Valuing Bitcoin Using Credit Default Swaps With Greg Foss

Valuing Bitcoin Using Credit Default Swaps With Greg Foss

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In this episode of Bitcoin Magazine’s “Fed Watch” podcast, Christian Keroles and Ansel Lindner spoke with ​Greg Foss, who “has a 30-year history in banks, bonds and the credit markets as a whole. His insights around Bitcoin and the state of the banking industry and the global economy are amazing,” according to an online biography.

Foss is the second Canadian guest in the last three episodes, and “Fed Watch” is bringing great North American bitcoiners with unique perspectives on to discuss all aspects of how bitcoin is meeting the challenges of entering the central-bank-dominated financial world.

In this conversation, the hosts learned a little bit about Foss’ background in banking. He began his career in 1988 working for the Royal Bank of Canada (RBC) where he quickly realized it was insolvent due to its exposure to the Latin American financial crisis. He went on to work for and found many influential financial firms in Canada over the next 30 years, until he found bitcoin in 2016.

The reason “Fed Watch” wanted to host Foss is due to his interesting valuation thesis for bitcoin, which you can find on the website linked above. It centers around bitcoin as portfolio insurance for fixed income investors. From this episode, the listener will get a master class on credit default swap (CDS) spreads and pricing.

Today, the CDS market is the way that the financial industry prices risk in the credit market in the attempt to make homogeneous investable products for fixed-income investors. The problem is when financial conditions change, which they very often do, these prices move, forcing investors to react and kicking off a downward spiral in prices. It is a very unstable framework. Foss highlighted that bitcoin is a perfect fit in this market to reduce risk and act as a hedge during the inevitable periods of market instability.

Another aspect Foss concentrated on was the unworkable mathematics of global debt. He used an example that the global economy, which has stayed under 5 percent per year since 1976, must get to levels approaching growth of 12 percent simply to service the current debt. In this world, there will be defaults, the system will have to readjust and that readjustment will be painful.

In the second half of this episode, they touched on central bank digital currencies (CBDC), the global nature of the credit markets and what the central banks are doing to fight this deflationary environment before moving onto Foss’ current business venture. Validus Power Corp is involved with converting stranded energy from oil field flares into usable energy to mine bitcoin. This is a booming business all over North America. Naturally, the conversation turned to a North American renaissance powered by on-shoring industrial bases, global capital and the booming energy sector.

“Fed Watch” has established itself as the bitcoin podcast which goes past the surface arguments about the monetary system, diving deeply into how bitcoin will reshape that system. It brings on exciting guests from all corners of macro to discuss the most important topic in finance today.

Published at Wed, 24 Mar 2021 19:12:39 +0000

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