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Category: Crypto

Picks & Shovels of the Metaverse

I ventured into financial markets in the most millennial way possible. In Pakistan, there’s no culture of investing in equity markets and since interest is frowned upon, not many investors dabble with money markets, saving accounts, or term deposits either. Hence, with lack of knowledge on equity markets, my first investment happened to be in Bitcoin.

In the next few years I started investing in many other cryptoassets and lost a lot of money. I learnt some expensive and painful lessons. My number one lesson being; the first and foremost goal of any investment is preservation of capital. The secondary goal is the return on investment.

After learning that lesson, I started analyzing most investments from the “picks and shovels” point of view, especially in up and coming technologies and disruptive innovations.

Instead of buying Cardano, or Stellar Luman, or Dogecoin, I realized I could be investing in $BNB, or most recently $COIN. This way I wouldn’t have to worry about which asset would do well as all trading activity on all cryptoassets generates a fee for Binance & Coinbase. Sure my return could be lower, but so is my risk. $BNB ended up generating a 60x return for me despite being a “safe bet” which is an order of magnitude larger than most unsafe bets in the cryptospace.

Most recently, NFTs have shook the world by the storm. But they are extremely difficult to value. They are also quite illiquid as they are non-fungible in nature. Part of illiquidity is solved by fractionalized art platforms like Fractional.Art as you can now buy small fungible pieces of a non-fungible art. The most recent example being Feisty Doge NFT (NFD) which is fractionalized ownership of photo of a Shiba dog and is trading at $51 million dollars at the time of writing, thanks to fractionalization and liquidity.

NFT space, for now, has fewer bluechip pick-and-shovel style opportunities. The largest NFT marketplace OpenSea doesn’t have a governance token, hence it’s not possible to get exposure to it. It’s also not a public company yet so you can not get exposure via equity market either. Smaller NFT platforms have governance tokens, but are priced way higher than the market share that they have e.g $RARE or $RARI.

There are also play-to-earn games in the NFT space. Since P2E games require players to buy NFTs in order to play the game, there’s a barrier to entry especially for those who can’t afford to buy at all. To solve this, guilds have been formed which lend their NFTs to scholar gamers who then play the games to earn, and share revenues with the guild. In this case, by betting on the guilds, you can also bet on the entire P2E gaming industry pick-and-shovel style. The largest guild right now is $YGG, but that also seems to be over-valued to me on current FDV relative to the number of scholars they have at the moment.

NFTs have also already spread across sports. With $CHZ powering sports fan tokens and collectibles for clubs like Paris Saint-Germain ($PSG) or Barcelona ($BAR), it can also serve as a pick-and-shovel bet on the sports NFT space.

For now, I’m merely observing the pick-and-shovels of this space as I’m confident there will be multi-bagger winners in the NFT space.

Disclaimer: The information provided is for informational purposes only. It should not be considered legal or financial advice. To the maximum extent permitted by law, I disclaim any and all liability in the event any information, commentary, analysis, opinions, advice and/or recommendations prove to be inaccurate, incomplete or unreliable, or result in any investment or other losses.

My Draft Crypto Portfolio Outperformed The Markets By A Lot

Two weeks ago I wrote about 10 crypto assets that are in my watchlist or portoflio. I wanted to see how they have performed since I’ve written that blog post.

Here’s the two week performance below.

AssetPrice on 28th JulyPrice on 11th Aug% Gains
BTC$39,851$45,64414.53%
ETH$2,307$3,16036.97%
SOL$28.33$41.1245.14%
AXS$47.75$74.8956.83%
FTT$31.32$49.5058.05%
PERP$9.96$15.6457.02%
RUNE$4.10$7.1373.90%
MKR$2,705$3,41826.36%
LUNA$9.55$16.5673.40%
STX$1.16$1.4726.72%

If you allocated $1,000 to this draft portfolio on 28th July and allocated $100 to each of the listed assets, your returns would have looked like this

AssetValue on 28th JulyValue on 11th Aug
BTC$100$114.54
ETH$100$136.97
SOL$100$145.15
AXS$100$156.84
FTT$100$158.05
PERP$100$157.03
RUNE$100$173.90
MKR$100$126.36
LUNA$100$173.40
STX$100$126.72
Total$1000$1,468

This would have yielded a cumulative return of 46.80% on your entire portfolio in 2 weeks. If you had a Bitcoin only portfolio you would have generated 14.53% return while if you had an ETH only portfolio your return would have been 36.97%. If you had a 50/50 BTC/ETH portfolio, your returns would have been 25.70%.

