Elections, PayPal and The Safest Hardware Wallet #36
Market Meditations | November 4, 2020
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Today’s Meditations:
Election Polls: The Beginning of the End?
Bitcoin Mining Difficulty Posts Biggest Drop Since Asic Era.
PayPal Raises Crypto Buying Limit to $15K/Week for ‘Eager’ Customers
Hong Kong’s SFC Will Require All Crypto Exchanges to Be Regulated.
U.S. Stocks and Bonds Rally in Response to Changing Election Bets
Commodities Update: Industrial Metals Dented as Hopes of Democratic Sweep in US Election Fade
The World’s Biggest IPO is Now the World’s Biggest Suspended IPO
Ruben Merre: Building The Safest Cryptocurrency Hardware Wallet
The Three Layers of Behavioural Change
Election Polls: The Beginning of the End
Predicting The Future
“As I grow older, I pay less attention to what men say. I just watch what they do.” -Dale Carnegie
We’re not good at predicting the future, especially in situations where there are too many variables at play. Polls give an incomplete picture by definition because they are based on a small sample size. Accurately predicting the voting behavior of a country that has become more and more divided has become next to impossible. Authors like Nassim Taleb and Philip Tetlock have written about the science of prediction and how the wisdom of the crowds, rather than the expert’s opinion, offer a more accurate view of what the future holds in store.
After today’s thriller in the United States elections, trust in polls will likely reach a new low. Publicly traded prediction markets caught the interest of many people around the world and today’s pendulum of emotions might be a turning point at how they will be used in the future.
(Decentralized) Prediction Markets
Fivethirtyeight, a popular website that focuses on opinion poll analysis, politics, economics, and sports blogging assigned a very high probability to Biden winning the election yesterday. “Even making what we think are fairly conservative assumptions, our final forecast has Biden with an 89 percent chance of winning the Electoral College, as compared to a 10 percent chance for Trump.”
Source: Fivethirtyeight
This stood in stark contrast with (decentralized) prediction markets in crypto, that consistently estimated Trump’s chances of winning around 40% with Biden at 60% before votes started getting counted. YTrump, an Augur token representing Trump’s chances of winning, consistently traded around $0.4 going into the election. Centralized exchange FTX’s contracts traded at a similar price.
Surprise!
The beauty of prediction markets is that they display changes in real-time as new data comes in. In the middle of the night here in the UK, it became clear that Biden’s victory would be way closer than expected. When Florida turned red in favor of Trump, sentiment clearly changed and Trump’s chances of winning increased significantly. Prediction markets that had Trump at 40% chance of winning yesterday shot up to 80% at some point and tweets started appearing that it was over for Biden. Were polls proven wrong once again?
Euphemism in the Trump camp turned out to be short-lived. When results from swing states Michigan and Wisconsin started coming in earlier today, changes took yet another dramatic turn in favor of Biden. At the time of writing, nothing is final yet but the market estimates the chances of a Biden victory at 85%. One thing that is certain is the fact the rest of the week will remain volatile and probably even undecided, especially now that Trump started doubting the election results on Twitter: “Last night I was leading, often solidly, in many key States, in almost all instances Democrat run & controlled. Then, one by one, they started to magically disappear as surprise ballot dumps were counted. VERY STRANGE, and the “pollsters” got it completely & historically wrong!”
Today’s Winner?
Will today turn out to be an inflection point for prediction markets? They seem like one of the few uncontested winners today. A few hours ago, FTX’s CEO Sam, tweeted that their Presidential contracts would probably end up trading $100 million in volume since inception and a tweet by Ethereum co-founder Vitalik Buterin perfectly summarized today’s sentiment: “Regardless of who wins from here, I definitely think that the prediction markets have proven themselves more accurate than the polls/models this time around.”
Because of the real-time nature of prediction markets, paying attention to them might become another tool in our toolbox as traders and investors to accurately assess our risk in the market, without knowing the final result. It is not unthinkable that in the next few years, liquid prediction markets around high-impact events will become more common and used as a possible hedge and betting instrument for various players in the markets.
In this particular case, a Biden victory was the consensus view so much of the potential impact is likely priced in if nothing changes. We continue to follow the developments closely and update our on Friday once things become more clear. Until then, a few words of wisdom to leave you with: It ain’t over till (or until) the fat lady sings.
