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Reading r/wallstreetsilver

What is r/Wallstreetsilver?
My Notes

Updated 2023 May 07 by Likho (licho@firemail.cc)

I don’t have a Reddit account. I doubt I will ever bother to sign up for that website. I don’t even visit it directly. But there are some discussions I had comments for that I haven’t been able to express. Instead of just bottling it up and later forgetting about it, I decided to write about it on my own site.

This is a summary of what I have pieced together after reading the sub for some time. It may not be completely accurate.

What is r/Wallstreetsilver?

r/Wallstreetsilver is a subreddit themed after r/Wallstreetbets. Users on r/Wallstreetsilver believe major financial institutions have a naked short sell position in the silver market. To explain what a naked short sell is:

Assume the price for a silver coin is $25 at the start of this scenario.

I borrow a silver coin from my friend.
I sell the silver coin to a buyer for $26.
Later, I buy another silver coin for $23 as the market price decreases.
I give that silver coin to my friend.

In this scenario, everyone is (mostly) happy. Both my friend and the buyer receive their order of a silver coin, and I gain $3 on the difference in price. My friend and the buyer are only mostly happy because the value of the silver coin has declined by $3. The risk I take is the price of silver increasing; in that case, I would have to repay my friend a silver coin at the new higher price (example: $29, incur $3 loss). If I were a bank or major financial institution, the amount of money involved is easily in the millions.

At a larger scale, the price is suppressed, but a “short squeeze” may or may not happen. Example: Gamestop stock and nickel. In a short squeeze, the ones who have short positions (betting that the price of an asset will decrease) will incur major losses while the long position (those who bet the price of an asset will increase) earns major returns on investment. In the case of Gamestop, the loser was Melvin Capital, and the winner was r/Wallstreetbets. For the silver market, the short position is JP Morgan and Bank of America, and the long position is r/Wallstreetsilver (self-styled “silver-back apes”).

r/Wallstreetsilver describes itself as a community that likes silver. Users often refer to themselves as “silver-back apes”. The apes uniformly emphasize the physical purchase of silver bullion or investment grade silver instead of silver contracts, ETFs, or other derivatives. The reoccurring motives for why the apes buy silver are as follows without particular order:

To drain COMEX, causing the end of price suppression and a short squeeze in the silver market.
To end the central banking system in the United States (“End the Fed” movement).
To preserve wealth in the event of a financial catastrophe such as hyperinflation or a bank failure.
As a result of #2 and #3, to create a parallel economy based on silver coinage and assets.

The topics on r/Wallstreetsilver are generally focused on the United States because of motive #1 in draining COMEX (a commodity exchange in New York) and motive #2 in ending the Federal Reserve.

My Notes

There is a lot of clutter on this subreddit.

The silver-back apes will post photos of their recent purchases to encourage others to buy silver. The title will also read like a tweet. They will also post low quality pictures of gas station prices without proper citation or indication of locations. Because of this, the sub can be annoying to read, and the information in the precious section (on what they’re going for and why, etc) can be hard to find.

Do I think Reddit can establish a parallel economy?

Not really.

r/Wallstreetsilver is one of the groups that desires a parallel economy separate from the government and the central banking system. Beyond local trade, the problem with transacting in literal, physical silver is the extra cost of insured shipping or the risk of the package getting lost or stolen. I have only seen them try to sell each other silver on a separate subreddit specifically for market listings.

r/Wallstreetsilver’s presence is also limited to platforms like Reddit, YouTube, Twitter, and Gab. All of which, with the exception of Gab, are publicly traded companies or Big Tech companies that have agreements with governments to curtail dissenting speech. They don’t seem to have domains, articles, or galleries of their own.

The value of nonphysical, intangible, digital items

The silver-back apes do not like crypto because it diverts investments from precious metals into blockchain projects.

Example:

https://teddit.net/r/Wallstreetsilver/comments/up5te2/youve_received_lesson_1_if_theres_a_run_and/

Do items without a tangible form have (intrinsic) value?

