the cost to actually use the value of the protocol in real life) - $395B.
Now, how much is the Internet worth? A common sense view...
At a glance
The internet became a global commercial network in the 1990s. Less than three decades later, it is everywhere. Now that we’ve created it and come to rely on it, we inevitably wonder: what is it worth?
Well some studies say in excess of $10 trillion, others $7.8 trillion - all account for.... just the US! As the US is roughly 20% of global GDP, multiply that by 5, and.... you will find that $40 to $50 trillion is a lot more than the cost of production at $395 billion. But wait...
As excerpted from "How Much is the Internet Worth?"
... Most recently, yet more economists – this time Erik Brynjolfsson, Avanish Collis and Felix Eggers – tried yet another tack: in 2017, they asked people already on the internet whether they would give up a particular internet service in return for money.
On average, respondents said they would forgo services such as search engines for US$17,530, email for US$8414 and maps for US$3648.
This study tells us a lot about what people value most about the internet. It also gives us a figure for internet consumer surplus across the US: almost US$8 trillion a year in an economy with a US$20.5 trillion economy.
Source: Internet Association data from BEA.
At this point, Greenstein says, valuing the internet is a task for which economics lacks the tools.
“It’s no longer a partial equilibrium,” he explains. Or in plainer English: “It’s not a well-grounded question anymore.”
The internet, it seems, is now too deeply ingrained in our society to be assessed with mere money.
Why am I comparing the Internet to Bitcoin? Because I truly understand what Bitcoin, distributed ledger protocols, and the crypto industry are really about. It's the underpinnings of a global value transfer network that has the real potential to easily dwarf the Internet Very much like the Internet exists as the result of its underpinnings in information transfer protocols (IP, or Internet protocol), it is a utility with unprecedented global reach and ability.
It is not a commodity, nor an investment or a security. It is much too monumental to be measured in mere materialistic, one-dimensional Wall Street parlance. Big banks, regulators, investors, the media - many have this all wrong. This is how I was able to score the patent. I knew what it was that I was patenting., while nearly everyone else was looking at price charts and thinking money remittances. Granted, that was almost 8 years ago. Fast forward to today, have the big investment houses learned their lesson?
In the meantime, JP Morgan advisory customers, with friends like these, who needs enemies???.
Now, I'm not a Bitcoin maximalist, nor do I even think that Bitcoin is the most valuable crypto, but that doesn't mean that I will just sit back and ignore the spread of misinformation! If you want to know what I'm into, then just Imagine having the keys to the internet back in 1995. Well, that's where I feel we are in 2021, with the same Luddite movement acting the role o f the naysayer! For my take, read "A Most Powerful Invention Comes to Life"
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This is a video that I published over 7 years ago. I find it be quite prescient.
This is an extended appearance that I made on CNBC on the same topic. Remember, this was 7 years ago (click graphic below)...
Fast forward to today, we have built functional product which utilizes the invention, and more importantly, a patent has been granted and registered - with reach into nearly half of the G20. Now, we move forward to implementing what I believe to be one of the most powerful technological inventions of modern time (then again, please realize that I am biased). Let's walk through what it is that I invented, and how it fits into today's world.
First, a few definitions....
Market efficiency tends to increase—and therefore transaction costs tend to decrease—in proportion to the degree that transacting parties trust each other. However, rent extraction tends to increase—and therefore trust decreases—in proportion to market size1. Economic rent is any payment to an owner or producer in excess of the costs needed to bring what is being purchased into production.Efficient and productive participation in larger markets therefore requires mitigating trust issues, but that comes at a cost. That cost can often be reduced by economies of scale, but even today, there is substantial overhead from buffering against risks introduced by counterparties, intermediaries, post-delivery payment failures, guarantor failures, escrow, etc. 1 Rose, David C. The Moral Foundation of Economic Behavior. New York: Oxford UP, 2011. Print.
Since the mid 1990s, there has been an explosion of commercial activity where parties previously unknown to each other agree to transact using the internet as the fundamental communication medium, sometimes even across international borders. Establishing and maintaining trust between those parties has played a central role, and various crude solutions based on traditional, but inefficient and high friction methods have been attempted (e.g., electronic exchanges with expensive fees that step in as the counterparty, “online” escrow and dispute resolution using third parties, various reputation systems, third party guarantors, etc.).
