Greg Foss: Bitcoin as Default Insurance on Fiat
5/4/2021 · 110 min · transcript via mlx
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Key topics
— Greg Foss's 32-year career in high-yield credit trading and capital structure arbitrage, spanning the Latin American debt crisis (1988), LTCM (1998), the 2008 financial crisis, and COVID-era market dynamics.
— The structural mechanics of credit markets, credit default swaps (CDS), and why credit markets (roughly 4x larger than equity markets) price risk more accurately than equities.
— Central banks' successive transfer of financial system risk to government balance sheets through bailouts, QE, and TARP, with no deleveraging in between crises, creating mathematical impossibility of growth out of debt spirals.
— Bitcoin as hard-capped digital energy and anti-fiat sound money; Foss's valuation model using G20 CDS spreads and funded/unfunded obligations suggests Bitcoin intrinsic value of $110,000–$150,000 per coin.
— Foss's involvement in launching the first Canadian exchange-listed Bitcoin fund (3iQ) in 2016 and current work at Validus Power, deploying energy infrastructure (flare gas capture, stranded grid capacity) to mine Bitcoin profitably.
— Canadian institutional adoption lag relative to US peers (JP Morgan, Goldman Sachs, MassMutual, Microstrategy); portfolio allocation thesis of 6–8% Bitcoin allocation sourced from fixed income to reduce volatility and improve risk-adjusted returns.
Market & price signals
— Foss views US Treasury yields as manipulated by the Fed's $120 billion/month in purchases, masking true credit risk. He prioritizes CDS spreads: US trades ~10 bps (appropriate for AAA), while Canada trades ~40 bps (closer to single-A true risk). Fixed income is unattractive; 10-year US Treasuries trading at ~165 bps would open-market trade at 2.8–3% in unmanipulated markets. Foss owns zero bonds; he is short bonds, long volatility, long equities, and long Bitcoin. His CDS-derived Bitcoin valuation model: $110,000–$150,000 per coin based on G20 funded and unfunded liabilities as proxy for fiat debasement risk. Higher CDS spreads = higher Bitcoin intrinsic value. He believes Bitcoin is currently "extremely cheap default insurance" and represents the best asymmetric trade of his career.
Actionable insights
— Investors aged 60+ holding long-duration bonds face significant duration/convexity risk (10-year bonds bought one year ago at par now trade ~72 cents on the dollar); avoid duration beyond 5-year maturity and consider Bitcoin allocation (6–8%) sourced from fixed income to improve Sharpe ratio and portfolio diversification.
— Bitcoin's valuation can be modeled dynamically using G20 CDS spreads and funded/unfunded obligations; as sovereign credit risk widens (spreads rise), Bitcoin's intrinsic value as anti-fiat insurance appreciates, making it a hedge against monetary debasement and financial system instability.
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