Bitcoin Mining Difficulty Posts Biggest Drop Since Asic Era. Bitcoin’s mining difficulty, which is a measure of the competitiveness for gaining block rewards, saw its biggest percentage drop since October 2011. On Tuesday (08:28 UTC), the network adjusted the mining difficulty by dropping 16.05%, making it the second biggest drop in bitcoin’s history. According to The Block, the drop in difficulty stems from many Chinese miner operators unplugging their machines to migrate to fossil fuel power stations from hydropower plants. The decline in competition will push up bitcoin miner’s daily revenue in the coming days, which is reaching its highest point since the block reward halving in May. The average bitcoin transaction fee has climbed to $12 over the last few days. Read more.
PayPal Raises Crypto Buying Limit to $15K/Week for ‘Eager’ Customers. Paypal, the online payments company that recently announced its support for cryptocurrency on their platform, is going to rapidly expand that service in 2021 according to executives on their recent Q3 earnings call. Currently, only 10% of customers in the U.S. have access to the service on the platform with the rest of the U.S. customers gaining access in the next 2-3 weeks. Dan Schulman, Paypal’s CEO, said that the firm saw enough interest after its announcement on Oct 21 that the firm has increased weekly purchases limits of crypto from $10000 to $15000. Schulman also said that Paypal is looking to create “the most expansive and compelling digital wallet in the world.” Read more.
Hong Kong’s SFC Will Require All Crypto Exchanges to Be Regulated. Hong Kong’s Securities and Futures Commission (SFC) will require all cryptocurrency exchanges operating in the city to be regulated, whether they trade securities or not. This move would expand the SFC’s approach from last year, which allowed crypto exchanges to voluntarily join a regulatory framework if they operate in Hong Kong. The CEO, Ashley Alder, said that some exchanges managed to operate outside the SFC’s regulatory radar under that approach continuing that “once this new regime is in place, all virtual asset trading platforms in Hong Kong would be regulated, supervised and monitored under one of two regimes: the existing opt-in framework we introduced last year, or the proposed new licensing approach being announced today.” Hong-Kong has been a popular location for crypto exchanges so far with major players like Huobi, OKEx, FTX and BitMex. Read more.
U.S. Stocks and Bonds Rally in Response to Changing Election Bets. U.S. stocks rallied the most since May and Treasuries surged as investors recalibrated their portfolios for a future without massive debt-fueled spending and a rollback of President Donald Trump’s signature tax cuts. The S&P 500 Index jumped 2.9% to 3,468.26 as of 11:40 a.m. New York time, the highest in almost three weeks on the largest surge in almost six months. The Nasdaq 100 surged more than 4%. Bond prices also advanced, driving yields lower, possibly in a flight-to safety response, but also from the diminishing of inflationary pressures from the previously expected injection of additional fiscal stimulus. Expectations that a Democratic sweep would usher in massive stimulus vanished. Traders piled into the mega-cap technology shares that are seen reaping the benefits of what growth there is, especially if the raging virus leads to additional restrictions. Traders are also betting on stocks that could benefit from a Congressional stalemate. The outcome makes a rollback of tax cuts less likely and dents the prospect of strict regulations on the tech companies that dominate the economy. “Tech is doing well because the market is essentially reacting to the reality there will not be large scale stimulus coming down the line,” said Tom Essaye, a former Merrill Lynch trader who founded “The Sevens Report” newsletter. “At that point growth is at a premium and you’re seeing money flood into growth stocks. There was the hope that if there was a blue wave you’d see those value and cyclical stocks take off.” Read more.
Commodities Update: Industrial Metals Dented as Hopes of Democratic Sweep in US Election Fade. Industrial metals were under pressure on Wednesday as the US presidential election looked set to dash hopes of a sweeping, climate-focused stimulus package. Heading into the contest, copper and aluminium were buoyed by the prospect of a Democratic sweep of the White House and Congress that could unleash a wave of fiscal stimulus — with a focus on “green” infrastructure. But those hopes faded as state-by-state results came out, with the Republican party enjoying some key victories that increased its chances of holding on to the Senate, while the presidential race was still too close to call. John Norman, head of cross-asset fundamental strategy at JPMorgan, summarised the early results as “unclear on the next president, but fairly clear that he’ll face Congressional resistance on anything transformational, whether on the budgetary or regulatory front”. Copper for delivery in three months on the London Metal Exchange fell to $6,710 a tonne, having traded as high as $6,855 on Tuesday. Aluminum was down about 1.8 per cent at $1,858 a tonne. The chances of a so-called blue wave, where Democrats gained control of the White House and both houses of Congress, are now “slim to none,” said Stephen Brennock of PVM, a London-based brokerage.Read more.
