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HEALTH, WEALTH, AND HAPPINESS

March 11, 2022

"Live as if you were to die tomorrow. Learn as if you were to live forever."

- Mahatma Gandhi

In case you missed it: Last night's event on "How to Do Your Own Research in Crypto," with Alex Thorn of Galaxy Digital, is available for everyone to learn about investment theses. Watch the replay here.

That's the theology professor in the middle.

(I have no idea who's the kid holding the list.)

The theology professor took challenge with this practice. His list spelled out a number of reasons -- 95, to be exact -- why these pay-for-Purgatory schemes were wrong. Salvation came from a change in inner attitude, he argued, not from a cash donation.

Speaking out against the pope was dangerous, of course, but the professor was clever about it. He framed the list as a series of suppositions, or “theses,” intended to spark academic debate. He carefully printed and mailed the list to a high-ranking church official.

He may or may not have also nailed the list to the door of the university church, but it makes for a better story.

The professor certainly wasn’t shy about promoting his ideas, though. The list was vehemently opposed by Tetzel, one of the church’s biggest moneymakers, who started a “pamphlet war” with the professor. (Today they’d argue about it on Twitter.)

The professor’s list of 95 ideas – or “theses” – quickly grew famous. Preachers began to thunder his ideas from the pulpit. The professor was eventually labeled a heretic and excommunicated from the church, but this only made his ideas spread faster.

Less than a decade later, the professor set up his own church, formally splitting from the Catholic Church. The new style of church – ultimately called “Protestant,” based on his original list of protests – triggered massive religious and social change throughout Europe.

The reverberations are still felt today. Today, practically every Christian church you see that’s not Catholic – from Southern Baptists to Methodists, and everything in between – stems from that original list of 95 ideas.

The professor, of course, was Martin Luther, and his “95 Theses” sparked a movement. And as with so many movements, money was at the core.

What is an Investment Thesis?

A thesis is a statement that says, “I think this is true, but I challenge you to prove or disprove it.” (This is why Luther didn’t call his list the “95 Facts.”)

In investing, especially crypto investing, having a “thesis” is important. Whereas most people are just going to CoinMarketCap and seeing a huge list of undifferentiated tokens, a “thesis” allows you to start making sense of this industry.

For example, here’s one of our investment theses:

While digital assets like bitcoin and cryptocurrencies are different from traditional companies, they can be analyzed in much the same way.

Theses are incredibly useful, because they allow us to create “mental models” of how the world works. You'll see that even this simple thesis gives us guidelines on how to invest: do this, not that.

Keeping an open mind is important. Like scientists trying to find data to support or disprove their hypothesis, we want to be ruthlessly honest with ourselves. We can’t get too attached to a thesis: if the data proves it wrong, then we come up with a new thesis.

With that background, here is a list of crypto investment theses.

The Crypto Investment Theses

On digital money and digital assets:

1.   Money is increasingly digital.

2.   Therefore the movement of money will increasingly happen across the Internet, rather than by exchanging pieces of paper.

3.   This movement is giving rise to Internet-native money (“cryptocurrencies”) that are more efficient than traditional currencies.

4.   The most well-known of these cryptocurrencies, bitcoin, showed what is possible, though it is still not practical to use as a currency.

5.   However, bitcoin gave birth to thousands of other digital assets, all designed to store and transfer value over the Internet.

6.   Together, these digital assets are radically transforming the global economy, and they represent a seismic shift in the history of finance.

On institutions:

7.   Traditional banks have failed their customers by ignoring these threats to their business models.

8.   Financial advisors have failed their clients by being too lazy to learn about these new digital assets.

9.   Many governments have failed their citizens by unfairly penalizing or banning these new digital assets.

10.  Against this backdrop of negligence, a new class of “crypto investors” is taking advantage of this economic revolution.

On how to invest:

11.  Investing in blockchain-based digital assets (the “block market”) can be likened to investing in traditional securities (the “stock market”).

12.  While digital assets are different from traditional companies, they can be analyzed in much the same way.

13.  As with analyzing a stock, crypto investors can use both quantitative and qualitative research (i.e., good data and good judgment).

On quantitative analysis:

14.  Because blockchain data is viewable by everyone, investors have a much more transparent view into a digital asset’s performance than they do with public companies.

15.  For example, investors can easily see the number of users of a blockchain-based digital asset (like “customers”).

16.  Investors can also see the fees generated by a blockchain-based digital asset (like “revenue”).

17.  Investors may be able to see additional valuable data (TVL, node metrics, developer activity) that is simply not reported in public companies.

On qualitative analysis:



18.  In addition to these quantitative metrics, investors can also measure digital assets qualitatively, by analyzing them like a business.

19.  By analyzing the market for a digital asset, an investor can see whether it serves a clearly defined customer base that’s large and growing.

20.  By analyzing the competitive advantage of a digital asset, an investor can see whether it is likely to be overtaken by others.

21.  By analyzing the team behind a digital asset, an investor can see whether it is led by capable, trustworthy managers.

