Filecoin Trades at +$100 Billion Valuation #28
Market Meditations | October 16, 2020
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Today’s Meditations:
Filecoin Trades at +$100 Billion Fully Diluted Valuation
The Saver’s Dilemma
Stellar Blockchain Will Support Usdc Stablecoin Starting Next Year.
Filecoin Launch Finally Brings $200m ICO to Fruition.
Grayscale Sees More Than $1 Billion in New Investments in Q3.
The Deutsche Bank Whistleblower Who Gave up $8m is Going Broke
Fed Chairman Powell to Speak About Digital Currencies Next Week at IMF
Pound Swings After Johnson Lays Down No-Deal Gauntlet to the EU
Podcast: Cantering Clark: Crypto Trading Through the Eyes of a Market Veteran
Asymmetric Risk
Filecoin Trades at +$100 Billion Fully Diluted Valuation
The mainnet launch of the Chinese decentralized storage protocol Filecoin took Twitter by storm yesterday. At exactly 14:44 UTC and epoch (block) 148,888, Filecoin switched over to its mainnet and the token distribution began. Given its popularity, exchanges announced trading support for FIL, the native token of the protocol, in advance and crypto traders were once again looking forward to a very volatile trading day.
Raising $200 Million in 30 Minutes
After initially going through Y Combinator, a well-respected startup accelerator, Filecoin managed to attract a lot of attention during its initial coin offering (ICO) 3 years ago. Protocol labs, the open-source research, development, and deployment laboratory behind Filecoin, claimed in their 2017 token sale whitepaper that it ‘required significant funding to develop, launch and grow the Filecoin network into the most powerful cloud storage network.’
The maximum cap of the raise was set at $200 million, which was a huge number compared to most ICO’s during the 2017 era making it one of the biggest ICO’s so far. Because of the worldwide attention from accredited and institutional investors, the allocation sold out even faster as expected and managed to sell out in less than 30 minutes. The speed at which the allocation was filled at such a high valuation without a working product was seen as a warning sign by some analysts at the time. The market was clearly becoming euphoric and the Filecoin sale was an event frequently used in hindsight to argue that the crypto market was clearly in the late stages of an ICO bubble. We all know how that story ended…
Ready For Launch: Market Dislocations & Valuation
After 3 years and staying mostly silent in the media, Filecoin posted an official announcement in late September. After multiple delays earlier this year, the mainnet was finally ready to go live: ‘Over the past 4 weeks, over 400 miners across 34 countries and 6 continents have onboarded an astounding 325+ PiB of storage capacity onto the Filecoin network. That’s enough space for 90 million 1080p movies, 1,400 full copies of Wikipedia, or 7 times the entire written works of mankind (in all languages) from the beginning of recorded history to the present day. This is truly an extraordinary achievement; never in the history of the internet has a community coordinated to amass this much storage capacity in one trustless decentralized storage network.’
Yesterday at 14:44 UTC the mainnet went live officially and tokens started getting distributed. Due to the initially low supply with vesting schedules spread over +10 years, and multiple exchanges announcing trading support in advance, the market had a hard time stabilizing around a certain price. Divergences were so big that Kyle Samani, managing partner at Multicoin Capital named it ‘one of the most memorable market dislocations in the history of crypto. March 12th ain’t got nothing on Filecoin”
As expected, the price remained volatile during the day and Sam, CEO at derivative exchange FTX, reported that the token had generated 150m in volume within a few hours, 60% of which on FTX itself. “(The token) started around $30, went up to $80 on FTX and $200 on other exchanges, how around $40-$80 on various exchanges.”
Investors and traders seem optimistic about the future of Filecoin and the decentralized storage space. Yesterday the fully diluted market cap shot up to over $200 billion, surpassing bitcoin’s and effectively responsible for more than 50% of the entire crypto market cap. Price corrected a little after yesterday’s explosive launch and at the time of writing, FIL has ‘stabilized’ around $50-55. At the current circulating supply, which is less than 1% of the total supply according to Coingecko, the project has a market cap of ~$850 million with a fully diluted valuation of $120 billion. Can the market withstand its current price knowing that the majority of the supply is still locked up? Popular analyst Alex Krüger’s tweet was harsh but probably somewhat accurate in the long run: “When the diluted market cap of a crypto is larger than bitcoin’s, you dump it. $FIL”
The Saver’s Dilemma
High School Economics
The theory of economics draws a relationship between interest rate changes and consumer spending. Central banks adjust interest rates, either up or down, in order to combat inflation or spur economic activity when the economy slows. You may sometimes hear this be referred to as ‘monetary policy tools’. The idea here is that interest rates affect the cost of borrowing money over time and at the same time, the benefit of saving money. So lower interest rates make borrowing cheaper and saving more attractive. Allowing people to spend and invest more freely. It follows that increasing rates, on the other hand, makes borrowing more costly and incentivises saving.
