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🔍 Tickers mentioned: BTC, ETH, AMZN, TSLA, SPGI
Bitcoin and Ether: scams or the real deal?
As global stock markets hit all-time highs, cryptocurrencies like Bitcoin (BTC) and Ether (ETH) are also surging.
Like most Millenials interested in markets, I’ve found cryptocurrencies to be one of the most intriguing topics of the post-Global Financial Crisis period.
On the one hand, you have extreme Libertarian/crypto diehard evangelists who view crypto as one of the greatest inventions in the history of mankind, and on the other hand, there’s deep skepticism and prognostications of a tulip bubble 2.0 just waiting to pop.
In fact, the website 99 Bitcoins has collected 393 Bitcoin obituaries as of the time of writing:
As someone who initially scoffed at the idea of crypto as an investment, bought BTC and ETH in early 2017, researched cryptocurrencies and blockchain technology more generally, and had a chance to do some professional work in the space, I have a somewhat unique perspective on the topic.
None of this is to toot my own horn and, truthfully, if I was smarter I probably would have made a lot more money on crypto investments.
Anyways, here’s how I view it:
The technological innovations underpinning Bitcoin (blockchain technology) and Ethereum (smart contracts) are notable and worth understanding. I’d argue the fact that the Bitcoin blockchain has been around for over a decade (with publicly available source code and transaction history) and has yet to be hacked or compromised is one of the most impressive pieces of the story
No, BTC and ETH are not scams. Just like with any other financial instrument, this doesn’t mean crypto pump and dumps and frauds don’t exist
Legitimate use cases exist. For example, last year the Nigerian government froze several organizations’ and individuals’ bank accounts during the nationwide End SARS protests against police brutality. To skirt the traditional banking system, Feminist Coalition, a gender equality group that had been founded just weeks earlier and had become one of the key organizations accepting donations for protests, began accepting donations through bitcoin instead
There are a lot of smart people doing important work in the space. A few examples: here, here and here
No one actually knows what’s going to happen to the price. However, Bitcoin has a limited supply of coins that will ever be minted (21 million) and the demand for BTC is only increasing. Classic supply and demand economics
At the end of the day, an asset is worth what the marginal buyer is willing to pay
The question to ask oneself: on the off chance this actually works out, what’s the value of these things? My guess is a lot higher than the current price
I’ll end this with a tweet from Joe Weisenthal from Bloomberg. His take does a great job of capturing the essence of Bitcoin:
⚡️ Quick links
📈 Barron’s — Amazon and Tesla Have Been Great Long-Term Stocks. This Growth Fund Manager Explains Why—and How to Spot Others Like Them.
🛍 Vogue — The future of physical retail
🧐 Marketwatch — I’ve pulled out all the stops for Tesla — but can’t find the upside on the stock
📊 Chart of the week
Note: Because a large proportion of CEO compensation is often in the form of deferred stock options it's important to note the difference between realized compensation (the total value once stock awards are actually cashed in) and the value when the pay package was actually granted.
📚 Good reads
Saber Capital — End of Mean Reversion?
Excellent follow up to the Power Law Dynamics post I shared in last week’s update. One of the most important takeaways:
“the strongest moats I’ve seen created over the past decade have combined physical investments with the zero-marginal cost economics of the internet.”
Matt Huang — Bitcoin for the Open-Minded Skeptic. Published in May 2020, Paradigm co-founder and managing partner Matt Huang provided his thoughts on BTC and its future
Fidelity — Bitcoin Investment Thesis: Bitcoin’s Role as an Alternative Investment
“An allocation to bitcoin in a traditional 60/40 equity and fixed income portfolio from January 2015 to September 2020, rebalanced quarterly, would have improved risk-adjusted returns as measured by the Sharpe ratio by as much as 34%.”
Morgan Housel at Collaborative Fund — Two Worlds: So Much Prosperity, So Much Skepticism
Mosaic Ventures — Europe, Unicorns and Global Tech Diffusion - The End of the American Internet
🎧 Press play
Invest Like the Best — Ram Parameswaran - Internet Scale Businesses
Ram Parameswaran is the founder of Octahedron Capital and previously a partner at Altimeter Capital. We cover the potential for internet scale business, explore the common characteristics of these businesses, and the most important qualities for 8 business models. (link)
Ram is one of the best thinkers when it comes to investing in internet businesses. This thread has good takeaways from the episode.
📺 Video of the week
Happy Hour With Traders: JC Parets & Howard Lindzon | The Evolution of Markets
This week Howard and I talk about the evolution of markets. There are new ways for investors to allocate money almost every day. SPACs are back! More IPOs this year, and many of them going up. What do we do about it? How can we get involved? We discuss all of that in this video!
As we enter 2021, what are the areas we need to be watching? Howard thinks there are 3 major themes to be long for the next decade: Fintech, Healthcare & Education.
It's hard for me to disagree, especially from a Technical perspective.
Stock idea of the week
S&P Global Inc. (ticker: SPGI) is the parent company of S&P Global Ratings, S&P Global Market Intelligence, and S&P Global Platts, CRISIL, and is the majority owner of the S&P Dow Jones Indices joint venture.
It’s a high-quality business and currently offers a decent margin of safety. I’m considering nibbling on some shares.
A reminder—never confuse genius with luck and a bull market…
Disclosure: None of this is investment advice. I own BTC, ETH and AMZN shares.
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