The Politics of Catastrophe, The Future of Fintech, The Separation of Money & State
May 4 2021
“The main reason why money is lost in stock speculations is not because Wall Street is dishonest, but because so many people persist in thinking that you can make money without working for it and that the stock exchange is the place where this miracle can be performed.”
- Bernard Baruch
“One of the best rules anybody can learn about investing is to do nothing, absolutely nothing, unless there is something to do.”
- Jim Rogers
"We've long felt that the only value of stock forecasters is to make fortune tellers look good."
- Warren Buffett
A. A Few Things Worth Checking Out:
1. Niall Ferguson just published his 16th book - Doom: The Politics of Catastrophe. It’s a book examining catastrophes and their consequences.
He was on the Hidden Forces podcast discussing the big ideas. Highly recommended. Niall is one of the smartest thinkers.
2. Finished this extraordinary and under-rated book: Excess Returns by Frederik Vanhaverbeke.
It’s a forensic analysis of hundreds of books, articles, letters and speeches made by dozens of top investors over the last century and synthesises his findings into a definitive blueprint of how exactly these investment legends have gone about their work.
Probably the best how-to book of investing.
This chart is from the start of the book and it’s astounding the rates of returns some of the greats have compounded at - even on the low end J. Templeton compounding at just 15% for 38 years, turns $1,000 into $200,000.
Will I see your name here one day?
3. Ribbit Capital is widely regarded as one of, if not the best, fintech investors in the world. Their portfolio includes companies like Coinbase, Brex, Wealthfront, Gusto, Affirm, Credit Karma, Xapo, and Robinhood.
This conversation (November 2020) heavily focuses on trends in DeFi but also touches on Micky's journey into bitcoin, the intersection of fintech and crypto, and how Ribbit thinks about investing in companies and funds.
Three quick insights:
a) Asking who is your customer and are you building for them? Don’t build for the speculators and fast money. Build for the customers that will be there in a decade.
b) The importance of decentralised systems in a world which is increasingly nationalised, barriers are popping up and it’s easier than ever to shut people down. Bitcoin doesn’t have a nationality, ethereum doesn’t have a nationality, defi doesn’t have a nationality. We need to build tools, software and systems where the rules can’t be changed on us.
c) One of the most magical things about building in blockchains is that software is often open source and inter-operable. This means systems can easily build on top of each other just like so much of the current internet was build on simple protocols like TCP/IP, HTML, SMTP…..
4. Ray Dalio published a short piece last week where he compares the Biden administration as well as today’s economic environment to FDR and those of the 30s.
There are no doubt a number of similarities, as well as differences. But one thing is clear, we’re moving back into an era of big government.
He then followed up with a discussion: The Biden Tax and Spend Plan & The Big Cycle Swing.
6. Travis Kling of Ikigai Asset Management is excellent at articulating the “bubble of everything”. In the thread he dissects the performance of well pretty much everything in a time of financial inflation and asks the question if everything else is inflated in value, why on earth shouldn’t Bitcoin be, especially given its inherent characteristics as a supply constrained digital store of value
7. This fascinating photo essay in the New York Times provides a behind the scenes look at how Pfizer makes it’s COVID-19 vaccine. It all begins inside a facility in Chesterfield, Missouri, where trillions of bacteria are producing tiny loops of DNA containing coronavirus genes which acts as the raw material for the Pfizer-BioNTech vaccine.
This is the start of a complex manufacturing and testing process that takes 60 days and involves facilities in three states throughout the US. The result will be millions of doses of the vaccine, frozen and ready to ship. This is the miracle of science in action and it’s amazing to read and see.
9. William Green has written a great book, titled: Richer, Wiser, Happier: Life Lessons From Twenty-Five Years Of Interviews With The World’s Greatest Investors. He also wrote a great piece on Bill Miller for Barrons, who is one of the most under-rated investors.
He was on The Acquirer’s Podcast discussing the lessons.
B. The Separation of Money & State
Last week I sat down with Meltem Demirors for a chat on blockchains, cryptocurrencies and where we go from here. She is the Chief Strategy Officer at CoinShares, a publicly traded digital asset manager with $5bn in AUM. Meltem has been in the crypto space since 2015 which feels like an eternity!
One of her big ideas is that Bitcoin is attempting to do is: separate money and state, and to make money as ubiquitous as bits and bytes. Since anything can be represented as value on a blockchain network. What does the world look like when money is no longer constrained by the physical borders of the past, but instead becomes native to the internet and to our digital lives.
The Bitcoin network is a global interoperable exchange network for the exchange of value.
Which took us to the question on how do we value Bitcoin or crypto assets?
Her personal belief is that all money is a collective fiction.People like to think that dollars are real and Bitcoin is not real. Real is in the eye of the beholder. In human society, we use symbols and words to convey meaning and we can use icons, symbols, words, language, to create shared belief. But all of this shared belief is predicated on just that - belief. Her view is that we are at a critical juncture in the state of the world where the cracks are forming in beliefs we've held for a very long time.
She think it is important to understand that the only constant in our world is change. The world is changing, and the world of the past no longer exists. People like to believe, especially in the United States, that the US is still the global hegemon and that the dollar is still the prevalent currency. 'It's not, we live in a multipolar currency world that's been happening over the last decade, it's just that people haven't realised it yet.' For many people, that concept is challenging, because it requires a significant mental shift.
We had started the conversation with her price forecasts for Bitcoin and Ethereum:
Bitcoin has gone through 3-4 year cycles ever since its start in 2011, driven by Bitcoin Halving. This causes supply to keep going down, while demand keeps growing. She thinks this will cause Bitcoin to be in the low six figures by the end of the year.
Ethereum is newer and has different dynamics, and has only been around since 2015. Ethereum's real demand use is smart contracts and decentralised finance - defi. This brings automation and programmability to capital markets and finance.
There is a supply side story unfolding too - Ethereum is migrating from proof of work to proof of stake via a process called an Ethereum improvement process or EIP1559. This will cut the Ethereum supply schedule significantly, resulting in a likely effect of three Bitcoin halvings rolled into one. So, with tremendous demand growth combined with supply reducing significantly, she thinks Etherium could reach the 5-10k range, with EIP1559 coming into effect in July being a big catalyst.
Where can people go to learn more about crypto?