Grasshopper Capital Daily: Is Volume Real?

Is the Volume Real?
When you visit CoinMarketCap, one of the most prominent statistics is volume. Large coins like Ethereum and Bitcoin typically have volume over $1B every day. However, if you click on the volume number, you'll realize that the volume is split across many exchanges and the exchanges don'tshare liquidity. This means that a trade on GDAX isn't routed to Gemini if a better price is available. This is different than equity markets where volume is shared. The largest Bitcoin exchange by volume today (3/12/18) is Bitfinex which is exchanging ~$550MM in volume. This means that effectively Bitcoin's most liquid exchange is doing 10% of the 24-hour volume reported on CoinMarketCap ($6B). 

Yesterday, Sylvain Ribes wrote a piece titled, "Chasing fake volume: a crypto-plague". It's a pretty damning piece where he accuses OKex and Huobi of having mostly fake volume. OKex's volume is up to 95% fake while Huobi is up to 80% fake. Sylvain writes a few disclaimers why his data shouldn't be taken at face value, but as someone who has personally experienced the slippage he is referring to, I doubt his statistics are fake. He believes that up to $3B of daily volume is illusionary. 

Many people talk about how one of the biggest benefits of tokenization is liquidity, but that is only true is there is sufficient volume to create an active market. There are few tokens who have sufficient volume to handle trades above $100,000. Many of these tokens do have active OTC markets which allow trades above $100,000 to occur with little slippage. However, tokens that trade outside the top 10 don't always have active OTC markets. It's questionable if the volume displayed on smaller tokens are real and what slippage would occur when large trades are placed. As Sylvain writes,"

Crypto doesn‘t need regulation!”, we all claim. It is high time we proved it. Because as it stands the state of crypto is arguably a testament to the failure of the free-market.

How can investors/consumers purchase a token when they have no guarantees that the data they are relying on is real? I don't see tokens becoming mainstream until we can trade on exchanges that we can trust.

Some Other Things I Read Today

If you enjoyed what I wrote, you should also follow me on Twitter @amlewis4.

If you'd like to get Grasshopper Capital Daily delivered every day in your inbox, subscribe here.

Grasshopper Capital Daily: Many Many Scams

Bitcoin Is Ridiculous. Blockchain Is Dangerous
That was the title of a recently published article in Bloomberg. The article starts off with:

On the days when Bitcoin crashes, a holiday atmosphere takes over in my corners of the internet. People tweet screengrabs of Reddit fights. It’s always good fun to watch strangers grieve as their digital nonsense nickels melt into slag.

I really wanted to give the article a chance. I always love to read critcism pieces. It's good to stay balanced, but there are just too many articles with the same formula:

  1. I discovered Bitcoin early (The author was mining in 2009).
  2. I didn't understand it and sold my coins.
  3. I lived through the dot-com bubble so Bitcoin also must be a bubble.
  4. Bitcoin isn't real and thus will be worthless.
  5. I can't wait until everyone's investment is 0. 

I am exaggerating. There are real criticisms of Bitcoin and other cryptocurrencies. For example, scalability is a real concern. Is proof of work the most optimal method of mining Bitcoin? The repeated criticisms that I see from the media show little effort in educating the readership about Bitcoin/Cryptocurrency. I wish things will change.

Plagiarism is in Style
In the past week, we have seen impersonation from Twitter bots asking for cryptocurrency, an ICO using Ryan Gosling's picture for their website, and now accusations of plagiarism on white paper. There is a reason that regulation exists in other industries. 

Buzzfeed found two examples where companies plagiarized whitepapers. One was Dentaflix which plagiarized the Patientory white paper:

In late January, Patientory, a software firm that aims to store electronic medical records using a distributed database, caught wind of a worrying development. The Atlanta startup, which had raised more than $7 million from investors, noticed that a proposal outlining its proprietary technology and company vision — better known in the cryptocurrency world as a “white paper” — was also being used to raise money by an unknown company called Dentalfix.

Dentalfix’s origins are unclear, but it appears to have been a Russia-based seller of tooth repair kits that at some point in recent months decided it could raise money by selling its own cryptocurrency. After one initial coin offering (ICO) failed, the company unveiled a new website and business plan in late 2017 for a “health management system,” complete with an impressive looking white paper with full pages of text lifted from Patientory’s plan.

