Weekend Reading #113 — Three Body Capital

This is the hundred-and-thirteenth weekly edition of our newsletter, Weekend Reading, sent out on Saturday 10th April 2021.

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What we're doing.

With the good news this week that the UK remained on track navigating its way alone the roadmap out of lockdown, we were especially excited to learn that zoos, and specifically our beloved London Zoo, will be reopening on Monday 12th April. Yes, pubs and restaurants are about to open their doors too, but a 20-month-old girl who’s obsessed with gorillas has different priorities to you and me. With this in mind, this cartoon from Private Eye cheered us up even further. EJP

What we're thinking.

As Coinbase approaches its direct listing on 14th April, it heralds a major moment in the evolution of the cryptocurrency world. The listing is going to be massive. Both in size and in significance. Firstly, clocking in at around $100 billion (and probably higher) is something special but in a time where most hot tech businesses are being priced on revenue with enormous cash burn, it is worth noting that Coinbase makes money. A LOT of money. It is an incredibly profitable business even at this early stage. This week Coinbase released monster Q1 numbers as they clocked in around $1.8 billion of revenue. $1.1 billion of EBITDA and $730-800m of net profit. And this for just one quarter.

As we think about the implications this has on other crypto exchanges, the ongoing debate in the broader finance community is perhaps best summed up by another brilliant meme from the cryptotwitterverse. DC

As far as unintended consequences go, the data and anecdotes cited in this note on Zerohedge on the employment situation in the US tells a cautionary tale of what happens when the best of intentions go awry. While generous stimulus cheques are being handed out, managing to keep the US economy afloat, the result is that employers are finding it difficult to rehire as the economy reopens because there is simply very little incentive for anyone to get out and back to work. Why work for $500/week when doing nothing and claiming unemployment nets $300-400/week and no tax bill?

As firms struggle to hire as the economy reopens, the most likely outcome is a spike in wage inflation. On the flipside, the stimulus cheques are increasingly being seen as an under-the-radar Universal Basic Income programme. The ongoing shift towards moving returns away from capital to labour, added to the inflationary pressures from wages, seem increasingly likely to become the lynchpin of the economic zeitgeist in the coming years – quite unlike the decades before. EL

What we're playing.

We spend much of our lives looking at stocks and thinking about where and how they move; building a strategy and accounting for different scenarios is a big part of that. When it comes to our leisure time, we are no different and love to try out different strategy games, especially those when they call into question our knowledge of current affairs, economics and ability to handle a crisis. This week, we sat down to play Hearts of Iron 4, and in particular, the Modern Dawn mod which brings the game from its default 1936 beginning, all the way to 2001 in the wake of the 9/11 attacks. In this longwinded but fascinating game, you take the role of the leader of a country of your choosing and are responsible for handling all aspects of life for that country. You can alter the course of politics, make radical economic and military changes and even inspire revolutions around the globe. You are able to play alongside friends, other random players and even the AI in a tense fight that can go on for hours on end. As someone who has studied the language and spent time immersed in the culture, I decided to play as Jiang Zemin’s People’s Republic of China, and in for a treat I was. The developers of the mod were extremely thorough and I had the opportunity to accelerate things such as the BRI, bring development to the western provinces and unify China through political espionage and an eventual PLA annexation of Taiwan before eventually combatting friends playing as the allied forces after my attempted Indonesia-bound expansion via the South China Sea and economic interventions in the sovereign debt markets. The point is, the game is so varied that anything is possible, and time ultimately becomes your main limiting factor. HS

What we're reading.

Check out this interview with Binance CEO, CZ. As the largest exchange out there (yes, even bigger than Coinbase), Binance commands a lot of power. Binance has continually innovated so that it has become much more than just an exchange. As we have written before, the challenge to legacy banks is something they are just not built to overcome and from north of the crypto wall, Binance is leading the charge as a new age, Neobank, albeit with significant regulatory uncertainty (at this stage). In this interview, CZ speaks about Binance’s payments aspirations. Despite its native BNB token rocketing 10 fold this year alone, it is still very early in the evolution of this extraordinary business. DC

Hackatao has recently gained fame inside the world of digital art and NFTs as one of the foremost names in the movement. I personally like the work as Hackatao has been around long before they entered into the digital art world, painting and drawing beautifully on canvas for many years before going digital. Hackatao is actually a couple, Nadia Squarci and Sergio Scalet and this interview with Eleonora Brizi tells their story. It’s a bit unconventional and has a wonderful meandering flow to it due to the artists’ way of telling their story. It covers origins, influences, routine as well as their spiritual approach to painting and drawing. Even if you have no idea who they are, it is such a pleasurable read. DC