Among those markets where unknown and untrusted individuals interact are those which trade financial instruments (e.g., stocks, bonds, options, futures, swaps, currency exposure, etc.). With the advent of financial engineering, individuals and businesses have been able to leverage computing in financial trading, including automating the process of entering and exiting trades based on programmable conditions or algorithms. However, even with the explosion of the use of technology in this space, such technology is overwhelmingly layered on top of legacy centralized markets. Nearly all impose relatively large costs to conduct trades with untrusted counterparties. Some very high-volume exchanges sell the ability for “high value” (i.e., high-paying) customers to cut in line ahead of less savvy or less well equipped investors. Some have questioned the fairness of this practice.
Further, the cost of contract enforcement in international trade can be prohibitive, and success might be very difficult to predict. In addition, a seller may wish to receive one currency, and a buyer may wish to send another. The value of one currency denominated in another can be volatile. Historically, one way that remote parties have mitigated risk is to engage the assistance of trusted intermediaries. One such mechanism is a letter of credit (L/C). L/Cs are appropriate where a seller does not know whether to trust a buyer wishing to place a large order, but does trust a bank where the buyer has established a line of credit. The buyer and bank agree that the bank will release funds from that line of credit to the seller when the seller meets certain conditions (most often transmitting evidence of shipment to the bank before a certain date). The bank provides the promise (L/C) to the seller, and the seller and buyer agree on the remaining terms of the transaction. However, payment often happens at a later date than the agreement, and exchange rates could vary between the time that the agreement was struck and the time payment is received. Only the largest of institutions have the resources necessary to properly hedge against exchange rate volatility. Additionally, the fees charged by banks for L/Cs and currency exchanges are substantial. Perversely, a high degree of trust must also be placed in the intermediary institution(s), who effectively acts as self-interested document examiners who may or may not independently verify the veracity of said documents before releasing the funds, perhaps leaving much of the risk of mistake, forgery, or fraud on the shoulders of the seller. As such, L/Cs are typically not well-suited for consumer transactions, or where transactions involve currencies whose values may vary wildly in relation to each other.
Decentralized digital currencies (or so-called “cryptocurrencies”)—technologies that promise tightly-controlled asset creation coupled with the ability to transfer control or ownership of those assets computationally when rigorously-defined criteria are met, with little-or-no dependency on third party intermediaries, and with very low transaction costs compared to traditional mechanisms—are relatively new creatures. The Bitcoin protocol and progeny (Ethereum, Litecoin, etc.) are one such class of technologies that have recently enjoyed meteoric rises in popularity (and valuation).
The invention pertains to systems and methods enabling parties with little trust or no trust in each other to enter into and enforce agreements conditioned on input from or participation of a third party, over arbitrary distances, without special technical knowledge of the underlying transfer mechanism(s), optionally affording participation of third-party mediators, substitution of transferors and transferees, term substitution, revision, or reformation, etc. Such exchanges can occur reliably without involving costly third-party intermediaries who traditionally may otherwise be required, and without traditional exposure to counterparty risk.
This patented invention description explores example embodiments enabling two forms of value transfer: arbitrary swaps and L/Cs. Arbitrary swaps and L/Cs are useful as illustrative examples because traditionally the two are very different animals. However, the invention allows for their expression and enforcement in remarkably similar terms. As one skilled in the art will appreciate, the invention can be applied to many other forms of value transfer as well.
A quick Google search for letters of credit and swaps yields…
Note: The net economic exposure of swaps is roughly 1/10th or less of this figure, but for the purposes of this invention’s discussion, fees would be charged on notional amounts, not netted amounts.
$6.6 trillion daily times a 360 day year is approximately $2,376,000,000,000,000, to view this as an annualized number.
These are but two of what is possibly hundreds of permutations to be achieved by those skilled in the art, who can take the invention and use it to replicate nearly any transaction of value in a fashion that eliminates counterparty and credit risk, to wit (as per simple Google searches):
With the advent of faster block and settlement times and more efficient consensus systems, the speed and usability of this invention combined with the simplicity of user-friendly interfaces that allow those unskilled and unfamiliar in the art can transform finance, commerce and any transaction of value to an extent that far exceeds the transformation witnessed by the popularization of the Internet pre-ecommerce days.
This invention seeks to claim that transformation as its addressable space, and this space is monumental and set to grow exponentially larger, to wit:
Op-ed: A new global arms race in digital finance is heating up
www.cnbc.com › 2021/01/21 › op-ed-a-new-global-arms...
4 days ago — Much like the space race, development of central bank digital currencies will influence ... Specifically, this latest phase of progress has its sights set on a massive ...