Tron was the other example:

In January, Juan Benet, an entrepreneur behind Filecoin, a data storage network with an application token that raised $257 million, claimed that the Tron white paper included language from his proposal and others with “zero references.” He included a diagram showing material he alleged had been copied. Tron’s creator Justin Sun, a Chinese entrepreneur who claims to be a protégé of Alibaba CEO Jack Ma, replied insisting that the similarities between the two papers were the result of a translation issue. Tron, which says it’s constructing “a global free content entertainment system utilizing blockchain technology” subsequently scrubbed its website of the original white paper and uploaded a new one — but not before its market capitalization rapidly dropped from its height of $12 billion.

To evaluate the accusations against Tron, BuzzFeed News asked Quetext, a plagiarism analysis company, to compare Tron and Filecoin’s white papers. Quetext assigned a similarity score of more than 15%, and highlighted whole diagrams, passages, and chunks of phrases that were shared between the two. (For comparison, Dentalfix’s white paper had a 99.9% similarity score to Patientory’s.)

The Dentaflix scam failed, but Tron is still thriving with a valuation of over $2B. It's obvious to why people are running cryptocurrency scams. It's easy money especially in an ecosystem where there is no regulation and many investor/users don't understand the product. Many whitepapers are abstract and investments are based on the belief that a team will execute. As the investor becomes more educated and regulation comes to the space hopefully the blateness and scale of scams will reduce. 

Some Other Things I Read Today

If you enjoyed what I wrote, you should also follow me on Twitter @amlewis4.

If you'd like to get Grasshopper Capital Daily delivered every day in your inbox, subscribe here.

Grasshopper Capital Daily: SEC Cracks Down On Exchanges

SEC Looking at Exchanges
The SEC issued a statement warning cryptocurrency exchanges that they must comply with existing federal securities laws or face charges. Many exchanges list tokens that meet the definition of securities and as such, the exchange must be registered as either a national securities exchange, alternative trading system ("ATS"), or broker-dealer. Most platforms state that they are exchanges, but under US law are not. The statement goes on to further say that companies that are operating as an exchange must think about a variety of factors that affect their legality. These factors include proper storing of records, safeguarding custody of customer funds, and preventing misuse of public information. The statement ends with:

We encourage market participants who are employing new technologies to develop trading platforms to consult with legal counsel to aid in their analysis of federal securities law issues and to contact SEC staff, as needed, for assistance in analyzing the application of the federal securities laws.In particular, staff providing assistance on these matters can be reached at

What does this mean? I believe that the SEC is giving a warning to exchanges to delist tokens that are "securities" and become compliant. Exchanges such as Bittrex have begun delisting ERC-20 tokens such as FunFair and Metal. Bittrex has a policy for delisting tokens and one of the reasons for delisting is, "Evolving regulatory standards and other compliance issues". It's unlikely that the SEC will shut down exchanges like Bittrex or GDAX because the US government knows that in order to stay competitive in a burgeoning market, it must have smart regulation. The US government's approach to cryptocurrency has been reasonably cautious and prudent. If exchanges can work on problems such as KYC/AML, creating fair markets, and creating liquid markets, they will be in good shape.

Some Other Things I Read Today

If you enjoyed what I wrote, you should also follow me on Twitter @amlewis4.

If you'd like to get Grasshopper Capital Daily delivered every day in your inbox, subscribe here.

Grasshopper Capital Daily: ICOs Are In Trouble

Coinbase Index Fund
Yesterday Coinbase announced the start of the Coinbase Index Fund. The fund will track four coins: BTC, LTC, ETH, and BCH. As Coinbase adds more tokens to its platform, those tokens will be added to their index. The fund charges a 2% management fee which will rebalance once a year. Based on its current methodology, it'll be heavily weighted towards BTC (62%). The fund is only available to accredited investors which requires a minimum investment of $10,000.

This is one of many "index fund" products we have seen emerge in the space. Just to name a few: BitwiseCrypto20, and Grayscale. Grayscale manages slightly over ~$2B, but I expect Coinbase's product to easily surpass Grayscale's AUM. Coinbase has significant reach in the retail space and many institutional investors are familiar with the Coinbase brand. This will be an easy way for institutional investors to get their feet wet. If the fund achieves significant traction, this could lead to the individual tokens appreciating substantially.

