Modern investment thesis: coin has dog
Some people think it's "late stage capitalism". I think it's the same as before, only bigger.
Sometimes you have to wonder: was all the work really necessary?
I’ve completed more than my fair share of financial exams, but I know that many of you have, too: accountancy, wealth management, and so on.
And I know that many of you have studied companies in excruciating detail, over many months or even years, looking to gain an edge which will help you make the right choice with your money.
But in the end, why bother?
In today’s economy, all you need to know is that a cryptocurrency has a dog symbol, and you can quickly make enough to retire:
The Shiba Inu (SHIB) cryptocurrency now has a market cap of $39 billion, based on the fact that it has a picture of a dog on it (and a little bit more, which I’ll get to).
Crypto fans will be very familiar with Dogecoin (DOGE), the meme currency that was created as a joke and took the world by storm (with the help of Elon Musk, naturally!)
Well it’s time to move over, Doge, as there’s a new doggy in town:
Here’s the “woofpaper” (white paper) for SHIB, an official document outlining what it’s all about.
In this document, we learn that the pseudonymous founder of the coin, “Ryoshi”, sent 50% of the total supply of Shiba Inu coins to Vitalik Buterin. These are the sorts of strange facts you find in crypto-land.
(Mr. Buterin is one of the co-founders of Ethereum, a blockchain that is capable of hosting cryptocurrencies. Shiba Inu is hosted on the Ethereum blockchain.)
The rest of the woofpaper contains lots of information about the “LEASH” and “BONE” tokens associated with the project, and “ShibaSwap”, a decentralised platform where crypto can be traded and SHIB can be “staked” (invested?) to earn financial rewards.
This video explains how the rewards system takes SHIB tokens out of circulation for a period of time, “causing the SHIB price to rise”.
Don’t come at me for being sceptical: I’m openly a nocoiner who has never understood how any one of the 13,000 competing crypto tokens can make sense as an investment.
All of this is quite baffling to me.
So I’m not sure what advantages SHIB might have over DOGE and any other coin.
It seems to have something to do with:
the doggy symbol
people getting bored with DOGE and looking for the next big thing
an army of highly motivated enthusiasts (the white paper outlines rewards for those who are “fighting daily FUD”, i.e. defeating those who spread negativity).
excitement over the potential of the ShibaSwap exchange, and a rewards system which takes SHIB out of circulation, limiting the supply of the coin.
The upshot is that SHIB has become a top-10 crypto, and achieved a market cap in excess of DOGE:
Also, check out that daily volume: if I’ve counted the digits properly, nearly $10 billion of SHIB has traded in the past 24 hours, or a quarter of the market cap! You don’t see this sort of thing in the sleepy equity markets I’m used to…
A $40 billion valuation is small compared to the market caps of Bitcoin and Ethereum, but it’s not to be sniffed at. You could buy an amazing real-world business like Travelers or Hilton for around the same price.
Where to go from here
When markets get crazy, it’s easy to lose your faith in the importance of fundamentals.
Instead of trying to understand what a business or an asset is truly worth, it’s tempting to jump on whichever train is making the easy money in the here and now.
But we know how this story ends, although we can never predict exactly when it will end.
I was still a teenager during the dotcom collapse (1999 - 2002), but I saw how it ended. The memories of dotcom were still fresh when I started studying economics.
Those memories have long faded now.
Many (most?) crypto traders, and many with senior positions on Wall Street and in London and other financial hubs, have no experience of high (but historically normal) interest rates, and the much lower asset prices they engender.
Instead, fortunes are being made with investments which - I suspect - do not and will not ultimately serve any purpose. In other words, many of the assets being bought today are worthless.
The question is: what to do about it? Does it make sense to continue investing in an environment where so many assets are overpriced, and even worthless assets are given enormous valuations?
In 1969, Warren Buffett wrote to his investors of his intention to retire, and said:
It seems to me that… opportunities for investment that are open to the analyst who stresses quantitative factors have virtually disappeared, after rather steadily drying up over the past twenty years;
Current conditions are much worse than back then:
(Source: visualcapitalist.com)
How I intend to navigate this environment:
continue to study and to own high-quality businesses, with pricing power, which will remain strong businesses even when the air comes out of this market.
keep looking for new businesses, and the (probably rare) underpriced opportunities out there.
occasionally short the meme stocks which I consider to be severely overvalued, although extreme care is required in doing this.
Roland Head brought a new buy idea to my attention last month, and yesterday I published in-depth about my favourite short idea (plus one or two long ideas on the same theme).
We are going to keep looking for ideas. When the dam breaks, there will be some amazing opportunities for long-suffering value investors - on the long side, and perhaps on the short side too!
Best of luck with your investments,
Regards
Graham
Graham - I would highly recommend you take a look at Hedera Hashgraph (HBAR). Conducting fundamental research on its existing and potential use cases might surprise you! In short, it's a DLT that significantly improves on blockchain. I've spent 6 months researching it and continue to be astonished by the possibilities that lie ahead. Have fun!