I can not say ‘no’ to this. As I can infinitely copy music, the disc it is burned upon is not what gives it value. The pieces of paper a novel is printed upon is not how it is priced. It is in these and similar cases, the ability to copy, backup or transfer music, writing, or visual art, has more value than scarcity. (This does not mean I will ever make or buy an NFT.)

The apes will ping-pong with the crypto bros in that gold and silver will never “go to 0” and will not have sharp losses in value. The crypto bros will then pong back that both bitcoin and precious metals are scarce, bitcoin has not gone to $0, and bitcoin has been the best performing investment for the decade.

For some reason, no one will acknowledge that the value of any software project, including blockchains, relies on the development team. A project can conceptually be wonderful, but that is meaningless without a developer. A video game can launch well but can turn for the better or worse after patches and updates. While software projects are subject to change, the laws of nature are not.

For example in 2017, the bitcoin community had a contentious improvement proposal BIP 147 (‘SegWit’, segregated witness) which was the cause of a hard fork. It was during this time, there was so much FUD and misinformation about the versions of Bitcoin to come: whether SegWit and Lightning Network would centralize the network or SegWit was patching an exploit Bitmain was using to achieve higher hash rates; or that Blockstream had filed a patent (which I had never seen the patent file for). At least this indicated there are concerns within the community beyond that of price, but it had been a bigger clusterfuck than needed.

I believe a vigilant user community upholds the quality of software. But now, I think the eyes of the crypto community are too set on price fluctuations for that to happen.

Price Fluctuations of Silver

Like any other types of investors, the silver-back apes will keep track of silver prices. Physical assets (commodities) generally appreciate in value as the supply of currency increases. Traditionally, precious metals are hedges against inflation because compared to commodities they are nonreactive. They do not corrode (copper), rust (iron), or emit radiation (uranium). So they are historically purchased by people in times of economic uncertainty or when a currency is failing. The value of precious metals appreciates when the currency is weak, and the value depreciates when the currency is strong.

From March 2022 to August 2022, the average price of silver has declined from a peak of $26 to $19. It seems inflation is not the only market dynamic that affects the price of silver. The price of silver also declines when the central banking system increases interest rates. The major players of the global precious metals market are “the bullion banks”.¹ ² In the case of an interest rate hike, it is more profitable for those banks to sell precious metals. In doing so, they can loan more money to customers. With higher interest rates, the banks profit more from loans.

Relative to the United States dollar, the price of silver can also decline if a major silver-producing country’s currency is depreciating. For example, a silver miner in Poland has a operating cost in euros; they can sell silver for US dollars.³ This is especially the case as the US dollar has appreciated against the Euro in August 2022.

COMEX Inventories

I noticed on r/Wallstreetsilver, one of the users in the spotlight is u/Ditch_the_DeepState. The “deep state” is a term that refers to an unidentified powerful influence in government that is not elected by the people. It may sound like a conspiracy theory, but nowadays, it has some truth (example: World Economic Forum, an international lobbying organization). To stay on track, this is only the meaning behind the name.

Every few days, u/Ditch_the_DeepState (“Ditch”) starts topics reporting the status of COMEX’s inventory. What is unfortunate is that Ditch does not link back to exactly where he gets his information even though he possibly serves as a primary source for many users. What I can ascertain is that he gets information somewhere from CME Group’s website.

https://www.cmegroup.com/markets/metals/precious/silver.html

The terminology “Eligible” and “Registered” often appear in topics, and the apes cheer “OUT OF THE VAULT”. Initially, I didn’t understand what the terms meant.

“Eligible” refers to the metal that has been deposited at COMEX and meets COMEX’s specification.
Registered inventory is fully available for delivery.⁴

As COMEX serves industrial clients, the specifications tend to be excessive for individuals; the unit of silver must be 1000 ounces (= 62.5 pounds or 28.34 kilograms); the fineness must be .999, and it must be stamped from an approved refiner.

Silver during a Societal Collapse, Venezuela

https://teddit.net/r/Wallstreetsilver/comments/xzu8dm/in_a_societal_collapse_dollar_collapse_your/

I caught a thread that was briefly stickied on the sub. It got unstickied, I assume, because it doesn’t support the idea that silver and gold will become a medium of exchange in the event of a financial collapse and when the US dollar loses value (hyperinflation). The loss of faith wouldn’t be conducive to building their parallel economy.

