MoneyLemma's First Crypto Investment?
A stock picker takes a stab at blockchain investing
Welcome to all new subscribers! This week’s post is on blockchain investing. It’s short but at the end I link to a guest post I did on Cryptechie that goes deeper on the topic. As always, if you like what you are reading please subscribe!
Blockchain might be the most exciting innovation since Friar Romas de Berlanga introduced bananas to the Americas in 1516. There’s a few great articles linked in the appendix that review the long-term potential of blockchain but if you don’t feel like reading them, this is what you need to know to continue reading this article: blockchain is a methodology that allows for the ownership and transfer of digital goods. With blockchain, anything on the internet (cat pics, live-streamed seances, Elmo’s nudes, yet another personal finance newsletter) can be assigned ownership. Our country’s property laws recognize distinct patches of latitude-longitude coordinates and then assign ownership to a registered social security number or business. Blockchain is a reliable way to do that in the online world.
Why MoneyLemma hasn’t been investing in blockchain technologies
MoneyLemma is a fundamental investor. Fundamental investors value assets based on the cash flows they generate. A company is worth all of its future profit. A cow is worth the lifetime gallons of milk it will pump multiplied by the price of milk. Friendship is worth whatever you can borrow and not repay. Many blockchain assets (including cryptocurrencies and NFTs) don’t have predictable cash flows. Bitcoin, Ethereum, Crypto Kitties, NBA Top Shots, whatever these are - all are really cool. These things are email in 1990 or circumcision in 5,000 B.C. - most people don’t get it but one day it’s going to catch on big.
However, it’s hard (if not impossible) to quantify the cash flow these assets could generate. Like Beanie Babies or toilet paper during a pandemic, most buyers are betting that someone else will pay more down the line. These are speculative investments, not fundamental ones. There’s nothing wrong with that. It’s just not something MoneyLemma has any expertise in. Not all transformational technologies, great ideas or disruptive forces have to be investable.
Why MoneyLemma is now excited about investing in blockchain
Blockchain continues to evolve at a rapid pace, and as it does, more and more blockchain-based assets are becoming fundamental investments. For example, there’s an emergent class of companies called Decentralized Autonomous Organizations (DAOs) that are both blockchain-based and have predictable cash flows. DAOs are too cool to ignore, even for boring fundamental investors. MoneyLemma wrote about investing (actually, not investing) in a DAO called Axie Infinity Universe. Anyone interested in diving deeper into the world of blockchain/crypto/NFTs/DAOs should head over to Cryptechie and give it a read. Any thoughts or feedback are much appreciated!
Other great reads on blockchain:
Matthew Ball’s Metaverse Primer
Invest Like the Best (Podcast)
Thanks for reading MoneyLemma, see you in two Sundays! In the meantime, I recommend checking out this newsletter by Vishisht over at Perplexed. He offers a unique perspective on business and self-improvement and some cool reading recommendations. As always, if you like what you are reading please subscribe!