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

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