In addition, if you had a way of mirroring the entire market, the crypto market has grown from 1.527 trillion dollars to 1.885 trillion dollars. This index would have yielded you 23.44% returns.

Luckily, my draft portfolio above outperformed BTC, ETH, BTC&ETH as well as CMC Index portfolio.

User Equity

Mercury – a bank built for startups, recently published their crowdfund campaign primarily with a goal to allow the customers of the bank to own equity and financial upside in the success of the bank.

Mercury acquires >60% of their customers with word of mouth or referral from their existing customers. As customers become owners of the bank, they are far more likely to refer other startups to bank with Mercury. Hence it is fair to say that Mercury has, in a way, delegated part of the job of customer acquisition to their customers which is very fascinating for me.

I’ve previously seen this model a lot in the crypto & DeFi space. For example anyone who ever traded even once on a decentralized exchange Uniswap was airdropped the Uniswap governance token.

Or if you’re a market maker or liquidity provider on PancakeSwap, you are rewarded with the CAKE governance/equity token.

While any business is only successful as long as it has customers or users, yet for centuries, we hadn’t seen an economic model which rewarded the customers with the financial upside of the success of the business.

We started to see a little bit of it in the past few years. For example content creators on YouTube have an economic incentive to create content and publish on YouTube. However, their financial upside is limited to the revenue generated by their content alone. In addition, the viewers of the content have no financial upside. Even though, both are users of the platform and make it successful.

On the contrary, with Uniswap, even the traders and not just market makers earned governance tokens for simply trading on the platform.

With this new customer/user equity model, users can have financial upside across the entire product and hence they have an economic incentive to work towards the success of the business.

Crypto Assets That I’m Keeping An Eye On

There are several crypto assets that I’m either holding, or watching and I wanted to write one-liner on each one of them. I may be holding some of them for the short-term and some for the long-haul. Others, I may just be observing from the sidelines. Also as fundamentals change, some of these projects will no longer be in my portfolio or watchlist.

Please do your own research and do not consider this to be a financial advice as I’m not qualified to give any financial advice.

$BTC – best monetary policy, no pre-mine, largest, most-secure, simplest, best, deserves largest allocation in each portfolio.

$ETH – most popular infra-layer. Attracting most innovation. Dapps built on ETH will likely replace banks, financial institutions and many fintech apps and neobanks.

$SOL – the most likely contender to compete with ETH. Fastest, cheapest, a little bit more centralized. Supported by the best institutional investors in the crytpo space.

$AXS – play to earn game. Gaming is no longer a pastime activity but a job. Crazy fundamentals. Axie earns $150 million dollars per month and AXS is trading at PE ratio of only 7.

$FTT – native token of the best derivates exchange. Can go wild like BNB (but not as much).

$PERP – largest DEX for perpetual contracts.

$RUNE – one of its kind decentralized exchange that enables trading of non-synthetic assets. All other dexes e.g Uniswap, Pancakeswap use synthetic tokens for assets from other chains.

$MKR – DAO behind largest (partially) decentralized stablecoin DAI

$LUNA – Powering largest (fully) decentralized stablecoin UST

$STX – Just in case, Bitcoin wins DeFi infra layer too. Smart-contract platform secured by Bitcoin’s hashpower.

How Realistic Is Elon’s Dogecoin As A Replacement For Bitcoin

I do not own any Dogecoins. I have never had held any. I didn’t see the premise of buying into it. But Elon has taken it too far and hence I thought to finally write about my thoughts on the situation.

Yesterday, Elon Musk tweeted that he no longer supports Bitcoin due to it’s massive carbon footprint.

Later that day, he expressed his plans that Dogecoin could be that alternate cryptocurrency which also happens to use <1% of Bitcoin’s energy.

Let’s dive into this to see if this could realistically be an alternate to Bitcoin or not.

Bitcoin

A few weeks ago I recorded an impromptu podcast with my friend ZSM to share my views on the biggest benefits of Bitcoin. Full podcast can be heard here. But the TL;DR was that Bitcoin’s limited supply vs infinite fiat money is what makes it a potentially attractive store of value. In order for Bitcoin to deliver on this promise, it needs to be really safe and temper proof. This is where Bitcoin’s 150 TWh energy consumption comes in. Bitcoin network has no ceiling to how much energy it can consume. The miners are incentivized to provide hash power (security) to the network to earn/mine bitcoins. So as long as the cost of mining bitcoins is lesser than the price of bitcoins mined, they can continue to add hash rate profitably, infinitely. Since Bitcoin price has no ceiling due to its limited supply and high demand, you can not predictably say what would be the maximum amount of energy bitcoin needs to operate.

