Cooking With Gas
Vol #117: February 16th, 2023
We had a lot of inappropriate names for Coleman fuel.
So many that until I started Googling them earlier, I didn’t even know that it's conventionally referred to by the brand name. Twelve to fifteen year old boys get up to a lot of mischief, and aren’t always focused on the facts.
Whatever was written on the red gallon tins, it didn’t matter. White gas was the magic liquid, ostensibly for powering our stoves, but could do so much more in the hands of young scouts.
The first dish they teach you to cook in Boy Scouts is a “foil packet meal.” This is little more than a handful of potatoes, carrots, and a lump of ground beef wrapped in aluminum. Throw it in the fire, hopefully get some coals around it, and voila. The spuds typically end up raw and the meat is charred. Graduating to Shake n’ Pour on a Coleman two burner made you feel like Paul Bocuse.
These old gas stoves I started cooking on as a tenderfoot were a green metal box with a red dirty bomb strapped to the side. To set one up, you took the gas tank which was nestled next to the burners for storage, hooked it on the outside of the stove, and screwed a long metal connector between that gas tank and the intake on the burner.
No one ever had the funnel, so the next step was where things got messy. Pouring white gas into the tank inevitably ended in spills. A little plunger unscrewed and let you pressurize the system with a few quick pumps. Stand back and light.
Girl Scout water was also particularly useful for starting fires outside of the stove. Forget about foraging for birch bark after it rains, a couple splashes of the clear stuff solves anything. (Not officially sanctioned, of course.)
White gas was effective, but it was dangerous to use, transport, and store. With advancements in camping technology, the quartermaster took a trip to Campmor and stocked the back corner of the church basement with new stoves. Also Coleman branded, the sleeker new stoves had a trimmer profile, and ran off quart sized canisters of pressurized propane.
Short of dropping one off a cliff, these gas canisters were pretty resilient, and easily screwed into the stove. Instead of bright yellow flames licking up the walls of your kitchen, you had a steady blue tulip around the burner.
Showing my BSA stripes and trader’s monetization of everything, white gas reminds me of financial innovation. The early iterations are dangerous but powerful.
Crypto is squarely in the crosshairs of regulators after a series of spectacular blowouts last year. FTX and Three Arrows Capital are what would happen if you gave a pyrochemist some time in the laboratory with white gas.
Rightfully so, the cops are asking questions. The stated purpose of American financial regulators is to protect individual investors. If the scouts are burning down the forest, it’s time to start paying attention.
Earlier this week Gary Gensler proudly took to CNBC to announce a settlement with Kraken over its staking services, pillaging $30 million and forcing them to shut down the offering. This is the equivalent of pulling over a mini van on the way to soccer practice for rolling through a stop sign on a block filled with violent criminals.
Staking is a common technique used in crypto protocols, where users pledge assets to help secure a network, and in term earn fees generated on blockchain transactions. Other players like Coinbase also offer this service, but what got Kraken was a technicality about custody and the abdication of decision making ability.
A strict read of the Howey test would interpret this as offering a security - pledging money to a manager in expectation of future rewards. A strict read of the Howey test could also interpret pre-paying for a startups SaaS product as such. (h/t to 0xdoug here.)
Was Kraken doing a little too much extra packaging here, creating a dynamic where they had decision making authority and were remunerated for their agency? Perhaps. Were Morgan Stanley bankers technically not supposed to talk to clients on WhatsApp? Also probably.
But regulation by enforcement does very little to help drive the bus forward.
Facebook paid a jaw dropping $19 billion for WhatsApp in 2014. Is it unreasonable to think that nearly a decade later, perhaps this tool has changed how communication happens, and thus rules around communication must also change? If my phone is listening to me well enough to deliver high quality advertisements, does that mean I have to leave it at home when I take a client meeting?
Crypto assets are unlike anything else we’ve seen. They’re new in the time scale of human history, but old news for anyone who’s had access to the internet in the last decade. Measurement sticks from the 1946 orange grove Howey case are insultingly antiquated.
Crypto entrepreneurs have been begging for a framework for years. Of course there are the rug pulling fraudsters who want to take advantage of the lack of regulation to execute “highly profitable trading strategies”, but the vast majority are good actors looking to effect real change in a legal and compliant way.
It takes guts to start a company, let alone in an industry where there are no clear signposts and a wrong turn sends you straight to jail without passing go or collecting $200. That’s quite a wet blanket on innovation.
However small you think the use cases for crypto are, they’re not zero, and they require genuine study and thoughtful engagement between regulators and practitioners. Arbitrarily enforcing crypto is not only stifling innovation, but it abdicates the very responsibility our financial regulators have towards investors.
By failing to adapt, the credibility of these institutions is rapidly eroding. A regulator that is seen as out of touch and cherry picking easy money cases instead of tackling the real problems will be dramatically less effective going forward. And we need good regulators.
It seems borderline insane that we were playing with Coleman fuel as pre-teens, but if you didn’t have this experimentation and validation of product/market fit, the industry would have never gotten to propane canisters.
White gas doesn’t only burn outside the perimeters, sometimes it pools within a very highly regulated framework. Product innovations and even listing standards can have unintended consequences with the explosive power of kerosene.
Today in the options space we are seeing just how impactful short dated expirations are. Last week I highlighted what a significant percentage of SPX volume is traded in dailies - over 50% some days. There’s a well established framework for how these are listed and traded, so the innovation problem isn’t necessarily a regulatory one the way it is in crypto.
Daily option’s white gas problem is that everyone who’s having fun flame kissing their bacon griddle, might not necessarily realize how much more meat that red dirty bomb can cook.
While options trading is the big boy sandbox, the repercussions of any festering powder keg will be felt by the market participants as a whole. We’ve seen the powerful effects dealer hedging flow can have on index prices during calmer markets, so an unwind or dislocation has the potential to be violent.
While we retired white gas for most of our camping trips, there was one exception. When you’re backpacking, the propane canisters are clunky, and provide way more fuel than you’d need for a few nights in the woods. Liquid fuel was de rigeur for a little Peak 1 stove.
When you’re carrying everything on your back, not only are you likely to be a bit more of a seasoned woodsman, but you can’t just go dumping tomorrow night's fuel on the campfire for some hot and fast yucks.
Banning the explosive power of white gas isn’t the solution. We need daily options to manage risk and crypto to convey remittances. Innovation needs to be nurtured for its use cases, and implemented mindfully. Bring the propane for a Klondike at Hoyt Scout Reservation, and save the white gas for Philmont.