The World’s Biggest IPO is Now the World’s Biggest Suspended IPO. Ant had gone to great lengths to brand itself as a tech firm, not a bank. It describes its business as “techfin”—ie, putting technology first—not fintech. That is the industry ripe for disruption, and where the money is. But as Ant and its legions of investors have been reminded, that is also where the regulators lurk. Jack Ma was in a triumphant mood shortly after Ant Group, his Chinese fintech firm, priced its initial public offering—set to be the world’s biggest ever, with almost $40bn worth of shares sold. Less than 48 hours before its stock was to begin trading in Shanghai and Hong Kong, Ant was forced by Chinese regulators to halt the flotation.The group said in regulatory notices to the Hong Kong exchange that the IPO, scheduled for November 5th, had been suspended because the company “may not meet listing qualifications or disclosure requirements”, after the regulator conducted an interview with Mr Ma and other executives. The filings also mentioned “recent changes in the fintech regulatory environment”, hinting that newly published rules may have gotten in the way. Read more.
Ruben Merre: Building The Safest Cryptocurrency Hardware Wallet
Ruben (@RubenMerre) is a serial entrepreneur who launched his first small business at the age of eight years old. He is currently the CEO and co-founder of NGRAVE, a cryptocurrency hardware wallet startup. Prior to NGRAVE, Ruben worked in strategy and management consulting. He helped companies scale internationally. Ruben has a masters in Business Engineering and holds several postgraduate degrees. He is also fluent in six languages. A lot I know… and the list could keep going for a while!
In this episode, we talk about Ruben’s background and finding your purpose in life. We talk about learning, reading habits and achieving compound effects through consistency over time. We also talk about Ruben’s startup NGRAVE and why he is so passionate about security. He shares what it takes to be an entrepreneur, what to look for in co-founders and employees and ends with his thoughts on maintaining a work-life balance.
Things I learned:
Haven’t found your purpose yet? Look 50 years ahead, what do you want people to say at your deathbed? Start from your end goals and work your way back. Let’s figure out why they’re here on this planet, preferably at a young age.
Doing something every day, even if it is only for 15 minutes, has compound effects. “Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn’t … pays it.” – Albert Einstein
When you’re learning something, deconstruct it into the smallest possible pieces then handle them one by one.
Set audacious goals to get out comfort zone.
Seize the day, be happy with what you have.
As an entrepreneur, failure itself is not the issue. It’s about how you handle failure and proceed.
The size of your success is determined by the size of your belief.
Being genuinely interested in people is the best way to become an interesting person over time. Make people feel important.
Books only get you so far. The only way to learn how to run a company is by actually running a company. Always balance theory with practice.
The Three Layers of Behavioural Change
For all its many grievances, the lockdown does give us an awful lot of time to deliberate and work toward self-improvement. Something I will use this time to do is try to change my behaviours for the better. I invite you to do the same. As always, keep me updated on your targets and progress.
So James Clear identifies three layers of behavioural change: outcomes, processes and identity.
Outcomes are about what you get. Processes are about what you do. Identity is about what you believe. With outcome based habits, the focus is on what you want to achieve. With identity-based habits, the focus is on who you wish to become. The latter is the ultimate form of intrinsic motivation.
Instead of deciding on the type of outcomes you want, decide the type of person you want to be and prove it to yourself with small wins. For example, my readers may wish to become financially independent. Imagine all the positive connotations that come with that: freedom, self sufficiency, drive and the ability to support those around you. In every small step you take (studying the youtube videos, reading the meditations, following crypto Twitter) you can know you are getting closer to becoming that person.
Your identity is the consequence of your habits. Imagine every action you take as a vote for the type of person you wish to become. Becoming the best version of yourself requires you to continuously edit your beliefs, and to upgrade and expand your identity.
This leads to the ultimate truth that the real reason habits matter is not because they can get you better results/outcomes (of course, that is a clear bonus) but because they can change your beliefs about yourself.
If you often struggle to change behaviours that are holding you back, try this approach to change. Good luck.
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.
