“The rules are complex,” says Charles “and we thought, well, what if we do something different? Let's pay a dividend in Bitcoin, because now the short sellers have to pay the dividend in Bitcoin.” Buckle up, you heard that right …

With so much drama in the S&P, it’s kind of hard staying focused on how our markets have chronic problems. We’ve all heard of “Too big to fail” but as our guest on this week’s Let’s Talk Markets Live put it markets are “Too big to fix.” 

Some of the most important issues underneath all the action – particularly abusive short selling and Failures To Deliver (FTDs) - need daylight, and this week we were able to speak with someone who’s experienced it all from the inside.

[What exactly is abusive short selling?]

This week welcomed Charles Allen to the show for the first time, and it was an extremely informative episode. Charles is the CEO and Chairman of BTCS–an innovative blockchain firm that uses Ethereum to generate scalable revenue and long-term value for its shareholders. 

BTCS also pioneered what’s designed - in part - to be an effective blockchain-based strategy for sticking it to abusive short sellers. And it’s been deployed before with dramatic results.

 Obviously, we were super excited to hear his thoughts on the state of markets.

So what did he have to say?

“I look at the stock market as highly broken,” Charles observed. “During the financial crisis of 2008, it was Too Big To Fail. Where we are today–it’s Too Big To Fix.”

Charles explains that “there are both market integrity and structural problems that create abusive short selling, which is legal…and then you have illegal activity which is not on and hasn't been on the SEC’s agenda ”

Charles acknowledges that the problems in the market are bigger than all of us.

Unfortunately, Wall Street and regulators tend to look at you a certain kind of way when you bring these problems up.

But here’s where things get interesting. Charles discovered that you could use blockchain to fight back against abusive short selling.

It really is. 

Charles decided to do something different and pay a dividend in Bitcoin, he says, because … now this is the interesting part …  the short sellers have to pay the dividend in Bitcoin.

Turns out there were all kinds of folks that had questions about this new idea including Nasdaq, the DTCC, SIFMA, and “the back office of probably every single brokerage firm in the US.” 

Charles was called to defend his plan on a Zoom call with more than 140 inquisitors.

Charles explained his plan, and then “Four people raise their hands,” he recalls. “They're like, ‘Well, it seems like we may have some real liability here, if you know, we've hypothecated or rehypothecated the shares.’”

“I agree,” Charles told them. “I 100% agree. You're spot on. It sounds like you have some real liability.”

If Charles isn’t overflowing with sympathy for the market makers, there’s a good reason for it. 

“These guys are making up fake shares. The brokers are printing stuff that doesn't exist,” Charles explains. “I just realized that the market was broken and implemented the structure that would fix it for the benefit of our shareholders.” 

So what actually happened when Charles went ahead with his Bitcoin dividend?

“The second that announcement went out, the stock went up over 100% – about 140% at its peak. We traded approximately $500 million worth of shares on the first day…with about a $30 to $35 million market cap.”

No it doesn’t

“There were about $250 million worth of failures to deliver,” Charles tells us. “That means people couldn’t come up with the shares.”

Charles thought the same thing. 

“The next day,” Charles tells us, “we traded $100 million plus. And so what I realized is – this is impossible. Why isn't the SEC investigating this?”

We have one theory.

Fortunately, Charles has all kinds of cool ideas. Check out the whole episode of Let’s Talk Markets Live to find out what he has to say about DRS, why he thinks Ethereum is going to be ten times bigger than Bitcoin, and when he plans to issue his next Bitcoin dividend to shareholders.

#Urvin Ed  #urvinweekly  #bitcoin #crypto #Naked Short Selling