22.  By analyzing the tokenomics of a digital asset, an investor can see whether an investment is likely to gain or lose value over time.



23.  By analyzing the user adoption of a digital asset, an investor can judge whether it has a credible path to gaining widespread usage.

On long-term hodling:

24.   Armed with this quantitative and qualitative research, investors can ruthlessly eliminate the vast majority of digital assets, as they will not withstand this scrutiny.

25.   Instead, investors can find a small number of high-quality digital assets and hold them for the long term.

26.   Because digital assets are relatively new, their price is volatile, so investors have no choice but to hold them for the long term (5+ years).

On price predictions:

27.   Because of this volatility, no one can predict the price of digital assets. No one.

28.   Not even that guy who makes a living by predicting the price. (If he could really predict the price, he wouldn’t have to make a living by predicting the price.)

29.   This means “price analysis” is generally worthless.

30.   This also means “causal analysis” is generally worthless (i.e., “bitcoin dropped because X happened”).

31.   Therefore, the best way for investors to protect themselves against price volatility is to simply invest the same amount every month (steady-drip investing).

On diversification:

32.   This monthly contribution can be split into a diversified portfolio (e.g., a $1,000 monthly investment puts $600 in to stocks, $300 in to bonds, and $100 in to digital assets).

33.  By creating a highly diversified portfolio, investors avoid putting all their eggs in one basket (digital or otherwise), protecting their money better.

34.  Investors can further diversify their digital assets by identifying the different “sectors” (stablecoins, NFTs, DeFi, etc.), and buying the probable winner in each.

35.  While most technologies start out facing furious competition, this usually resolves into one or two big winners (Windows and Mac in operating systems, Google in search engines).

36.  The early technology leaders, however, do not always win in the long run (Yahoo in search, Myspace in social media), so investors must monitor these sectors periodically.

37.  There will be incredible innovation ahead, so investors must be careful about defining these sectors too rigidly: keep an open mind.

On speculation:

38.   In a high-inflation, low-interest rate environment, investors will not want to hold cash, as it will slowly but surely lose its value. (“Cash is trash.”)

39.   Therefore they will flock to alternative investments that offer a better return, including all kinds of speculative fads (such as NFTs of cartoon apes).

40.   While “a fool and his money are soon parted,” the fool’s money may help build valuable infrastructure for future societal benefits (such as NFTs for real estate). In this way, speculation is frequently a public good: the future is funded by the present.

41.   Thus, the smart investor turns a skeptical eye toward sky-high yields, “crypto fads,” and complex derivative products: if it sounds too good to be true, it usually is.

On crypto eating the economy:

42.   Still, the flood of money pouring into digital assets is due to investors protecting their money against inflation, hoping to earn more than they would otherwise lose.

43.   While most digital assets are created out of “thin air,” the case is different with “stablecoins,” especially those backed by U.S. dollars.

44.   Stablecoins of this type represent government-issued money, “wrapped” into a digital asset. This has huge implications, as it shows that “crypto is eating the global economy.”

On CBDCs:



45.   Government intervention, then, is perhaps the biggest risk for investors: governments could ban digital assets, either directly or indirectly (e.g., through excessive taxation).

46.   Given the movement toward digital money, however, it seems more likely that governments will choose to create their own central bank digital currencies (CBDCs) instead.

47.  The country that gains global adoption of its CBDC most quickly -- using the quantitative and qualitative metrics outlined above -- will likely own the new reserve currency (i.e., the global standard).

48.  China is currently in the lead with its e-CNY CBDC, so smart investors can further diversify their stock portfolio with a generous mix of China-based companies.

On global money:

49.   Since money is power, the transition to a new financial system based on private digital assets (e.g., cryptocurrencies) and public digital assets (e.g., CBDCs) won’t be easy.

50.   Citizens of the world will begin to ask themselves “Why all the fighting over money?”

51.   Out of this financial wreckage, a new invention will arise: a one-world digital currency, a global money for a global economy.

52.   Nations will still have their own currencies, but this “supra-national currency” will be available for all citizens of all nations.

On the benefits:



53.   Because this global digital currency will be programmable, we will build it with a progressive wealth tax, honored by all nations (no more offshore tax havens).

54.   This means more money will be funneled into education, health care, and technology, vastly improving the quality of life on Earth.

55.   Over just a few generations, we’ll see massive improvements in the human condition: we’ll eradicate ignorance, increase the average lifespan, and colonize Mars.

56.   By funneling more money back into economic growth, this global digital currency will also weaken global downturns and increase political stability.

57.   By shrinking the gap between rich and poor people (and nations), we will reduce poverty, the middle class will thrive, and it will be easier to move between social classes.

58.  The investments we make in digital assets today are moving us all, slowly and inexorably, toward this glorious future.

59.  One day, this will all just be common sense.

There you have it. I’m not Martin Luther, so I didn’t go for 95 Theses. Instead, I went for 59. Maybe next week, I’ll go nail them to the door of my bank.

Health, wealth, and happiness,

John Hargrave

Publisher

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