Bitcoin consumes a lot of energy but also provides an opportunity to billions of people. An opportunity for them to protect their wealth and be free from the state-run money. An opportunity at a better life.

Bitcoin also incentivizes renewable energy. For maximum profitability, miners are encouraged to secure bitcoin by incurring the least amount of cost. Renewable energy is usually the cheapest form of energy source with least amount of carbon emissions and hence >75% of the miners and ~50% of the hash rate comes from renewable energy sources.

Bitcoin is not just money, it’s also a payments network. Hence to compare Bitcoin to traditional fiat money on the basis of energy consumption, you wouldn’t just look into the number of trees that need to be cut to print paper money, but would also need to look at energy consumed by millions of banks and financial institutions that act as payment networks for the fiat money.

Doge

Unfortunately, like Bitcoin, Dogecoin is also a proof of work cryptocurrency. Which means it is also secured by energy and not through another consensus mechanism (more on this later). Since Doge has had a massive price appreciation this year, miners are incentivized to provide more energy to Dogecoin in order to mine/earn Dogecoins. This is a perfect opportunity for more and more miners to flock in and profitably mine Dogecoins. This translates into higher energy consumption by Dogecoin as compared to before.

So a lot of critics would suggest that Dogecoin has the same reward-loop as Bitcoin and hence even if it consumes lesser energy today, it would consume the same amount of energy as Bitcoin (or more) as long as the price continues to appreciate.

But there’s a catch. Dogecoin price can not appreciate infinitely. Dogecoin has infinite supply and infinite new issuance, hence Dogecoin can never have a sustainable price appreciation. Since there’s a cap to how much it can grow, there will also be a cap for miners’ interest in the network. Hence, IMO, dogecoin will always continue to be less energy-intensive than bitcoin, just as Elon has pointed out.

Does that make dogecoin better than bitcoin? I don’t think so. It is just like fiat-money. But worse. Dogecoin comes with many of the cons of Bitcoin (energy consumption, price instability) and also many of the cons of fiat (inflationary, infinite supply, bad store of value etc). Hence any amount of energy needed to protect dogecoin network is a wasted energy. The lower carbon emissions are not going to give billions of people a chance at a better life. A chance to be inflation-free. A chance to store their wealth reliably.

Dogecoin is infinitely worse than Bitcoin, at least in my opinion.

Ethereum (or other Proof-of-Stake alternates)

Ethereum is having a fantastic year. Thousands of decentralized finance (Defi) apps are being built on Ethereum. It is programmable money unlike Bitcoin. It does consume energy since it’s also a POW asset, but will soon be a proof of stake asset with ETH2.0 (beaconchain for which is already live). Hence, in the future Ethereum will be consuming <1% of the Bitcoin’s energy. It will also have a deflationary/reducing supply after EIP1559 which will be implemented in the next quarter this year. In short, Ethereum has a fantastic narrative going on right now. It is often dubbed as “ultra-sound money” these days.

ETH2.0 will come with many of the pros of Bitcoin (store of value, deflationary, limited supply) and will also be consuming less than 1% of Bitcoin’s energy.

However, POS is still a lesser-proven alternate to POW. There is a lot of criticism on it by POW-proponents. One of which is that Bitcoin is protected by “external costs” in the form of energy. Ethereum 2.0 will be protected by staked Ethers hence the protection will come from within the network which is akin to a snake eating it’s own tail.

I like Ethereum. And I like Bitcoin. But I don’t understand Doge. It offers no value and it solves none of the problems. If Elon had to pick a crypto that was envoirment friendly, he could have just gone ahead with Ethereum. He seems to like it anyway.

Why Is Grayscale Buying 100% Of The Mined Bitcoins Since Halving

Grayscale is buying 100% of the bitcoins (and more) that have been mined since halving.

Grayscale’s fund is for the investors who want to buy and hold Bitcoins without going through the trouble and technicalities of acquiring and storing Bitcoins safely. Instead the investors simply buy shares in the Grayscale Bitcoin Trust.

But it’s not so difficult to buy and store Bitcoins especially with companies like Coinbase in business that make buying BTCs as simple as using PayPal. Then what is this new kind of increased interest from this certain class of investors who are only willing to buy Bitcoins through Grayscale’s trust? Let me explain.

This new attention seems to be coming from IRA / Roth IRA retirement and pension accounts that are eligible for tax benefits when buying BTC through Grayscale’s trust. In other words, with macro instability and to hedge the COVID-19 related crisis, the retirement and pension money is going into crypto-assets.

There are many out there who view Bitcoin as fake-money or a ponzi-scheme. At the same time the world is exchanging “real cash” for the “fake one” at 30 million dollars per week from their retirement and pension accounts to weather a storm.