A commenter paraphrases the story of a Venezuelan woman “posted a few months ago”. According, Venezuelans trade using US Dollars while silver and gold is seldom used by comparison. The US dollars comes from family members living in the United States sending money back to Venezuela (remittances).

I couldn’t find a thread that was a “few months” old, but the content lines up with a two year old thread by u/CaracasGirl.

https://teddit.net/r/Wallstreetsilver/comments/mdsicz/i_live_in_venezuela_where_you_can_buy_silver_with/

She mentions gold and silver is gaining adoption in trade which would be optimistic sign for precious metal investors. Well-intentioned users offer to send an ounce of silver.⁵ However, because of the problem of shipping precious metals; instead, she accepts money through Paypal or Bitcoin.

Another Ask Me Anything (AMA) from another Venezuelan says her recount of precious metal use is exaggerated.⁶ According to him, the culture does not value silver like it does gold.

Ponzi and Premiums (18 March 2023)

r/Wallstreetsilver will call the US dollar (and sometimes Bitcoin) a Ponzi scheme. They’re not exactly wrong about the inherent inequity of a single authority issuing money arbitrarily.⁷ However, I do not think they connected the dots between the characteristics of a Ponzi scheme and the precious metals market.

Assume they’re right that both Bitcoin and government paper are “Ponzi schemes”. One can say that cash involves a time investment to acquire while cryptocurrency involves computational power. For this case, the definition of “Ponzi scheme” is just extended to included any financial instrument not necessarily an investment. The “scheme” does not directly pay its investors with money from new investors, but newer investors positively affect the evaluation of the financial instrument e.g more liquidity.

Two definable characteristics of a Ponzi scheme are temporal and spatial asymmetry with regards to economics. Temporal asymmetry refers to the inequity of time; for example, yields for Bitcoin (as well as metals) mining decline over time. (This is why cryptocurrency investors will often say “Get in early!”) Spatial asymmetry refers to the inequity of space. For example, only a specific sector of the market issues the financial instrument; this is the central bank of a country for cash or the cryptocurrency miners for crypto.

Thus the central bank is the primary supplier of cash, or the cryptocurrency miner is the primary supplier of virtual units. From the top of the pyramid, there is a supply chain where other players in the economy have foremost access to units of currency such as a cryptocurrency exchange, government entity, bank, or so on. And there is another category of players in the economy who do not such as regular people.

About precious metals

All retail-available precious metals have a premium added onto the spot price. For the sake of this section assume the spot price of silver is $23 per ounce.

There is always an added premium to the prices of precious metals products. If the spot price of silver is $23, a unit of silver will be for sale at $28. (I don’t want to link to any business’ store page, but the listings are easy to find.) The added $5 covers the cost of manufacturing, transportation, and business operations.

The $5 per ounce represents the cost of buying refined silver in bulk from COMEX (at least 1000 ounces of silver priced at 23 dollars each), delivery by an armored truck, melting down the metal into blank planchets, stamping the blanks, delivery by an armored truck to a dealer, and then the dealer’s cost of doing business.

At the end of the supply chain or the bottom of the pyramid are normal people who do not have foremost access to the supply of silver. The next higher up on the supply chain are the bullion dealers and other intermediaries. Somewhere at the top are likely entities such as the “bullion banks”, commodity exchange, refiners, mint, or miners. The top has a definable and consistent profit. For each step lower, the profit is either of lower quantity or less definable or less consistent or carries higher risk. Again at the bottom is the average person who pays to support the business costs and may not make any money at all depending on market conditions.

Even if silver coins are not representative currency, it is possible to create a similarly unfair scheme.

Who can obtain permission to prospect and mine raw precious metals from the ground?

(That is, the licenses and permits involved in mining generally involve authorization of a corruptible entity.)

Who can become an “approved refiner”?

(Whose refined silver units are accepted by the mint or commodity exchange? Like the current financial system, this can become or already is an exclusive club.)

Who sets the standard for composition or purity of a silver coin?

(An example scenario is changes over time in population growth and silver production, and there is less or more metal per person available.)