What Are the Main Goals for Central Banks in 2021?
internationalbanker.com › Banking
Jan 4, 2021 — It has been an unusually eventful year for central banks all over the world in ... see the introduction of the first major central bank digital currency (CBDC) in 2021. ... pushing collectively for the development of the international monetary system
2021 the year for central bank issued digital currencies ...
www.cityam.com › 2021-the-year-for-central-bank-issu...
Jan 4, 2021 — 2021 the year for central bank issued digital currencies? ... China is well ahead in this journey, having planned for a Central Bank Digital Currency (“CBDC”) ... to a blockchain that is controlled by the rules built into the algorithm that powers it.
Turkish central bank announces surprise digital currency pilot ...
coingeek.com › turkish-central-bank-announces-surpris...
Jan 2, 2021 — ... new digital currency in 2021, after the country's central bank announced it had ... Turkey is now at a more advanced stage of development than other countries ...
Bank of France settles $2.4M fund in central bank digital ...
cointelegraph.com › news › bank-of-france-settles-2-4...
6 days ago — The Bank of France has successfully wrapped up a $2.4 million CBDC pilot, which saw ... The Bank of France successfully piloted a central bank digital currency — or ... “From a technological point of view, the experiment required the development ... underway at the Bank of France, with some expected to run until mid-2021.
China's CBDC 'Dress Rehearsal' Sets Stage for Other Central ...
Jan 4, 2021 — Notably, the digital currency offered by China's central bank does not carry ... Fed and seven central banks have put forth a framework for CBDC development ... the central banks' approaches may differ, but 2021 may show marked progress ...
Swedish Bankers Face Identity Crisis Over Digital Currency ...
www.usnews.com › News › Technology News
Jan 5, 2021 — For a graphic on Central bank digital currencies across the world: ... advisor for the Swedish Bankers Association is concerned that the Riksbank has not made it ...
Venezuela to have 100% digital monetary system - FXStreet
www.fxstreet.com › analysis › venezuela-to-have-100-...
Jan 4, 2021 — To facilitate the entry of the digital currency, the country began demanding Petro in the form of payment in the country's oil-related transactions, which turned ...
FIG. 1 depicts a typical embodiment for practicing the invention, especially for use with or comprising a transfer mechanism such as a decentralized digital currency, where the clients, transfer mechanism, facilitator, and data source are distinct participants connected by a computer network.
A couple of days ago, I tweeted...
#Bitcoin headlines industry, business & mainstream media but the truth is:
— ReggieMiddleton (@ReggieMiddleton) January 2, 2021
A) #ETH has significantly more fundamental value than #BTC
B) It has MUCH more utility value that $BTC
C) appreciated more
BTC spikes from speculation, $ETH >value, so says the inventor & #founder of #DeFi pic.twitter.com/orR9NC5wjw
This is what that chart looks like now...
I am under the weather today, so will not post anything significant. I do want to remind subscribers of how overvalued many of the banks that I have reviewed are. It appears as if the market is willing to break the support levels that many of the algos and traders swear by. If this is the case, fundamentals may be able to come back - and in a big way. Watch Goldman, Morgan, JPM, etc.
Feel free to discuss this in the subscriber forums and I will add content, analysis and my opinion to any discussion.
Tomorrow I will produce a lot of free and heavy duty subscriber content.
I am under the weather today, so will not post anything significant. I do want to remind subscribers of how overvalued many of the banks that I have reviewed are. It appears as if the market is willing to break the support levels that many of the algos and traders swear by. If this is the case, fundamentals may be able to come back - and in a big way. Watch Goldman, Morgan, JPM, etc.
Feel free to discuss this in the subscriber forums and I will add content, analysis and my opinion to any discussion.
Tomorrow I will produce a lot of free and heavy duty subscriber content.
The second quarter + has been a hard time for fundamental investors. The market has literally disengaged itself from all fundamentals (and apparently even technicals). Although I clearly anticipated a strong bear market rally in March, the last 4 months or so have been ridiculous, bringing to mind all sorts of market manipulation theories (and some not so theoretical explanations).
I have decided to supplement both my proprietary trading regimen and consequently the research and opinion offered via subscription, since this site is basically a digital diary of my investment opinion and actions. Please keep in mind that this site's contents and offerings are NOT investment advice and should not be considered as such. With that in mind, I am going to post some empirically derived, direction neutral strategies that I either have used or plan on using, wrapped around the forensic and fundamental research. This is a lot of work, and goes considerably beyond the scope that I planned to offer via subscription, but these are very difficult times from an investment perspective and since I am putting the resources in to generate the material, I am (for the time being) going to share it with professional subscribers. I will post the initial introductions to all subscribers, though.
