So, you are a libertarian, you are sure that most statist solutions are a failure. How do you benefit from this belief? Belief without skin in the game can be a good (but more often annoying) topic for discussions over drinks, but you are not going to win friends and influence people. Isn’t it a point though? Shouldn’t everyone know? How better to show them than by having a good strategy to benefit from your beliefs?
I got inspired to write this blog by an excellent book Paper belt on fire by Michael Gibson. From the book description:
“Paper Belt on Fire is the unlikely account of how two outsiders with no experience in finance—a charter school principal and defrocked philosopher—start a venture capital fund to short the higher education bubble.”
What does it mean to “short something”? It comes from trading term ‘short selling’ – you borrow an asset, sell it and when you have to return it, you buy it back for less. So you basically profit on the difference in price now vs price in the future. If the asset goes down, you make money, if the asset goes up, you lose money. You can short something with other instruments – you can use options, or more exotic (and not very proper) method of shorting is investing in something that is inversely correlated – for example competition (if you don’t bet on industry / sector as a whole going down).
In the case of Gibson, he started shorting higher education first for Peter Thiel. Thiel was awarding fellowships for people to drop out of school and start businesses. It was not an investment in a business, but an investment in a person that will probably start a business in the future. Well known recipients of Thiel fellowships were for example Dylan Field (creator of Figma), Vitalik Buterin (creator of Ethereum), Austin Russell (founder and CEO of Luminar Technologies).
Their strategy continued to be to invest to young people before they get credentials from a university and before any angel investor would even speak to these future entrepreneurs. And it paid off, even with their future venture fund.
If you believe that higher education is a bubble, that sucks capital and time off of people, the good bet is to front-run other investors and don’t let people waste time and money in college, when they are full of energy and can be building something. It paid off.
State solutions suck
I believe state services, products and “solutions” are a failure. State insurance is usually not an insurance, but a form of redistribution.
Wikipedia: “Insurance is a means of protection from financial loss in which, in exchange for a fee, a party agrees to compensate another party in the event of a certain loss, damage, or injury. It is a form of risk management, primarily used to hedge against the risk of a contingent or uncertain loss.”
Public education usually sucks and even parents in slums that are really poor often rather start a private school than send their kids to a public school (which is often lower quality and more expensive at the same time – yes it is “free”, but you have to buy things like school uniform).
What do you do, if you have serious ilness? I run abroad, to a private clinic, as fast as I can. With socialist healthcare, there are insane waiting times (for example insurance companies have contractual quotas on most procedures with the providers), often low quality.
We have seen the state fiat money, whose value goes one direction since 1971 – towards zero.
How to put skin in the game in this belief? How do you short statism and their ‘solutions’? I will share some of my ideas, I’d be glad to hear about yours.
What do I mean by shorting statism? Any kind of investment (of time or money) that does well when state solutions fails or parallel (private) solution wins in the market.
Shorting the money
First idea is simple – use (and hold – be long) bitcoin, monero, gold and be short fiat. My way of shorting fiat is collateralized loan. This way you borrow fiat (with crypto being a good collateral) and return fiat later, when its value is lower thanks to inflation. For this to work the interest has to be lower than increase in price level – especially your price level, and calculating money opportunity cost. This strategy does not work always, but current market conditions are ideal for this fiat short. I explain this strategy in my book Cryptocurrencies – Hack your way to a better life and also in my course How to harness the value of Bitcoin without having to sell it (ebook, mini-course) with both text and practical videos.
The question is what do you do with the money that you borrow? If your personal price inflation rate is higher than the interest rate, you are good with any kind of investment that you would otherwise make. You can buy bitcoin (that’s basically leverage buy), but I prefer to buy production (capital) goods, investing in myself (learning new skills, increasing my value in the market). You can also fix your house, finance a new car, get a second (backup) residency permit (outside of your superstate bloc).
For me, only being long parallel money does not cut it. Shorting dollars/euros is a much better strategy in my opinion. I don’t know if BTC will be 100k$ or 1M$ in 5 yrs, but I know dollars/euros will be worth less than today – central banks will not allow “scary deflation”. Read more in my blog 21 millionth of infinity why they are scared of price deflation – and why it really is not a problem (it is also a chapter of the Cryptocurrencies – Hack your way to a better life book).
Competition to state services
Invest in projects that create competition to the state services or help people opt-out. Investing can be in the form of founding startups, donating time, helping out (spreading word through affiliate marketing) or investing your money.
What are parallel solutions? Bitcoin competes with dollar and euro. Private education competes with state education. Private arbitrage courts compete with state courts. Private health insurance companies (outside of state systems) compete with public health insurance (even if provided by private companies within the state framework in most countries).
For me this strategy is Liberation Travel that helps people change their residency outside of tax hells (unless you are from USA), my books and courses that help people opt-out and use these parallel solutions.
Why is it shorting? The worse the tax hells or mainstream state services are, the more demand for getting out -> the better business opportunity business.
This is sort-of a Lunarpunk idea – as state surveillance and crackdowns get worse, some projects that were not resilient against surveillance do not make it and their users switch to projects that made it. That means more revenue for the projects that can counter resistance (in the Lunarpunk world-view, it is anonymity and encryption technology).
The same dynamic applies to other fields. Are the public schools really bad? The competing solutions of education will have more paying customers. Are people dying in public hospitals? Where do those people that do not want to die go? Is state taxi licensing successful in preventing taxi scams? If not, where do the clients that do not want to be scammed go? To ride-sharing apps that provide protection against scams.
A failure, low quality, low supply or high price of one solution (usually the state one) means anyone that can solve this problem better gains. That’s my bet
Next strategy: Directly shorting of mostly state-owned enterprises (f.e. via options) or businesses that depend on states (more risky). Unfortunately there is not enough market liquidity, especially with smaller states to do that. I’m rather long parallel solution than directly short state ones.
Also, there is always the option that the state will just save the bankrupting business from the state budget. I would love to short public hospitals in central European countries that lose money, but first of all – there are no options on them, they are public, but not publicly tradeable. And then of course the state often “saves” them by just wiring them money, so they do not have to declare bankruptcy.
I do not recommend this strategy unless you really know what you are doing.
Prediction markets on important issues (anyone have tips on where and how to get liquidity?). If you think some state policy will be a disaster, you can bet money on it through prediction markets!
Read more about how to navigate current economic landscape with focus on parallel solutions in my new book.
Find more content like this in my book Cryptocurrencies – Hack your way to a better life.
It is a guide for Bitcoin and cryptocurrency ninjas. Learn how to use the Lightning network, how to accept cryptocurrencies, what opportunities there are for different professions, how to handle different market situations and how to use crypto to improve your life.