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We published three audio interviews yesterday with some of the top names across crypto and Wall Street. Below are a few of the most interesting quotes, along with my thoughts in bullet points underneath. You can listen to the full podcasts: Click here for Off The Chain podcast
Meltem Demirors on what is the most misunderstood concept in crypto:
“This is a battle for hearts and minds. If we look at big innovations or shifts, it’s always about a battle for hearts and minds. For hearts and minds to really shift, we need to move away from the moral high ground and look at what the next billion bitcoin users will look like”
The entire crypto industry is built on a single principle: trust. You no longer have to trust a centralized, third-party to validate or consummate your actions. This shift is less technological and more psychological. The technology is finally available to make decentralization viable, but without psychological buy-in from market participants, the technology doesn’t matter.
Meltem Demirors on the absurd amounts of money being raised in crypto:
“There is a difference between need and want. Maybe I need $50 million to build this idea, but the market wants to give me $500M. Blockchains don’t change human nature”
Startups can die from lack of funding, but counterintuitively, startups can also die from overfunding. It is hard for these early-stage organizations to stay disciplined and only raise the amount of capital they need. Discipline becomes even more difficult (and unlikely) when incentives are misaligned between investors and founders — we have seen this play out with ICOs as founders are able to raise non-dilutive capital.
Meltem Demirors on the imperfect intersection between technology and finance:
“I think treating crypto like a math problem, or an engineering problem, is interesting but I don’t think that it works”
The herd mentality runs rampant in cryptocurrencies and blockchain. The root of the problem is the heavy concentration of technologists currently working on the problem. As more non-technical talent joins, you should expect to see more valuable solutions built. A well-rounded team, including expertise and perspective, is more likely to build sustainable solutions to real problems.
Caitlin Long on the antiquated infrastructure of Wall Street:
“Investors are, rationally in my opinion, willing to give up the traditional covenants and preferences that they are used to getting in investments, in exchange for not having to deal with this crazy clearing and settlement infrastructure on wall street which exposes them to all kinds of risks that they don’t need to be exposed to”
Wall Street has used band-aid solutions to address many technology problems over the years. The technical debt incurred is catching up with them. Investors are now willing to look elsewhere to avoid dealing with the sub-par technology stack. Wall Street will need to innovate quickly to catch up or risk being left behind.
Caitlin Long on the disintermediation of Wall Street:
“There is a whole parallel infrastructure of Wall Street. There are structurers of these capital raises, we call them ICO’s… but there is a whole capital markets built up around these products. You’ve got advisors, you’ve got exchanges, you’ve got research firms that specialize in all of this and Wall Street is going to be disintermediated”
Investors who look for Wall Street alternatives are less likely to look for something completely new, but rather look for a more technologically advanced version of what they already understand. Crypto is providing similar infrastructure on a global basis, without the risks of centralized entities. If successful, crypto has the potential to disrupt majority of what is offered by Wall Street currently.
Caitlin Long on the threat of rehypothecation of Bitcoin:
“It’s a big part of Wall Street’s business model, they want to intermediate trades. If they can inflate the number of claims on underlying assets, they can intermediate more trades”
Wall Street hates that there are only 21 million Bitcoin available. They will do anything they can to increase the supply, including creating more than 21 million claims on the underlying asset. This approach is a direct attack on one of the core value props of Bitcoin — it is unlikely that Wall Street is Bitcoin’s friend.
Jim O’Shaughnessy on investor’s lack of discipline:
“We are optimized to be fearful of perceived threats. So when markets, as we know, are incredibly volatile, what do people do? The amygdala lights up, the fear takes over the brain, and there’s almost nothing you can do to fight it”
Financial markets merely highlight human nature. Volatility and the fear of losing money causes investors to act irrationally. The crypto markets show this more than anywhere I have ever seen because we get to watch the shifts in sentiment play out on Twitter and other social platforms. Remember, the best investors have no fear.
Jim O’Shaughnessy on algorithms outperforming humans:
“All of the researchers thought that human experts would soar over algorithmic solutions, but the algo’s destroyed them. And they destroyed them for one reason, and one reason only: they were consistently applied time, and time, and time again”
Computer algorithms are consistent and disciplined. Both are lacking in most human decision making however. It shouldn’t be a surprise to anyone that algorithms outperform humans over and over again.
Jim O’Shaughnessy on what makes a great investor:
“Sir John Templeton was famous for, when stocks were doing very poorly, making a list of stocks he liked and putting in buy orders for prices WAY below where they were. And his reasoning was that if the stocks ever got to that level, he would not have the guts to put the order in. So there was a guy who understood his own human nature”
Humans are imperfect. The better we understand ourselves, the better investors we can be. If we can build safety nets that prevent us from making mistakes, we have reached a level that most can only aspire to reach. Sometimes, the best investment is in protecting yourself from you.
I learned a lot from these conversations. Hopefully you enjoy them as much as I did. You can listen to all three episodes here: Click here for Off The Chain podcast.
Could Tesla Tokenize?: Tesla CEO Elon Musk cited a few reasons as to why Tesla was “better off as a public company,” including: “There is also no proven path for most retail investors to own shares if we were private.” There is one risky investment that retail investors can own no matter how rich (or not) they are: cryptocurrency. The U.S. Securities and Exchange Commission doesn’t prohibit individuals from buying Bitcoin and other digital assets directly—largely because it can’t, due to the decentralized structure of the blockchains on which those cryptocurrencies run. Read more.
$31 million NEX project could be biggest casualty of blockchain cuts: Project Infinity, launched in May 2017 by NEX Group (formerly ICAP), could be the biggest bloodletting the distributed ledger sector has seen to date, having cost roughly $31.7 million and hemorrhaged dozens of jobs. Sources say a deal to sell the business to CME for $5.5 billion, announced by NEX boss Michael Spencer in March 2018, was a driver in the cost cutting at the firm. Read more.
With nearly $200 million on the line, EOS is building a voting system: There's an account on the EOS blockchain with $35 million worth of tokens in it that no one can touch – and its balance is growing constantly. At the end of EOS' first 12 months as a live blockchain, this account (called eosio.saving) will be worth close to $192 million, assuming the recent EOS market price of $4.79. Read more.
Samsung looks to streamline banking with blockchain tool: Samsung SDS, a subsidiary of South Korea's tech conglomerate, has developed a blockchain-based certification platform for South Korean banks. Developed in collaboration with the Korea Federation of Banks, a new platform called BankSign is said to make interactions between different banks' mobile systems seamless. Read more.
Major Russian airline tests blockchain in bid to track fuel payments: S7, one of the largest airline operators in Russia, has tested a blockchain-based application that tracks data and paperwork connected to the process for refueling planes. The airline said it trialed the application with its fuel supplier, Gazpromneft-Aero, and Alfa-Bank, Russia's largest private bank, on a domestic flight based out of the Tolmachevo International Airport. Read more.
Randi Zuckerberg joins Huobi’s public blockchain advisory committee: Randi Zuckerberg, the elder sister of Facebook founder Mark Zuckerberg, has joined the advisory board of cryptocurrency exchange Huobi to develop Huobi’s new public blockchain. Zuckerberg, who worked at Facebook for over six years, is also the founder and CEO of Zuckerberg Media. Read more.
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Nothing in this email is intended to serve as financial advice. Do your own research.