This article in Wired Magazine about golf’s existential crisis made for an interesting read. In the context of Bryson DeChambeau’s monster ball-hitting abilities (in both speed and distance), the question is asked as to what sort of sport the game of golf is going to become. Fighting distance (longer shots thanks to technology and sports medicine) with distance (longer courses) seems to be the sporting equivalent of a race to the bottom, but what’s the alternative? Perhaps John Cleese’s proposed solutions (in this case to Titleist’s NXT golf balls) might truly be the future. EL

This paper published by Nature journal is another brilliant piece on how our minds seem to have a tendency to overlook subtractive changes. Because sometimes the old adage that “less is more” is actually true. The authors of the paper found in experimental setups that test participants defaulted to looking for advantageous additive changes (what more was added) and were unlikely to locate advantageous subtractive changes (what was removed) unless cued to do so. Conversely, they were less likely to consider the shortcomings of an additive search strategy. Put differently, we naturally believe that the solution to anything always involves adding something, rather than consider the benefits of removing something. The authors conclude this may explain people's struggles against red tape, overburdened schedules and even damaging effects on our planet.

We've written about the G.I. Joe Fallacy (that knowing is half the battle) before – arguably with psychological biases, knowing that they exist IS half the battle since you can’t remove what you don’t know exists. Seems like G.I. Joe can have at least one victory in the behavioural psychology camp. EL

What we're watching.

During the extended Easter weekend, we watched 3 films about prison and 2 of them were the same film... To clarify, we watched Papillon twice, the 1973 and the 2017 versions. An odd choice you may think, and, on reflection, you’d be right because watching both wasn’t entirely necessary. But it was quite an interesting way to pass a two-hour lunchtime nap (for our daughter, not us) and an evening when the rest of the content on offer from the streaming services looked a little unappealing. The conclusion my wife and I came to is one that you’ll likely already know. The 1973 version is a classic, written by Dalton Trumbo and starring one of cinemas greatest double acts in Steve McQueen and Dustin Hoffman, whereas the 2017 version has the grand total of one interesting thing going for it, and he reprises Hoffman’s role as Dega and goes by the name of Rami Malek. In our opinion, the modern remake paled into near complete insignificance when compared to the version we’d watched earlier in the day. The story of a man framed for a crime he didn’t commit and thus stuffed onto Devil’s Island, a French penal colony in the Salvation Islands of French Guiana, with no chance of escape is a time honoured classic but the ‘73 version is the only one worth watching.

Diving further into the “depressing, hard-to-watch, prison-based drama” genre, we also enjoyed/endured Amazon Prime’s recent release, The Mauritanian, starring Jodie Foster, Benedict Cumberbatch and the excellent Tahar Rahim, whose performance you may also have noted in The Looming Tower. The Mauritanian tells the true story of Mohamedou Ould Slahi and his fight for freedom after being detained and imprisoned without charge by the U.S. Government for years in Guantanamo Bay following the US finding (still unproven) links between Slahi and the 9/11 hijackers. A lot of this film is hard to watch, and harder still because of the little voice at the back of your mind that tells you over and over that this is a true story, and this hardship and torture (literally) was inflicted on a real person. The harrowing details aside, this is a great film, with superb performances from all the leading stars. There is also a hopeful conclusion and it’s a film you must watch until the very end as the most uplifting scene, in our opinion, rolls alongside the end credits. EJP

This week brings the return of the Indian Premier League or IPL. Once again it will be without crowds as India battles to stem a new and more rapid outbreak of covid but even so, we absolutely cannot wait to see Chris Gayle et al smashing the cricket ball to kingdom come day after day for 2 months straight. DC

We talk a lot about the idea of the metaverse, and so this week we were delighted to see Spielberg’s 2018 sci-fi thriller, Ready Player One, appear on Netflix. The film is filled with pop culture references and seamlessly blends reality with the virtual world, in a tale that seems all too close to what our own future could be in the now not so distant, 2045. HS

What we're listening to.

After the riveting BBC sounds series that was The Cipher from a few weeks back, the search was on again for more podcasts that could match up to that riveting storyline. It didn’t take long to stumble upon another BBC production: The Lovecraft Investigations. Drawing upon the work of H.P. Lovecraft (perhaps most famous for his work The Call of Ctulhu which inspired everything from Metallica to the worst possible nightmares), this BBC commissioned production features 3 seasons, corresponding to 3 Lovecraft works. Perhaps the cleverest part of it is its format as a “meta” podcast, a podcast within a podcast. Give it a listen and that will become pretty clear. Luckily for all of us, we won’t need to wait 3 years for all the episodes to get released. EL