Getting High at Cryptocurrency Conferences
Wired wrote this:

ON THURSDAY AFTERNOON, an employee of fintech company Cindicator stopped by a conference called Crypto Sanctum held at Beneville Studios in New York’s Flatiron neighborhood. Organized by a group called “The Decentralists” and a crypto project called IOVO, the Crypto Sanctum promised to “connect people with right opportunities in the fast moving crypto and blockchain space.” Tickets cost $500. At the event the Cindicator employee ate lunch, which included sushi and tea, and chatted with a few attendees before leaving for a nearby meeting with her boss.

An hour into that meeting, she could barely speak. She noticed the room was spinning and it was a struggle to stand up. “I realized I was totally wasted,” she said. At first she thought it was sleep deprivation—she hadn’t had a good night’s sleep—but that had never given her the spins like this. She told her boss she couldn’t work anymore because she felt stoned and didn’t know how, which she says was embarrassing to admit.

The Cindicator employee remembers walking home, but doesn’t remember the route she took. In subsequent days, several of the event’s 200 attendees discussed similar experiences on Telegram, the crypto world’s preferred messaging service. One attendee said he thought he’d gotten food poisoning. Another said she’d experienced panic attacks. A third reported he had heard the food was infused with marijuana but felt the dosage was “certainly heavy.”

If people wonder why the cryptocurrency industry sometimes gets a bad vibe. This is why! I don't really understand why conference organizers would slip cannabis into people's food and drinks without telling them. There is no upside. Hopefully, this is a onetime incident. 

ICOs Are Money Transmitters
A money transmitter is a business that provides money transfer services. For each state you conduct business in, you must have a license. If you don't, you could go to jail for 5 years. FinCen wrote a letter to Senator Ron Wyden stating that ICOs are subject to money transmitter laws:

A developer that sells convertible virtual currency, including in the form of ICO coins or tokens, in exchange for another type of value that substitutes for currency is a money transmitter and must comply.

This means that a company who wants to issue an ICO in the United States would need to obtain proper licensing in each state plus engage in strict KYC/AML compliance. Marco Santori, President of Blockchain, tweeted:

What a nightmare this is. SEC says "all ICOs" its seen are sales of securities, but FinCEN says they are "generally" money transmission. But by law, they can't be both. As an industry, we must do a better job of educating our governments.

If you want to dive deeper into this, Coin Center wrote a great piece about money transmitter laws pertaining to ICOs. Check it out!

Some Other Things I Read Today

If you enjoyed what I wrote, you should also follow me on Twitter @amlewis4.

If you'd like to get Grasshopper Capital Daily delivered every day in your inbox, subscribe here.

Grasshopper Capital Daily: Cryptocurrency Makes The Dictionary

We Made It!
Cryptocurrency is now officially in the dictionary. Merriam Webster writes:

any form of currency that only exists digitally, that usually has no central issuing or regulating authority but instead uses a decentralized system to record transactions and manage the issuance of new units, and that relies on cryptography to prevent counterfeiting and fraudulent transactions

This is a significant achievement to be recognized as a word. I can imagine as more countries and corporations begin to issue there own digital currencies that the word cryptocurrency and digital currency will begin to diverge. In my mind, cryptocurrencies are decentralized but is a cryptocurrency like Petro Coin really decentralized? I think that's where the word digital currency will come in. Not all digital currencies are cryptocurrencies, but all cryptocurrencies are digital currencies. I'd love to see people not confuse the two.

Do We Need Blockchain for Everything?
Wired wrote an article titled, "The Decentralized Internet is Here With Some Glitches". I was wary how it started out. I thought it would be an article proclaiming how everyone needs blockchain. The article even has a quote from Chris Dixon with a similar line of thinking: 

The best entrepreneurs, developers, and investors have become wary of building on top of centralized platforms," Chris Dixon, a partner with investor Andreessen Horowitz

Ultimately, the article was a good read. I've noticed two types of articles in the media. Articles criticizing Bitcoin and saying it's a Ponzi scheme while the other type of article proclaims blockchain has the next great technology. I think the technology is somewhere in the middle. Cryptocurrencies and blockchain are legitimate, technology improvements, but statements like Chris Dixon's are just as bad as the Ponzi scheme statements. Most people might be wary of Facebook or Google, but they still want to build the next Facebook or Google. 

