Monday, September 13, 2021

Bitcoin to Bucks: Crypto Fans Borrow to Buy Homes, Cars – and More Crypto; How TikTok Serves Up Sex and Drug Videos to Minors; Saving Par; Mt. Rushmore on 9/11

By Whitney Tilson

1) This kind of foolishness is yet another warning flag that I'm monitoring: Bitcoin to Bucks: Crypto Fans Borrow to Buy Homes, Cars – and More Crypto. Right now, it's still pretty small, so let's hope regulators step in before it becomes a real problem. Excerpt:

Michael Anderson mined bitcoin in his dorm room and left a corporate job to invest in cryptocurrency projects. When he bought his first home in San Francisco this year, he didn't turn to a bank. Instead, he borrowed against his cryptocurrency.

Crypto enthusiasts such as Mr. Anderson are tapping their holdings to buy homes, cars and, often, more crypto. They are getting these loans from upstart nonbank lenders and automated, blockchain-based platforms.

Like banks, these lenders typically take deposits. Unlike banks, their deposits take the form of crypto. The crypto deposits – which earn higher-than-average interest rates – are used to fund loans to borrowers who pledge crypto as collateral. These loans take many forms. Borrowers can get dollars or other traditional currencies, or stablecoins pegged to them, depending on the lender they are working with.

The business is growing rapidly. One group of crypto lenders has $25 billion in loans outstanding to individual and institutional clients, up from $1.4 billion a year ago, according to the crypto research firm Messari.

People use crypto-backed loans for the same reason they borrow against their stock portfolios: to reap the benefits of rising prices without diminishing the size of their bets. Ether, for example, has risen nearly 10-fold in the past year, eclipsing the interest on the average ether-backed loan. Borrowers can also use this strategy to avoid capital-gains taxes.

Celsius Network depositors earn a 6.2% interest rate on up to one bitcoin, worth over $46,000. Borrowers pay between 0% and 8.95% on bitcoin-backed loans, depending on the loan-to-value ratio. Some of the money the company uses to fund the loans comes from hedge funds hungry for yield in a low-rate world, said Celsius Chief Executive Alex Mashinsky. He recommends that customers borrow to pay off their student loans and credit cards and to fund their weddings.

2) Kudos to the Wall Street Journal for this important piece of investigative journalism exposing TikTok's dangerous algorithms: How TikTok Serves Up Sex and Drug Videos to Minors. Excerpt:

The account was one of dozens of automated accounts, or bots, created by the Wall Street Journal to understand what TikTok shows young users. These bots, registered as users aged 13 to 15, were turned loose to browse TikTok's For You feed, the highly personalized, never-ending feed curated by the algorithm.

An analysis of the videos served to these accounts found that through its powerful algorithms, TikTok can quickly drive minors – among the biggest users of the app – into endless spools of content about sex and drugs.

TikTok served one account registered as a 13-year-old at least 569 videos about drug use, references to cocaine and meth addiction, and promotional videos for online sales of drug products and paraphernalia. Hundreds of similar videos appeared in the feeds of the Journal's other minor accounts.

TikTok also showed the Journal's teenage users more than 100 videos from accounts recommending paid pornography sites and sex shops. Thousands of others were from creators who labeled their content as for adults only.

Still others encouraged eating disorders and glorified alcohol, including depictions of drinking and driving and of drinking games.

Alarmingly, this problem isn't limited to TikTok – the algorithms, irrespective of the topic, are similar across the major social media sites. Why? Because it's profitable for them to lead people down rabbit holes (think QAnon, anti-vaxx nonsense, etc.), feeding them more and more extreme content, consequences be damned.

Ironically, TikTok is a Chinese company, yet China wouldn't tolerate this for a millisecond. While I don't think we should adopt anything close to their oppressive system of censorship, we clearly need to rethink our laisse-faire approach...

3) This is a great story in Sports Illustrated: Saving Par. Excerpt:

Jimmy Dunne would have been in the World Trade Center's south tower 20 years ago, if not for golf. The mantra he has adopted since has lifted many, including Tom Brady...

Saturday [September 11] will mark 20 years since Dunne happened to be out of his office when one-third of his firm died in the offices. It will mark 20 years since Dunne began his mission of rebuilding. He's come to accept the randomness of life. Even on this day, he says: "Someone, somewhere is going to die tragically because they stepped on the wrong side of the street. Perfection has long left the building. But if you're living life and you're out and doing things, and you have friends and family, you [can] still find the joy in life."

So, on Saturday, he'll acknowledge the horror of 9/11, not different from how it's been each morning for the last two decades. And then he'll grab his "Q" balls, and play a round of golf. Just the way he likes it.

4) Speaking of 9/11, Susan and I were at Mt. Rushmore on Saturday, the 20th anniversary of that fateful day. We saw a moving ceremony that took place after the nightly movie about the monument, followed by illuminating it.

At that point, a Park Service guide asked all active duty service members, veterans, and first responders to come down on stage to be recognized. To great applause, well over 100 people came forward, and then they lowered the flag, as you can see in these pictures:

I've posted more pictures from the first two days of our 10-day, 2,000-mile RV trip from Minneapolis to Seattle on my Facebook page here. In addition to Mt. Rushmore, we hiked in the Badlands and Black Hills and then drove to Devil's Tower, which, by the time you're reading this, I'll be climbing with a guide.

Best regards,


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Empire Financial Research

Whitney Tilson

Empire Financial Research founder and CEO Whitney Tilson is the editor of the Empire Investment Report, a monthly investment advisory that focuses on cheap, high-quality stock ideas.

Whitney graduated with honors from Harvard University and Harvard Business School, where he earned an MBA and was named a Baker Scholar. Whitney spent nearly 20 years on Wall Street, during which time he founded and ran Kase Capital Management, growing assets under management from $1 million at inception to a peak of $200 million.

Once dubbed "The Prophet" by CNBC, Whitney predicted the dot-com crash, the housing bust, the 2009 stock bottom, and more. Now, he's sharing his secrets and strategies with followers of his latest endeavor, Empire Financial Research.

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