Application of Theory
The response of Central Banks to Covid has been to cut interest rates to rock bottom. In Europe, we even have negative interest rates. So, lower than rock bottom? Under the bed of the ocean somewhere? Let’s consider the average individual, Sue. Sue has $42,000 (a decent amount of savings) in T-bills, earning interest. Well, the one year T bill yield is currently at 0.13%. Apply some simple maths and her annual interest income is a disappointing $55. If she reinvested the income, it would take more than 530 years for her money to double.
Savers around the world face the same problem. Bank accounts, money market mutual funds and other short term instruments used to offer a decent return. Not any more. Rates are lower in nominal terms than they were 30 years ago. The pandemic has made the dilemma acute. This year American, British and German nominal ten year bond yields have all touched their lowest levels in history.
All is not lost if this cut in interest rates has the desired impact. Sue is going to be waiting a heck of a long time for a decent return but if the world economy recovers it is certainly worth it. Afterall, that means she will be able to find a job, shop with affordable prices and all that good stuff.
You might think that central banks had looked into the question of whether interest rate cuts actually incentivise spending. But the Fed and Bank of England have done surprisingly little research into the subject. More work has been done in Germany, where lower interest rates are a hotter political issue. But this suggests that the impact of rates on saver’s behaviour is murky, at best. The Bundesbank has found that the level of returns has become less important over time as a determinant of savers’ behaviour. A study by Allianz, an insurer, also finds that other factors play a bigger role.
To the extent that one can tell, the historical relationship between rates and the level of savings seems to be weak. In what is painfully paradoxical, central banks cut rates in response to bad economic news to encourage spending and this may be the reason that savers actually become more cautious.
The asymmetry between the theory and the empirical evidence creates a real cause for concern. Savers are receiving close to nothing and at the same time, we do not see the intended positive consequences of such a monetary policy decision. Afterall, without the empirical evidence to support it, a theory is just that: a theory.
Stellar Blockchain Will Support Usdc Stablecoin Starting Next Year. Stablecoin growth has been one of the major trends this year. With the decentralized finance (DeFi) ecosystem allowing anyone to earn yield on their stablecoins and altcoin pairs denominated in USD growing in volume, demand has risen significantly with the total supply of stablecoins now exceeding $20 billion. After Ethereum and Algorand, Stellar will become the third major blockchain to support USDC, the stablecoin developed by Centre, on its network. In a statement, Circle CEO Jeremy Allaire said that “We value the increased interoperability and wide range of developers that the Stellar network brings to the table, and look forward to seeing how adding a strong and stable USD anchor to Stellar grows its ecosystem.” Read more.
Filecoin Launch Finally Brings $200m ICO to Fruition. At block 148,888 on Thursday, the Filecoin network pivoted to mainnet and its FIL tokens started being distributed. Filecoin was one of the biggest and most anticipated initial coin offerings (ICO) in 2017, and the project built by Protocol Labs managed to raise over $200 million. Filecoin is meant to be both a decentralized file storage and content distribution network in one. The platform is built on the InterPlanetary File System (IPFS) and is meant to allow users to buy and sell unused storage by leveraging the network’s native cryptocurrency, filecoin (FIL). Read more.
Grayscale Sees More Than $1 Billion in New Investments in Q3. Grayscale Investments, the world’s largest digital currency asset manager, wrote that it raised $1.05 billion for investment products during Q3 this year, making it the largest inflow from investors in a single quarter to date. In a report released on Wednesday, Grayscale said that the vast majority of its investments (81%) came from institutional investors. This year alone, the amount of inflows stands at $2.4 billion, which Grayscale said is more than twice the total amount raised for the years 2013–2019. Momentum also changed slightly, as the report noted that “while Bitcoin continues to be a major part of Grayscale investor allocations, the most notable uptick in growth comes from products that hold alternative assets. Products excluding Bitcoin accounted for 31% of inflows during 3Q20.” Read more.
The Deutsche Bank Whistleblower Who Gave up $8m is Going Broke. Four years ago, Eric Ben-Artzi was awarded $8.25m by the Securities and Exchange Commission for helping to uncover false accounting at Deutsche Bank. Now the 48 year old former risk manager, a nephew of the wife of Israeli prime minister Benjamin Netanyahu, is going broke. “I would need a near miracle to avoid bankruptcy at this point” said Mr Ben-Artzi from Tel Aviv, where he is in quarantine after a trip to the US”. That Mr Ben-Artzi failed to benefit from the SEC award is not surprising. The securities watchdog had allocated it to him in 2016, a year after it fined Deutsche Bank $55m for artificially boosting its balance sheet. But Mr Ben Artzi rejected it, writing in the Financial Times that he could not take the money that had been extracted from “Deutsche’s shareholders instead of the managers responsible”. He suggested a revolving door culture of top lawyers shuffling between the SEC and Deutsche Bank had made the watchdog go easy on management. His sacrifice attracted praise from around the world – and heavy fire form former friends and allies. Read more.