People talk about the internet having killer applications such as email that helped make the internet become ubiquitous, but blockchain technology still has a long way to go before a viral application hits the market. The Wired article discusses a decentralized version of Google Docs. I'd love to use products where I know my information isn't being recorded and there is a less likely chance Big Brother is watching, but at what costs? The article concludes with:

Finding the killer apps of the decentralized internet will take more time, people, and money than have been thrown at the problem so far. Pakman says that societal attitudes to power and big tech companies appear to be in the right place to deliver them. "There’s massive distrust in centralized everything," he says. "We don't trust the government, don't go to church or synagogue, don't trust banks and now we no longer trust tech companies."

There are people that haven't the government since the dawn of the time. There will always be people that distrust the government and distrust technology companies. However, will blockchain technology be magnitudes better than current technology to encourage people to switch from Google Docs to Graphite Docs?

Some Other Things I Read Today

If you enjoyed what I wrote, you should also follow me on Twitter @amlewis4.

If you'd like to get Grasshopper Capital Daily delivered every day in your inbox, subscribe here.

Grasshopper Capital Daily: Ryan Gosling Launches An ICO

Being Too Early is the Same as Being Wrong

Fred Wilson is one of my favourite writers. He takes complex ideas and makes them so simple. Yesterday he wrote: 

Virtual and augmented reality has been an interesting and investable technology for the last six or seven years. But it hasn’t gone mainstream yet because the packaging of the technology remains problematic. At some point, some company will figure out how to package it up correctly and it will go mainstream. Until that happens, it is a difficult place to make money, even though a few entrepreneurs and investors have been able to do that.

Blockchain and crypto is in a similar state. Today, other than buying and selling crypto tokens, blockchain applications are clunky and hard to use. Centralized applications are way better than their decentralized cousins. When entrepreneurs figure out how to package up blockchain applications so that they are fun and easy to use, I think we will see them take off. My guess is that it will happen first in gaming and collectibles.

My point is that it is one thing to develop a technology that is superior to the current offerings, but entirely another thing to make it usable by most people. The first part is, in some ways, the more important thing (like Satoshi’s white paper) but the second thing is often where the investment leverage happens.

This is so accurate. Just think about all the startup ideas in the 90's that failed that are thriving today.

  • Food Delivery: Webvan (90's), Google and Amazon (today)
  • Vertical eCommerce: (90's), Bonobos and Warby Parker (today)
  • Internet Television: WebTV (90's), Netflix (today)

For blockchain and cryptocurrency, the biggest use case so far has been speculation on token prices. We have yet to see any widescale adoption that the internet saw in the 90's such as email or visiting websites. I would wager that many people who own Ethereum, for example, probably don't know what cryptokitties are, let alone, used it. Many people who own Bitcoin, probably haven't bought anything with it. I don't think these are criticisms of the currencies themselves, but rather that the user experience and applications built around it are lacking. 

I think many mainstream consumers don't understand why we need blockchain? Most people have used centralized services for the entirety of their lives. They trust banks with their money, Facebook with their personal data, and Amazon with their shopping. Every service we use has a middleman. Imagine using Facebook where the revenue went to us instead of Facebook. We actually can profit off of our data. This is a paradigm shift for most internet users. There are companies attempting just that. 

Ryan Gosling Advising ICOs?

Ryan Gosling AKA Kevin Belanger is advising the Miroskii ICO. Miroskii describes itself as banking the unbanked.


The ICO has a list of 6 other advisors with fake pictures, names and bios as well. It apparently has worked because they have already raised over $800,000. The number could be fake, but nonetheless, this is an example of a serious problem in the community. People are just creating websites to raise money for unlicensed securities that will probably never see the light of day. Maybe Tom Cruise will launch an ICO next.

Some Other Things I Read Today

If you enjoyed what I wrote, you should also follow me on Twitter @amlewis4.

If you'd like to get Grasshopper Capital Daily delivered every day in your inbox, subscribe here.


Grasshopper Capital Daily: Banking For Cryptocurrency

Banking Cryptocurrency

Here is a bank in Lichenstein offering cryptocurrency services. I thought cryptocurrency was going to end banks! The bank is going to offer trading of ethereum, bitcoin, bitcoin cash, litecoin and ripple, as well as cold storage services. The chief client officer of the bank writes:

Customers of Bank Frick can now buy or sell ethereum, bitcoin, bitcoin cash, litecoin and ripple, or just leave the assets in the bank for safe storage in cold wallets.