Libra Vs Bitcoin

The optimist in me loves Bitcoin despite its many shortcomings. I don’t think Bitcoin will ever be as popularly used as Libra or another stablecoin payment system. Despite that, the optimist in me suggests Bitcoin is a great buy.

The realist in me recognizes how powerful Libra could be. For those of you who don’t know what Libra is, it’s a collateralized crypto-payment project by Facebook. Libra plans to offer basket of stablecoins like USD, EUR & GBP.

Here’s an intro video of the Libra Project.

There are many collateralized stablecoins already out there in the market so Libra isn’t planning to do something that isn’t done before. However the unique thing about Facebook is that whatever they do, they can plug and play that to 2.5 billion users.

Libra’s Advantages

Facebook demos that they will make sending money as simple as sending emojis with features to do so built right within the Facebook’s family of apps. Libra’s unique proposition in comparison to other available options is users and ease of use.

Libra or other stablecoins have several advantages over Bitcoin. The crypto-assets will be fully collateralized and backed by fiat currencies. The crypto-assets will be stable in value and the transactions would be really fast.

.. But Money Is Already Digital?

However, if you think about it, money is already digital. When you pay with your debit and credit cards, or you send money using your bank, or through PayPal, you’re passing value digitally. Money has been digital long before Bitcoin or any crypto-assets.

Digital is generally the opposite of anonymous and censorship-resistant. When you say digital, the information about your money is hosted on someone’s server. Who ever controls the server can see what you do with your money and can intervene, reverse or block actions that you may take with your money.

Cash in comparison is not digital but anonymous and censorship-resistant.

Bitcoin’s Advantages

Bitcoin’s # 1 strength is seldom talked about. It is the finite supply of Bitcoin which makes it deflationary in nature instead of inflationary which USD and all its digital variants including stablecoins & Libra are. The second most important feature is that Bitcoin is censorship-resistant because it is decentralized with no central control. The third one about anonymity could be argued upon. It does an OK job at being anonymous but since the ledger is out in the public, it isn’t fully anonymous.

Conclusion

The feature of stablecoins being stable like USD or EUR is not just a feature, it’s also a bug. One of the biggest disadvantages of money as we know it is that you can’t just hold on to money without losing value. You’re forced to have your money invested in real-estate, stocks & bonds for it to not lose value. Bitcoin as a money is designed to be free forever from the central bank’s control over the money’s supply and its movement. Because of this Bitcoin is designed to grow in value and hence it can not be stable.

The following table could be helpful

AssetDigitalDeflationaryCensorship-resistantStableAnonymous
BitcoinYesYesYesNoYes
CashNoNoYesYesYes
Stablecoins / LibraYesNoNoYesNo

The Internet That Is Being Built In Parallel

If you know anything about the crypto industry at all, you may have heard of this phrase before; not your keys, not your coins. If you haven’t heard of it, let me explain it to you. Crypto assets are stored in digital wallets that can be accessed via private keys (a long alphanumeric string). If you lose the key, you lose your coins.

Some people prefer storing their crypto-assets with exchanges for the ease of doing so. But when you store your assets with an exchange and access them using an email address and password, technically you don’t own the private keys to your wallet. The private keys are known only to the exchange and if they have the keys, they own the coins.

There are pros and cons of this design but it ensures that your money is yours. That you can’t be denied or questioned on your right to withdraw or transfer your funds which does happen all the time with traditional financial institutions.

This is a parallel internet that is being built and it isn’t just limited to finance. You could build any kind of app using the same design where there is no central authority dictating what can and can not be done.

The internet that we’re accustomed to was beautiful but I no longer feel that it still is. The power is getting concentrated in the hands of few mega trillion dollar companies and they set the rules for what can and can not be done.

In the good old days of the internet you could host content on your own sites. Now for better deliverability, it is preferred that you serve this content via instant articles on Facebook & AMP on Google. By not doing so, you may be ranked lower or get reduced visibility.

If you want to own an e-commerce store, you could create your own store using woo-commerce (self-hosted) or Shopify (hosted by Shopify). If you’re looking for visibility or discovery, it’s better that you go with Amazon.

However, if you go with Amazon you can only sell what they allow you to sell. There are many things that are legal to sell but can not be sold on Amazon. They will also use your data in knowing what sells best and then launch their own private label brands to beat you at their own game, which by the way they do all the time.

If you decide to setup your own store, as long as it’s on Shopify, they can suspend your store for whatever reason e.g one of our stores was suspended for listing face masks although we hadn’t listed any. This resulted in monetary losses that shouldn’t have happened. But even if we did list the face masks, our store shouldn’t have been suspended as long as we were not doing anything illegal.