Fed Chairman Powell to Speak About Digital Currencies Next Week at IMF. Panelists will discuss “the benefits and risks of cross border: digital currencies as well as the policy implications, IMF said. It is not immediately known if Powell’s remarks will include his thoughts on a digital dollar. Although it is not clear whether it will be included in Powell’s discussion – the Federal Reserve has grown bullish on digital payments technology as the Covid-19 pandemic has highlighted the need to provide faster methods of relief. The United States central bank has announced the accelerated development of its own platform ‘FEDNow’ and is also working on a CBDC known as the digital dollar. Read more.
Pound Swings After Johnson Lays Down No-Deal Gauntlet to the EU. In the latest of a series of British events, the pound fluctuated between gains and losses after the U.K. Prime Minister Boris Johnson said the nation was heading towards no deal with the EU, while still holding out room for more negotiations this year. As ever, the messaging and tone is confusing and leaves room to go down either avenue. A bit like the Bank of England’s current narrative around negative rates. Sterling erased gains of as much as 0.4%, to fall 0.3%, before rising again to $1.2923 as of 3:18 p.m. in London. Government bonds extended their advance, sending the yield on 10-year securities down as much as three basis points to 0.15%. EU Commission President Ursula von der Leyen said that a team would go to London to “intensify” talks. The “limited pound sell off suggests market participants see comments from Boris Johnson as mainly political posturing at this stage,” said Lee Hardman, a foreign-exchange strategist at MUFG Bank. “We are moving closer to the crunch point.” Read more.
Cantering Clark: Crypto Trading Through the Eyes of a Market Veteran
Ryan AKA @CanteringClark is a derivative trader with 14 years of experience in equity markets, crude oil and cryptocurrency markets. He is also co-founder of crypto educational platform Blockroots and head of private asset management company Cantering Clark.
In this trading focused episode we dive deep into the harsh reality of trading and the difference between traditional markets & crypto, figuring out whether trading is a good fit for someone and whether you can retire through trading in the long-run. Most importantly, we talk about how to achieve that through diversifying your income and always having an exit strategy. We also talk about Ryan’s personal life, where his love for horses comes from, his background, and the mindset principles that everyone should apply in his life!
I hope you enjoy this episode!
Things I learned:
Managing other people’s money is tremendously stressful and generally not worth the stress and anxiety it brings with it.
As a participant in the market, you’re prone to certain cognitive biases and you’re going to use anecdotal pieces of evidence instead of looking at the bigger picture evidence.
A good night’s sleep is the most important thing for a trader. If you don’t, you’re not as quick on your feed, your thought processes and reasoning and other things are affected negatively.
Crypto is the easiest poker table to play at. There are still huge inefficiencies and free lunches in crypto.
As a trader, you should aim to outperform the index of the market. In crypto it’s unclear, but if you’re not beating bitcoin’s performance you should probably hold rather than trade your assets.
There are many trades you can make in life but they don’t necessarily involve a long or a short button. Ryan wants to seek out the ones that offer the most upside.
Almost everything erodes. Act on ideas fast. Try your head over the fence and be willing to try something.
You don’t have to necessarily be a pioneer, you can be a good copier as well.
The secret to living is giving and providing value to one another, in one form or another. Providing value for others is contagious.
Learning the value of hard work at a young age is very important. Be willing to make your hands dirty.
Asymmetric Risk
An asymmetric bet is one where the upside is greater than the potential downside. You take on a risk that could produce a return that far surpasses the risk that you take. Many investors and traders know that it is the key to getting ahead in markets but fail to look through that lens in everyday life. We shouldn’t be afraid to take on risk, especially at a young age when the only downside is limited to their time. If you’re right, you win big. If you’re wrong, your downside is limited and probably won’t hurt you long term. Where can we find such asymmetric payoffs? In a tweet, James Clear touched upon the importance of doing and investing in things with asymmetric risk and tried to crowdsource the best ideas from his followers. Naval’s answer was particularly insightful:
Just like in trading, life comes down to risk management. The only situations you should absolutely avoid are those where your risk of ruin is high, whether that is financially, physically or mentally. There’s nothing wrong with taking risks and even if you fail, nobody will remember you for it in 10 years when it’s done in good faith. Even if it takes you 5 attempts before you eventually succeed, situations where the upside outweighs the downside are generally worth taking. As Erik Torenberg writes: “People don’t want to look dumb, even for a short period of time and that’s the biggest mistake I think young people make: They’re afraid to look dumb, so they follow safe paths that cap their downside, not realizing that they also cap their upside.” We’re not known for our losses, we are known for our wins. Keep trying and don’t be afraid of risk. It’s the only way you’ll meaningfully get ahead in life.
Disclaimer: The content in this newsletter is for informational purposes only. Nothing in this email is intended to serve as financial advice. I am not a financial advisor. Every investment and trading move involves risk. Do your own research when making a decision.