With our new offering, financial intermediaries such as asset managers and trustees can successfully differentiate themselves in the market and offer their customers added value,” Büchel says, adding:

I always remember cryptocurrency enthusiasts telling me how the benefits of it are things such as eliminating the middleman and trustless transactions. If you use the bank to store your cryptocurrency, you are trusting the bank and adding a middleman. I've always been skeptical of people who don't believe that banks will serve a purpose if cryptocurrencies succeed. It's still very difficult to store private keys. There is almost no difference between one storing their private keys under their bed and storing cash under the bed except that a string of numbers represents money opposed to physical paper bills. Additionally, transferring cryptocurrency for beginners is a daunting task. Imagine sending $250,000 Bitcoin and worrying about if you mistyped a number. I expect to see more intermediaries popping up to help with storage and transferring of cryptocurrencies. The current system is just too difficult especially for people new to the space.

Uber for Cryptocurrency

I'm just joking, but the co-founder of Uber, Garrett Camp, is back with a new project. His own cryptocurrency, Eco. The whitepaper describes it as:

Eco is designing a global currency protocol, an open source platform that is not controlled by any single individual, organization or nation. Eco aims to create a verified network of global universities and reputable organizations to help design, build and operate an evenly distributed and cooperative financial infrastructure

Garrett first bought Ethereum and Bitcoin about a year ago. He wanted to build a currency that had a radically different approach:

“I realized it might be better to release a new project from a different philosophical standpoint with cooperation from a lot of universities, scientists, and research institutes—like the Internet,” he said, in terms of its path to development.

It sounds like it could be promising, but as you begin to read the whitepaper you begin to question the project. He describes a concept called "lazy nodes" where nodes in the network are incentivized to only do the bare minimum and nothing more. For those of you not familiar with nodes. Nodes are used in blockchains to verify transactions and relay transactions. In Bitcoin, many people aren't incentivized to run full nodes anymore because it's more efficient and profitable for people to put their computing power behind buying mining equipment. Eco is trying to sound this problem. In the whitepaper it says:

The Eco network operates based on collective incentive, rather than individual reward. When a block is successfully mined, tokens are evenly distributed to all other nodes immediately. The financial motivation to increase hashing power is removed, since reward is distributed to all other nodes. The motivation for the node operator becomes to provide just enough hash power to verify that transactions are valid within a collectively agreed upon level of maximum latency. Thus the platform becomes collectively motivated to achieve optimal energy efficiency.

This sounds like the socialist version of cryptocurrency. I just don't see this being a good solution for incentivizing people to run nodes. The premise of Eco is assuming that people will be altruistic and give up computing power so they break even. The reason that Bitcoin worked so well is that the system provided a financial incentive. It's the very basis of proof of work. It would be less expensive to help the network than try to cheat it.

Some Other Things I Read Today

If you enjoyed what I wrote, you should also follow me on Twitter @amlewis4.

If you'd like to get Grasshopper Capital Daily delivered every day in your inbox, subscribe here.

Grasshopper Capital Daily: If It Walks Like A Duck And Talks Like A Duck

If It Walks Like a Duck and Talks Like a Duck

I am starting a company that is called XYZ Corp. Instead of selling equity to greedy venture capitalists, I am going to sell magical tokens to people all over the world. The company will sell $30M worth of tokens with no obligation to token-holders. The token-holders can now flip these tokens to other people on exchanges for sometimes as high as 10x within a few weeks. Sounds suspicious? It might even sound like a security. The SEC agrees and has begun targeting ICOs. The WSJ reports:

The Securities and Exchange Commission has issued dozens of subpoenas and information requests to technology companies and advisers involved in the red-hot market for cryptocurrencies, according to people familiar with the matter.

The sweeping probe significantly ratchets up the regulatory pressure on the multibillion-dollar U.S. market for raising funds in cryptocurrencies. It follows a series of warning shots from the top U.S. securities regulator suggesting that many token sales, or initial coin offerings, may be violating securities laws.

This can't be a shock to anyone. If it walks like a duck and talks like a duck, it's probably a duck. Tokens can and will serve a useful purpose for certain companies. However, 95% of companies are issuing tokens to raise non-dilutive financing with no real use case for it. Every company doesn't need blockchain, but I think that has gotten lost with the many dollars being poured into the space. If you don't believe me, ask yourself, do dentists need blockchain

Does Bitcoin Waste Electricity?