The problem with the internet in its present state is that in order for your business to work, you rely on these mega trillion dollar companies despite knowing that they will practice more control than they should be allowed to. You will be stopped and banned from doing activities that are legal to conduct.

As long as your business is on Amazon, Facebook Shop or Shopify, your business’s fate depends on them. It’s not really your business in the true sense. This isn’t any different than “not your keys, not your coins”.

On the contrary, the parallel internet in its present form is slow, expensive and even allows illicit activities, so at the moment it’s much worse than the internet that we’re accustomed to.

These mega corporations including Facebook are already trying to maintain their control on the parallel internet e.g Libra by Facebook.

The parallel internet can solve everything that’s wrong with the present internet but comes with its own set of problems.

One is too centralized that it even prevents legal activities for private gains, the other one is too decentralized to even allow illicit activities.

The Future Of Blogs, Publishing & Monetizing Textual Content

The textual content industry where I started from has been under a constant decline. Recent stats suggest that social, gaming and video streaming is taking up to 80% of the internet usage. There’s not much you can do to change consumer behaviors so if you want a larger piece of the pie you should adapt and move more to the video content.

That’s bad news because writing and reading need to continue to exist. There are many people who can best express their views over a blog post instead of a YouTube video or they just prefer to do so.

There are two major reasons why I think textual content is dying.

The first problem that I saw blogs face during my career was the shift of traffic from desktop to mobile resulting in lost estate for advertising. This was a major blow as far as revenues were concerned for most content websites.

The second event that I saw happen was ad blockers which are now used by a large majority of the population making the free publishing unviable. Youtube, Facebook, Instagram and all of video content are safe from this as none of the ad blockers block video ads or pre-rolls/mid-rolls.

Since free publishing is seen unviable today, whenever we visit any mainstream news or content websites we’re presented with content-blockers and payment walls.

The thing is that most people do not prefer reading wall street journal every day and so they don’t see paying $5 or $10 or $20 a month as a viable option to reading that one article that they were really interested in. Instead many people, including me, would much rather pay $5-10 a month and distribute it proportionally between the sites we read the most.

There are two solutions that are in the works.

The first one is Medium. You could move your publication to Medium that can be seen as a platform to host all textual content just as Youtube is a platform to host all video content. Medium will charge users reading medium a monthly subscription fee and proportionally distribute that subscription money to writers of the blogs that subscribers read the most. There are many downsides to this arrangement. You move to a platform so you adhere to their rules. You lose your freedom. They own your content and a ton of other platform risks. I wouldn’t do this unless it’s an existential crisis for my publication.

The second solution is Basic Attention Token & Brave. I will try to explain it as simply as I possibly can but forgive me if I fail to do so.

As a user or a reader you download the Brave browser which blocks 100% of the ads and trackers, auto upgrades HTTPS, saves you bandwidth, improves your browsing experience and allows you to continue to read everything without pay-walls. You have two options here. You can receive small notification ads (like push notifications) that come and disappear and get paid (in BAT) for seeing those ads. Or if you’re not interested in advertising at all, you can buy $5 worth of BATs and auto-contribute them over a period of time to the sites you visit the most via micro crypto-payments.

As a publisher, you don’t have to have pay-walls any longer. You don’t have to move to Medium to get a share of those $5 payments. You can continue to publish at your own platform with your own terms and get a share of the auto contribution from the users in the form of BAT and for the users that decline to pay, you can generate revenue through push notification attention ads.

Watch this video for better understanding of how the BAT/Brave model works.

Why Are These Exactly Opposite Money Events Happening At The Same Time

I am not an economist. I know nothing about it. Although, I like to preserve my wealth and I also like to read a lot about how to do that. So you can call me wealth preserver.

There are two money events happening right now. One of them is that the Federal reserve continues to print trillions and trillions of dollars to stimulate the economy. The other one is that Bitcoin is cutting its printing rate to half in about 7 days.

Both the events are happening at the exact same time.

When you increase supply of one thing by a lot and trade it with something of a fixed quantity, you’ll either need to pay more of the asset with an increased supply or get less of the asset with fixed quantity.

The long-term impact of the first event is that you’ll need more pieces of paper to buy assets with fixed quantities such as real estate.

The long-term impact of the second event is that you’ll need less number of Bitcoins to buy assets with fixed quantities such as real estate.

Disclaimer: This is not an investment advice and should not be taken as one. I accept no responsibility for any loss, damage, cost or expense incurred by you as a result of any error, omission or misrepresentation on this site.