To determine the best market neutral option strategy during periods of increased volatility (and by volaitility, I mean significant price movement in either direction) for the time being we have considered 3 option strategies – straddle, strangle and put ratio back spread with different strike prices. We have empirically back tested these strategies for the period January 2009 – March 2009 assuming an investor enters an option strategy on January 2, 2009 based on 3 month expiration schedule and closes out his position at the end of the trading day on expiry (in reality, this may not be the optimal method but it was simplified for backtesting purposes). Currently, we have analyzed these strategies for the period January-March 2009 as historical volatility of S&P 500 index in 1Q09 was nearly 40% compared with long term historical volatility of approximately 20%.
The table below shows option trades for each of the three strategies at various strike prices, the initial investment, theoretical maximum gain and loss for each of the strategy, maximum and minimum payoff at any point during the three month frame under analysis (Jan-March 2009) and payoff at expiry.
The second quarter + has been a hard time for fundamental investors. The market has literally disengaged itself from all fundamentals (and apparently even technicals). Although I clearly anticipated a strong bear market rally in March, the last 4 months or so have been ridiculous, bringing to mind all sorts of market manipulation theories (and some not so theoretical explanations).
I have decided to supplement both my proprietary trading regimen and consequently the research and opinion offered via subscription, since this site is basically a digital diary of my investment opinion and actions. Please keep in mind that this site's contents and offerings are NOT investment advice and should not be considered as such. With that in mind, I am going to post some empirically derived, direction neutral strategies that I either have used or plan on using, wrapped around the forensic and fundamental research. This is a lot of work, and goes considerably beyond the scope that I planned to offer via subscription, but these are very difficult times from an investment perspective and since I am putting the resources in to generate the material, I am (for the time being) going to share it with professional subscribers. I will post the initial introductions to all subscribers, though.
To determine the best market neutral option strategy during periods of increased volatility (and by volaitility, I mean significant price movement in either direction) for the time being we have considered 3 option strategies – straddle, strangle and put ratio back spread with different strike prices. We have empirically back tested these strategies for the period January 2009 – March 2009 assuming an investor enters an option strategy on January 2, 2009 based on 3 month expiration schedule and closes out his position at the end of the trading day on expiry (in reality, this may not be the optimal method but it was simplified for backtesting purposes). Currently, we have analyzed these strategies for the period January-March 2009 as historical volatility of S&P 500 index in 1Q09 was nearly 40% compared with long term historical volatility of approximately 20%.
The table below shows option trades for each of the three strategies at various strike prices, the initial investment, theoretical maximum gain and loss for each of the strategy, maximum and minimum payoff at any point during the three month frame under analysis (Jan-March 2009) and payoff at expiry.
One of my blog subscribers asked me, "So does this (inflation correlated returns - see Reggie's take on investing for inflation parts 1, 2 and 3 for the background to this article) alter your thesis on your commercial real estate companies that you have been bearish on?"
Not as of now. Currently, I see us as in a highly deflationary period, with real asset values dropping through the floor. Commercial, retail and residential properties are still apparently in a free fall, cushioned somewhat by massive global stimulus which has taken some effect. It appears as if small private company EBITDA is on the rise which is massively bullish. If taken in a vacuum then this is a telling sign, unfortunately we don't live in a vacuum.
For one EBITDA is an investment banker's concoction to allow them to ignore
One of my blog subscribers asked me, "So does this (inflation correlated returns - see Reggie's take on investing for inflation parts 1, 2 and 3 for the background to this article) alter your thesis on your commercial real estate companies that you have been bearish on?"
Not as of now. Currently, I see us as in a highly deflationary period, with real asset values dropping through the floor. Commercial, retail and residential properties are still apparently in a free fall, cushioned somewhat by massive global stimulus which has taken some effect. It appears as if small private company EBITDA is on the rise which is massively bullish. If taken in a vacuum then this is a telling sign, unfortunately we don't live in a vacuum.
For one EBITDA is an investment banker's concoction to allow them to ignore
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Reggie Middleton is an entrepreneurial investor who guides a small team of independent analysts, engineers & developers to usher in the era of peer-to-peer capital markets.
1-212-300-5600
reggie@veritaseum.com