I feel like people who dislike Bitcoin just write articles complaining about how much electricity it wastes. The NY Times just wrote an article on this subject. Here are a few more examples of prominent media publishers writing about the subject.:

The NY Times article writes:

Other governments also are grappling with the merits of virtual currencies. Enel, the largest European power company, said earlier this month it would not sell electricity to a virtual miner, citing environmental concerns.

“Enel has undertaken a clear path toward decarbonization and sustainable development and sees the intensive use of energy dedicated to cryptocurrency mining as an unsustainable practice that does not fit with the business model it is pursuing,” the company, partly owned by the Italian government, said in a statement.

This is simply not true. Even if Bitcoin mining begins to consume a large portion of the Earth's available electricity supply, miners will be driven to pursue alternative energy sources. Chinese miners are already using hydropower plants to mine Bitcoin. Hydropower energy doesn't pollute the air or water. Bitcoin miners will always want the cheapest energy and at the moment that is green energy such as wind turbines. I don't think it's unrealistic to believe that miners will encourage a revolution when it comes to making electricity cheaper and safer for the environment because of the amount of revenue being produced. 

Some Other Things I Read Today

If you enjoyed what I wrote, you should also follow me on Twitter @amlewis4.

If you'd like to get Grasshopper Capital Daily delivered every day in your inbox, subscribe here.

Grasshopper Capital Daily: JP Morgan does a 180

CFTC = Bitcoin Friendly?

Chairman of the CFTC, Giancarlo Stanton, has become a cult-figure in the cryptocurrency community following his positive comments about cryptocurrency at a Senate hearing. Today, the CFTC announced that employees of the agency can trade Bitcoin. The statement reads:

Under the Commodity Futures Trading Commission’s ethics guidance, workers can trade digital tokens as long as they don’t buy them on margin or have inside information gleaned from their jobs. Investing in the Bitcoin futures that the CFTC polices, however, is barred.

I'm happy to see the CFTC allow this, especially, because the SEC allows their employees to own equities. I think it's naive to believe that government workers won't trade off of potential regulatory decisions.When our own congress members can legally trade on insider information, it would be a hypocrisy not to allow CFTC employees to trade Bitcoin and other digital currencies. 

The New Superstars Are Regulators

Cryptocurrency companies aren't fighting just for engineering talent, but also regulatory talent. This reminds me of the days when hedge funds used to hire former regulators. It makes perfect sense. No one knows what a truly compliant ICO looks like or what exchanges might get closed down. However, if you hire a former attorney who worked on cryptocurrency regulations at the SEC, I'm sure they'll have insight on how decisions are made and which way regulators are leaning on certain decisions. Ripple, for example, hired Ben Lawsky, the former head of New York State's Financial Services division which was in charge of creating BitLicense. Arthur Levitt, former SEC head, writes:

Enlisting former government regulators is a natural progression, according to Arthur Levitt, the former Securities and Exchange Commission chairman. “All new companies try to do that,” said Levitt, who advises cryptocurrency ventures including BitPay and Mirror and is a director at Bloomberg LP, the parent of Bloomberg News. “There’s nothing unique about cryptocurrencies,” he said.

Cryptocurrency is a Risk to JP Morgan

JP Morgan is now admitting cryptocurrency is a risk to their business is the biggest 180 the bank could pull. JP Morgan's annual report says:

Both financial institutions and their non-banking competitors face the risk that payment processing and other services could be disrupted by technologies, such as cryptocurrencies, that require no intermediation

I never comprehended why executives comment on things they clearly don't understand. You are being paid because you are an expert in your field. It's okay to not understand something. If anything, it shows you are human. Instead, they risk not only their personal reputation but the company's reputation by speaking poorly on a subject that comes back to bite them. If Jamie Dimon just said, we are watching the space, but have no comment at this time, they could've avoided this whole PR disaster. 

Some Other Things I Read Today

If you enjoyed what I wrote, you should also follow me on Twitter @amlewis4.

If you'd like to get Grasshopper Capital Daily delivered every day in your inbox, subscribe here.


