Weekend Reading #184

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This is the hundred-and-eighty-third weekly edition of our newsletter, Weekend Reading, sent out on Saturday 3rd September 2022.

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What we're thinking.

This week on 1 September, we launched our brand-new vehicle to trade crypto! SLINGSHOT was launched to manage our own holdings with some partners, family and friends and we absolutely cannot wait to get stuck in. As we launch, crypto markets and Bitcoin in particular, appear to be at an interesting juncture.  

As we have written before, we see Bitcoin as a potential escape hatch from the current system. Contrary to popular opinion, we do NOT see it as an inflation hedge. Rather, it is in our view an instrument which could see material upside should central banks continue to debase their currencies – something which many feel in the long run is an eventuality. The problem is that that this works both ways. Right now, for the first time in Bitcoin’s existence, the worlds’ largest central banks (First the Fed, and now the ECB) are not only halting the debasement of their currencies but are in fact withdrawing liquidity and in effect making their currencies more sound (this is of course off an incredibly high monetary base). In markets, rate of change matters most and the environment we are entering into now is the OPPOSITE of what one would want for Bitcoin to appreciate. These things tend to change fast and of course we are laser focused on any changes in policy but in recent months Bitcoin’s price has hovered around its previous cycle high of $20,000, which has served as a magnet from which Bitcoin hasn’t managed to climb away. This does not bode well. 

Ethereum on the other hand is a completely different story. The so called “merge” is something which all Ethereum bulls can rally behind as a manifestation of their hopes and dreams. Make no mistake, we are super long term fans of Ethereum but coming into the event(s) over the next week or so, open interest is a record high, and it is the only game in cryptotown meaning almost everyone has allocated their dominoes accordingly. It is quite difficult to see where the marginal buyer is going to come from for the moment. As a piece of technology, Ethereum is more like the many other long dated tech stories we’ve seen albeit with very different investor pools and flow dynamics. Once again as traders, apart from a possible jubilance driven spike into an event, it’s tough to get bullish here. 

As for the rest, well they are victims of flow for the moment. Most of the enormous amounts of capital that have come into crypto have gone into the VC space and into private offerings. Eventually many of these projects will launch tokens but for now most publicly tradeable tokens we look at are victims of circumstance, regardless of quality. 

For those who are keen to follow Ethereum’s ongoing Merge story into Eth 2.0, transitioning to a Proof of Stake chain from its Proof of Work roots, the last fixed date in its timeline is the 6th of sept at 11:43:47am UTC, which is the time when the last software update (Bellatrix) to Eth nodes is scheduled for epoch 144896 of the Beacon Chain. After that, it’s on autopilot all the way till the target terminal difficulty level is attained at which time the execution layer of the upgrade (Paris) kicks in. This could happen anytime between the 10th and 20th of Sept, after which finality of the “merge” with the Beacon Chain is reached and the old Proof of Work chain is deprecated. