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  • what In the last video you guys have roasted me in the comment section where I made a case about how Bitcoin could go to zero or to a million.

  • But it doesn't matter because at the end of the day, Bitcoin is a tiny part of the Blockchain.

  • Whether Bitcoin succeeds or not, Blockchain will still be the technology that will govern the future.

  • But it seems like a big chunk of you disagrees with me.

  • But it doesn't matter because today we are going to discuss the mother of all crashes as Michael Barry calls it.

  • Some people don't like Michael Barry because he believes that the chart crypto is in a bubble and it is going to crush together with meme stocks.

  • If it was a random person like me then you can call him dumb stupid and whatever you want.

  • But this guy is so smart that Hollywood made an entire movie about him.

  • The fact that Hollywood made a movie about him doesn't make him smart.

  • But since he has predicted precisely the 2008 crush and earned hundreds of millions of dollars in the process, has gave him the reputation of a financial genius.

  • Who can predict crashes?

  • Isn't that awesome?

  • If you can not for sure that what will crash and what will rise, you're destined to make millions while hedge funds who shorted Tesla lost millions of dollars?

  • Guess who profited by shorting Tesla?

  • Yes, the man himself, Michael barry barry shorted over 800,000 shares or $534 million by the end of the first quarter of this year and tweeted about it.

  • Guess what happened to Tesla stock?

  • It dropped to around $600 since he started his hedge funds in the two thousands.

  • He immediately made extraordinary profits in his first full year.

  • In the 2000 and one, the S and P 500 fell 11.88%.

  • Sign was up 55%.

  • Barry achieved this returns by shorting overvalued tech stocks at the peak of the Internet bubble.

  • The next year, the S&P.

  • fell again by 22%, and yet sign was up again 16% the next year.

  • In 2003, The stock market finally turned around and rose 28.7%.

  • But Mike Barry beat it again.

  • His investment rose by 50%.

  • By the end of the 2004, Mike Barry was managing $600 million 2005, Barry started to focus on the subprime market.

  • Throughout his analysis of mortgage lending practices in 2003 and 2004, he predicted that the real estate bubble would collapse as early as 2007.

  • Eventually he was right, the market crushed.

  • He earned a personal profit of $100 million $700 million 500%.

  • He also predicted that Bitcoin price is too high before it crushed to around $30,000.

  • In fact, he specifically said that if you don't know how much leverage is involved in the run up, you might not know enough to own it.

  • Many of you are going to dislike this video because of what I'm about to say.

  • But instead, if all of you are going to give this video a thumbs up, I'm going to explain why leverage is so important in understanding Bitcoin.

  • Why exactly Michael Barry thinks that the mother of all crushes is coming.

  • And whether we should trust him or not.

  • To understand the problem with modern economy, you have to understand leverage.

  • We have created so many creative forms of debts that no one really knows.

  • How big is that debt.

  • And Warren Buffett even called it financial weapons of mass distractions.

  • It's a ticking bomb when it explodes, it can take down the entire economy.

  • But why do we use leverage in the first place?

  • Because leverage turns good deals into great deals.

  • Imagine you certainly believe that stock is going to rise by 50% the next day.

  • You can use your $10,000 to buy stock.

  • A and let's assume you're right and the stock price rises by 50%.

  • Congrats, you've made $5,000.

  • But if you have used leverage, let's say 10-1, you would have purchased $100,000 worth of stock a and would have earned $50,000 after returning the borrowed $90,000 once it rises by 50%.

  • But that's a simple example because most of the leverage is informed of derivatives.

  • A derivative is basically a contract between two parties betting on the change of a price of an asset.

  • This contract derives its value from underlying assets such as gold.

  • Oil stocks are pretty much anything, literally anything and that's why it's called a derivative.

  • If we bet on the price of the oil for example and create a derivative as the oil price changes due to geopolitical factors, the price of that derivative changes accordingly.

  • Let's say your friend wants to sell his Pokemon cards six months from now and you desperately want that cut, you tell your friends I will buy your card for $100.

  • If you promise me that you will sell it only to me.

  • You create a contract, sign it and congratulate you have created a derivative, but it's not as simple as that because guys in fancy suits in Wall Street have complicated the matter.

  • Let's say five month passes and some famous Youtubers start making videos about their Pokemon cards and the price of that document card Shoots $20,000.

  • But he already promised to sell it to you for $100 since you're not sure whether a month from now this card will be valued at $1,000.

  • You decide to sell your part of the contract to someone who is more desperate for $200.

  • Now your friend is obligated to sell his card to him Since he has purchased your part of the contract and you earned $200 and that is called a forward contract.

  • It's a zero sum game.

  • Your friend could have earned an extra $900.

  • But instead he's stuck in a contract with you to sell it for $100.

  • That's why we have options.

  • Your friend will give you $5 when signing the contract for giving him the right to cancel this contract.

  • He doesn't have to cancel the contract, but he has the right to exercise that option.

  • That's why it's called option.

  • Because you have an option.

  • The price of the card rises to $1000.

  • Your friend cancels the contract with U.

  • N.

  • Sells it for $1000 instead of $100 to your.

  • But you have earned at least $5 for taking that risk.

  • But if it doesn't you're still obligated to buy that card for $100.

  • That sounds in third.

  • That's why we have call options.

  • Your friend is obligated to sell the car to you no matter what.

  • But you have the option to cancel the contract at any moment.

  • But in return, you have to pay your friend $5 for having that option.

  • Simple.

  • Right?

  • In order to save time, most derivatives use standardized terms, their coat futures, 587 barrels of oil at $50 per barrel.

  • That expires at this stage.

  • If oil prices rise to $60 your future becomes more valuable and vice versa, oil prices dropped to $40 your future becomes less valuable.

  • You may wonder why on earth do we have so many complicated contracts?

  • Let's say you run an airline in order to keep your airline profitable, you need to budget and with oil prices jumping every day, you can't do that.

  • But using options, you can secure the price for an entire year for a little fee.

  • If oil prices rise, they can even make a profit.

  • But that's one use for it.

  • The other is that you can profit by speculating And the best part of it is that you don't even need to have the money to do that since all you need to do is to buy, put options on top of that.

  • This market is not even regulated because of the commodity futures modernization act of 2000 that Bill Clinton signed.

  • That's why this market has grown to 1.2 Quadrillion dollars.

  • In comparison the world GDP is just $84 trillion.

  • We can't even regulate the market now because it's simply too big.

  • Any regulations could result in the collapse of the world economy.

  • In fact, the 2008 crash was caused by derivatives, wait a second.

  • How derivatives caused the 2000 and eight crush.

  • Here is the story.

  • In short, the fact that millions of people couldn't pay their mortgages was just the tip of the iceberg when giving mortgages, Banks bundled these loans together and sold them as securities to investors, Which is not a problem.

  • But then companies like A I.

  • G.

  • Started betting on these mortgage backed securities, they ensure those securities by creating derivatives that say if the borrowers would default on their mortgages were going to reimburse you, which made these mortgage backed securities risk free.

  • But in return, you will pay a I.

  • G.

  • A small premium for taking that risk.

  • A.

  • G believed that house prices will keep rising.

  • So it was a great investment.

  • So A I.

  • G, together with other financial institutions, created derivatives, ensuring all other mortgage backed securities in the market.

  • On the other side, there are people who created derivatives that bet against these mortgage backed securities.

  • In fact, there were even derivatives that bet against derivatives that bets for mortgage backed securities, and companies that believe that home prices will keep rising, did accept this contract since they would earn money out of nothing.

  • But the moment house prices started declining, financial institutions suddenly had to pay everyone, they promised, but didn't have the money to do that.

  • All the companies that bet against the housing market didn't even need the money to bet against the market.

  • All they needed is to afford to pay the premiums and they could bet tens of billions of dollars.

  • And that's the problem with derivatives.

  • You can make a deal without having the money to back it.

  • And that's what led this market towards 1.2 quadrillion dollars.

  • If it collapses, it will get way worse than the 2008 crash since back in 2000 and eight this market was only worth $600 trillion.

  • That's why it's not enough to understand the asset, but you should know how much leverage is used.

  • In the case of crypto.

  • For example, traders are using up to 100 to 1 leverage ratios, Which means with just $1,000 they're taking positions worth $100,000.

  • Which means if something slightly goes wrong, the entire thing could collapse.

  • No matter how loudly you say the words decentralized, theoretically it could happen but theoretically it might not but if it happens at least you will not freak out because now you know how derivatives work.

  • If you want to learn more about the stock market, then check out my course and skills share.

  • And don't forget to get your two free stocks from we bought.

  • Thanks for watching and until next time.

  • Mhm, mm.

  • Yeah.

what In the last video you guys have roasted me in the comment section where I made a case about how Bitcoin could go to zero or to a million.

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B1 contract barry leverage market mortgage derivative

Why 2021 Crash Will Be The Biggest Crash in History

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    林宜悉 posted on 2021/07/18
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