Grasshopper Capital Daily: Will The Real Satoshi Nakamoto Please Standup

Will The Real Satoshi Nakamoto Please Stand up

Dave Klieman's estate is suing Craig Wright, who allegedly claims he is Satoshi Nakamoto, for $10B. This case is legitimate with the powerful law firm of Boise Schiller representing the Klieman estate. Most people with any knowledge of the cryptocurrency industry will tell you that Craig Wright is not Satoshi Nakamoto and is a scammer. It's quite easy for him to prove he is Satoshi. He just needs to sign a message coming from a wallet that "Satoshi" controls.

The biggest irony of this case is that the best defense for Craig is to deny he is Satoshi. It's also pretty funny that he is being sued for claims he made at face value, but which no one took at face value. Imagine Craig testifying, "I lied. It was all a ruse. I'm not really Satoshi." WizSec did significant research on the case and the lawsuit cherrypicks the "bitcoin rich list" to make it seem that Craig Wright owns/owned a significant amount of BTC. At the end of the day, it's doubtful this case has any merit. It's probably just a fishing expedition. Can't wait to see how Craig defends himself!

Bitcoin is Still Going Up

Vijay Boyapati wrote an article yesterday about the bull case for Bitcoin. It starts off with:

Alternatively it may seem foolish to invest in a digital asset that isn't backed by any commodity or government and whose price rise has prompted some to compare it to the tulip mania or the dot-com bubble. Neither is true; the bullish case for Bitcoin is compelling but far from obvious.

This seems like an obvious statement especially to an investor like myself, but for traditional investors, there is much doubt whether they should invest in the space. Most investors, especially institutional investors, are concerned about the idea of investing in something which is literally backed by nothing. Bitcoin and other cryptocurrencies should naturally complement any investors portfolio, even if just as a hedge against a global recession. Vijay goes on to write:

Bitcoins are not backed by any physical commodity, nor are they guaranteed by any government or company, which raises the obvious question for a new bitcoin investor: why do they have any value at all?

This worries investors who for years relied on traditional asset valuations such as DCF or CAPM to determine valuations. Imagine running a $10B hedge fund and telling your investors you invested in Bitcoin. They ask, "What is it worth?". Your reply, "I have no clue, but I think it will go up". This is a hard sell to limited partners. When there are billions of dollars at stake, you would ideally like to know what you own is worth and when you plan to sell it. Something that goes against the HODLING philosophy.

50 Cent AKA 50 Bitcoin?

After 50 Cent announced he had made millions holding Bitcoin, I started calling him 50 Bitcoin. Boy, was I surprised when 50 Cent testified that he had no Bitcoin. His lawyer wrote in court documents: 

[The] Debtor has never owned, and does not now own, a bitcoin account or any bitcoins, and to the best of his knowledge, none of his companies had a bitcoin account from 2014 to present.

As a general matter, so long as a press story is not irreparably damaging to my image or brand, I usually do not feel the need to publicly deny the reporting." "This is particularly true when I feel the press report in question is favorable to my image or brand, even if that report is based on a misunderstanding of the facts or contains outright falsehoods

It must be great to be famous. If someone says something good about you, you just don't say anything and people think it's true, but if it's negative, then you adamantly deny. Nothing like eating your cake and having it too. His original Instagram post where he implied he still owned the Bitcoin is down. I guess he learned the hard way to HODL.

Some Other Things I Read Today

If you enjoyed what I write, you should also follow me on Twitter @amlewis4

If you'd like to get Grasshopper Capital Daily delivered every day in your inbox, subscribe here.

Grasshopper Capital Daily: The 11 Year Old Bitcoin Expert

Quick Note: As many of you know I have been playing around with the format of the newsletter. It'll still be a lot of curated content, but I've added more analysis and the newsletter will be sent in the morning. Hope you enjoy!

The 11-Year-Old Bitcoin Expert

For all of you new to Bitcoin, you can now buy the definitive beginner's guide on Bitcoin written by 11-year-old, Andrew Courey. The book is called, "Early Bird Gets The Bitcoin: The Ultimate Guide To Everything About Bitcoin" He had an interview with CNBC where he shares some tidbits about his Bitcoin investing history:

"Andrew said he owns .00222 bitcoin (about $22.50), which he bought just before Christmas when it was higher, and a little bit of ethereum, but that he's not buying anymore and would rather own Amazon shares.”

I'm glad he is now a hodler, but I have to disagree with him when he writes Amazon is a better purchase than Bitcoin. Andrew, in his book, tries to simplify cryptocurrency concepts by using metaphors such as comparing Blockchain to a Google document file that can only be edited by buying and selling Bitcoin. I don't think that is the metaphor I would've used, but nonetheless good to see young people learning about cryptocurrency and trying to get more involved than just buying tokens.

A World Without Stocks

Anthony Pompliano of Tilt wrote a guide to Tokenized Securities. Security tokens have been hailed by many in the space as "revolutionary". Polymath recently wrote a blog post describing it as the next "mega trend". While I do agree that many securities will benefit from tokenization, I think many of the advantages Anthony mentions are overblown. For example, he writes how tokens will create lower fees.

"Lower Fees — Many fees associated with financial transactions are derived from payments owed to middlemen (bankers, etc). Security Tokens remove the need for most bankers which reduces fees, and smart contracts may one day decrease the reliance on lawyers as well. These smart contracts will reduce the complexity, costs and paperwork with managing securities (collecting signatures, wiring of funds, mailing of distribution checks, collection of W-2s, Sending K-9s, etc)."

There is no evidence that token offerings will have lower fees. Many “ICO Advisory Firms” charge both up front and backend fees. An ICO will also spend a significant amount of money on brand building and advertising. Instead of Goldman Sachs doing a roadshow, an ICO will now pay for the privilege of bombarding consumers with advertisements for buying their ICO on sites like Twitter. A company can even take it a step further by creating a bot network where you can make it appear that you have interest in your ICO, but rather it’s a bunch of fake twitter accounts convincing real people that they should buy your ICO. Aren’t you glad your money didn’t go to Goldman Sachs?

Anthony also mentions benefits such as a larger investor base and lack of financial institution manipulation.

“Larger investor base — When asset owners can present deals to anyone with an internet connection, the potential investor base is drastically increased. For example, would you rather show your investment opportunity to only US accredited investors & institutions or every potential investor in the world? Competition is healthy and a long-term net good for financial markets.”

“Lack of financial institution manipulation — This is a complex topic that is sure to be controversial. The short explanation is the likelihood for corruption and manipulation by financial institutions is decreased if those institutions are removed from the investment transaction process.”

In theory, a larger investor base should create better price discovery and thus be better for both the investor and the company offering the security. Right now the current ICO process involves “whales” getting special discounts who then flip their positions to the larger investor base. Most ICOs when they get to regular people are at a disadvantage because they aren’t being sold at the same price and thus the price discovery advantage is rendered moot. Which brings me to the point of financial manipulation. Goldman Sachs or JP Morgan might not be manipulating the token, but the “whales” who bought a large position in the ICO sure can.

Tokenized securities will be great because they will provide liquidity to things such as venture funds where liquidity is scarce or private companies where it could take years to exit, but it’s naïve to believe that many of the things that plague the current public markets won’t affect tokenized markets.

The Next Google

Business Insider recently interviewed GM of Coinbase, Dan Romero, in an article titled, “A top Coinbase exec explains the master plan to turn the $1.6 billion cryptocurrency exchange into the next Google” I love how click-baity the headlines Business Insider comes up with (I also am positive that I just made up the word click-baity). I feel like Business Insider just uses a formula such as (insert promising startup) wants to be the next Google. The article had some good insight into where Coinbase was headed. 

For one, Coinbase doesn't have a current plan to do an IPO, but maybe that is because they will offer a tokenized security (see above). The focus for Coinbase seems to be on building the infrastructure. As an outsider, and someone who uses Coinbase, you would hope this is the case. Coinbase is also trying to dedicate more resources to open-source, for example, they have someone working on Lightning Network. 

Despite the brevity of the interview, I was surprised they didn't discuss other cryptocurrencies such as Ethereum which Coinbase CEO favours over Bitcoin. I must not leave out my favourite part of the interview when Dan takes a dig at Robinhood:

"Peterson: What do you mean? The fact that Coinbase offers payment features and things like that?

Romero: Yeah, but I think a great example, there is a competitor that's rolling out today, where if you go to their help section, they don't allow you to send digital currencies to them, and in order to access withdrawals you have to go through multiple hoops and it may take you a week to do that.

Peterson: Are you talking about Robinhood?

Romero: Yeah, I think they're launching today."

Some Other Things I Read Today

If you enjoyed what I write, you should also follow me on Twitter @amlewis4.

If you'd like to get Grasshopper Capital Daily delivered every day in your inbox, subscribe here.