Thursday links: Peterffy, Saylor and Do Kwon

Thomas Peterffy thinks you’re not bullish enough on prediction markets

Thomas Peterffy might be the most underrated figure in the history of business and finance.

The low-profile founder of Interactive Brokers emigrated to the US from Hungary at the age of 21 (60 years later, he still has the accent to prove it) with just $100 from his father in his pocket.

He turned it into $83 billion.

That’s partly because he was far better at math than nearly everyone on 1970s Wall Street: Before the advent of the Black-Scholes pricing model, making money in options was like shooting fish in a barrel for him.

It’s also because his English wasn’t very good. In his first job, as an engineer, he was drawn to an Olivetti 101 computer that no one in the office was using. “I figured it would be easier to learn than English,” he explains.

Peterffy later used those programming skills to automate his trading on NASDAQ, by hijacking the terminal’s data line — wiring it into his own computer to pull live prices and send trades back through the same cable. When the exchange discovered this, they gave him one week to comply with a new rule: All trades had to be manually typed into the keyboard, one at a time.

So he built robots to type the orders into the terminal for him.

Also, he just worked harder than anyone else.

And still does: At 81 years old, the man is now the 18th richest person in America. But he still spends his time sussing out the next big thing in finance — which he thinks is prediction markets.

On the most recent earnings call for Interactive Brokers (which he, unusually, participates in as Chairman), Peterffy said that, while other prediction markets are focused on sports and celebrity gossip, he is focused on providing markets in something much more substantial: temperatures.

Temperatures, he notes, determine electricity use and energy prices — “so this is a way for us to back into the entire economy.”

They’re already seeing strong demand for these temperature markets, and he thinks markets on wind speeds might be the next thing they offer. And then, well, pretty much everything: “We are going to get into shipping, transportation, insurance, all over the globe.”

As incredibly successful as he’s been, he thinks this will be his biggest opportunity yet: “I believe this market will be much, much, much larger than the securities market,” he told CNBC. “Because it’s all the questions about our future.”

I find that hard to believe, simply because the securities market is gargantuan: The US equities market alone is worth over $75 trillion. Fixed income is worth another $60 trillion.

But taking the other side of a Thomas Peterffy bet has always been a terrible idea.

A short history of Michael Saylor — and future of Strategy

The New York Times’ Rob Copeland gets some good zingers in at Michael Saylor’s expense: Strategy’s new, well, strategy of keeping a reserve of US dollars, Copeland says, is “roughly the equivalent of Heinz’s saying it is beginning to see the merits in Hunt’s ketchup.”

But Saylor remains all-in on the Bitcoin meme, according to Copeland’s account of a recent party at Saylor’s “Tuscan-style Miami compound”: 

I only know Saylor from his over-the-top advocacy of Bitcoin. And because his stage presence is subdued even when making the most outlandish claims about it, I assumed he was kind of a conservative business guy who was transformed by his excitement for Bitcoin. But it turns out he’s always been over-the-top excited:

It makes sense, though, because it takes a special kind of person to go all-in on a bet the way that he did with Bitcoin — especially since he did so after only a few poolside discussions with his Miami neighbor, Eric Weiss.

$100 million! Incredible.

Saylor is now worth about $5 billion thanks to the runaway success of Strategy. Helpfully, Copeland concisely explains the risks they’re taking:

Finally, Copeland reminds us of the risks inherent to Strategy's convertible bonds. These have always been self-evident, but now that the numbers have gotten so big, is nonetheless kind of alarming to see it spelled out: 

As soon as next year, Strategy’s convertible debt holders — the ones who lent money for as little as zero percent interest — will expect to swap into stock that Strategy had promised would be worth as much as $672 a share.

If it doesn’t trade at that level — it is currently around $171 — Strategy will have to find money to bridge the difference. In the next three years, $5 billion of such loans are due.

Strategy’s market capitalization is currently $47 billion, so they should be able to scrape up $5 billion one way or another. 

But it really is an over-the-top bet.

Inside the trial of Do Kwon

Mathew Russell Lee’s trial reports, loosely structured and conversational, always make me want to serve jury duty. 

Weird, I know, but he makes the trials sound fun — Lee’s transcript of the Do Kwon trial, for example, includes some good laughs: 

And here: 

There are also a lot of inadvertently funny things: 

The intersection of crypto investing and US law can be amusing, too:

You also learn some random things, like how lucrative it is to be an “expert” crypto witnesses: 

Some helpful things…

…and some amazing things:

That works out to $119 million a month at Luna’s peak — just for market-making!

In this trial, it helps that the judge appears to be something of a card:

And: 

He also tells it like it is:

Aside from the entertainment value, though, snippets of the testimony may also be the most intuitive way to understand why Do Kwon found himself in a Montenegrin prison, whereas the bankers at Lehman Brothers or the developers of the OHM token did not. 

With that, the jury’s verdict was predictable: “Liable, liable, liable — and reckless, not intentional.”

Do Kwon was found “liable” and not “guilty” because this was the civil case against him. His criminal trial is still to come.

Should make for a fun read!

— Byron Gilliam

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