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HEALTH, WEALTH, AND HAPPINESS |
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As the price of bitcoin hits all-time highs, it’s helpful to remember that the colorful crypto personality John McAfee predicted that the price of bitcoin would hit one million dollars by the end of this year. If not, he promised to consume a part of his own anatomy. (Warning: NSFW.)
Now, Scott Minerd of Guggenheim Investments has predicted that bitcoin will hit $400,000. If not, he promised to eat a slice of pie. |
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I think price predictions are worth the paper they’re printed on. Instead of predictions, I recommend principles: the natural laws of the universe, applied to the new world of blockchain investing. An example of a principle is “water freezes when it drops below zero degrees Celsius.”
These principles exist for blockchain.
Because it’s a new industry, we’ve got to discover these principles, which is what our work is all about. All year I’ve been laying out these principles for you: first in the form of a hypothesis, which we test with real-world data and feedback from smart people, then refine and improve. |
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When we deeply understand these principles, we can make much better predictions as investors: not perfect predictions (because we don’t have perfect knowledge), but good long-term plays. This is much different from most people, who invest in crypto on emotion, hearsay, and tweets.
Instead of predictions, today I will summarize some of these principles that we’ve discussed in 2020, which we can extrapolate to make some good long-term investments in 2021 (and beyond). |
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This is how most people buy blockchain. You’re not most people. General Investing Principles for 2021 (Click the headings to read more on each principle.)
Look for things that add value. Whether you’re investing in the stock market or the block market, find companies and projects that make human life better, faster, or easier. And look for companies that do it well, with good management and great products. Avoid spitcoins and penny stocks.
Invest in productivity. I’ve highlighted Ethereum (ETH) as making it easier to develop blockchain applications, and Uniswap (UNI) as making it faster to trade tokens. I’ve invested in both, because they make humans – and our money – more productive. Good investments increase productivity.
Think long-term. Principles are like long-term probabilities: it’s hard to say how things will play out next week, but easier to see how they’ll play out over the next several years. When we make smart long-term investments, then have patience to wait, we can be like investors who bought bitcoin at $100. Blockchain Investing Principles for 2021 (Deciding whether to buy bitcoin, tokens, or cryptocurrencies.)
The hardest part is getting started. The easiest way to get started is to buy a little bit of bitcoin (even just $100) on Coinbase. The current surge in demand is being fueled by large financial institutions finally realizing that big money is moving into blockchain. Over the long-term, that will likely continue.
Think of blockchain investments like stocks. While the two are fundamentally different, we can think of buying tokens like buying stock in a good company. We can also bring many of the principles of value investing to blockchain investing.
Understand the underlying “business.” For example, we should always know what the heck the blockchain actually does. We should be able to explain it in plain language, and (if possible) use it ourselves. We should know whether it makes money, how it makes money, and where that money goes.
Look for tokens trading at a discount. We can also look for projects that are likely undervalued, or “on sale.” A year ago, you could buy ETH for just over $125; as I write this, the price of ETH is $650. Guess what? It's the same ETH. (To determine whether a token is cheap relative to its price, see the metrics below.)
Qualitative, Quantitative, Price. There are three tests we should use before making any blockchain investment: Qualitative (evaluating the underlying business), Quantitative (evaluating the underlying numbers), and Price (deciding whether it’s cheap or expensive, relative to the other two). We call this QQP.
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Test before you invest.
Blockchain Investing Metrics for 2021 (How to test for good investments.)
Blockchain is about people. The number of humans using a blockchain is the most important driver of value. For this reason, Total Users is the go-to metric, as it shows actual users of a blockchain (though it doesn’t tell you how many people are actively using it). Think of this like customers of a company.
Unique Active Wallets shows the number of humans actively using a blockchain, so it can be a useful secondary metric. (Note that it’s tricky to calculate, because there are different interpretations of what makes a user “active.”)
For Ethereum-based tokens, Total Gas Used is an excellent metric, because it shows the amount of “fuel” that is being used to power Ethereum (or any given DApp), removing price from the equation. (Note that this metric is currently hard to find – a great opportunity for someone!)
For investing in the wild and weird world of DeFi, which took blockchain by storm in 2020, see my articles on “How to Invest in Defi” here and here.
Yeah, But Should I Buy Bitcoin in 2021? The easy rule of thumb for blockchain investing: If the number of real people using a blockchain is shooting up, and they’re getting real value from that blockchain, it’s probably a pretty good long-term investment. (It's even better if everyone isn’t rushing to buy it – right now, for example, it’s probably expensive.)
I’ll be taking the next few weeks off, but will be back the first week of January with the update on how our Blockchain Believers Portfolio performed in 2020.
Personally, I can’t wait to see how these principles played out. |
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Health, wealth, and happiness, |
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John Hargrave Publisher Bitcoin Market Journal |
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Hi Everyone,
On one side of the river stood seven fat cows, and on the other, there were seven skinny cows. The skinny cows then ate the fat cows, yet they somehow stayed skinny.
This was the pharaoh's dream that troubled him so, which none of the great mages of the time could provide a reasonable explanation for, in the biblical story of Joseph the Dreamer.
Joseph the Dreamer then did something bizarre, he quoted former President Bill Clinton, saying "it's the economy, stupid."
Well, maybe not in those exact words, but he proceeded to explain to the pharaoh that there would be seven years of plenty in the land of Egypt, followed by seven years of famine, and he stated that the people should conserve their bounty during the first seven years in order to survive the latter period.
In fact, pharaoh already knew all about economic boom and bust cycles. After all, he's the freaking pharaoh, he knows everything.
Though the bible doesn't explicitly say it, many believe that pharaoh already knew very well what the dream meant.
He wasn't actually looking for an interpreter of dreams, but a leader of men, someone who has the guts and political acumen to go out and tell the nation that they need to save and not spend during years of plenty.
Unfortunately, our world leaders of the last decade did not have the leadership skills required to save up during the prolonged expansion, and instead they continued to borrow and spend as if another recession would never come.
Now, economists are actually beginning to worry about what might happen when we exit the recession and economic activity picks up.
Bill Dudley, who served as president of the Federal Reserve Bank of New York, wrote an op-ed expressing his own fears of a faster than expected recovery. |
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As we go into the weekend, the U.S. government is once again on the verge of a pointless shutdown, simply for lack of leadership.
This is a recurring issue though, and rather than linking to a recent article, here's a great explainer from the always informative and always punchy YouTuber CGP Grey.
The election runoffs in Georgia may end up settling this situation, but only by giving unanimous control to one side, and certainly not by way of creating a representative government that works together.
We can only hope that President-elect Joe Biden will be the kind of leader to tighten the screws once we're out of this current predicament.
Yet, seeing as he's already nominated former Fed Chair Janet Yellen, the one who failed to save during the years of plenty, to be his treasury secretary, we might need a bit more than hope.
With that, I'd like to wish you a very pleasant weekend for you and yours. See you on Monday.
Best regards, |
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Mati Greenspan Analysis, Advisory, Money Management |
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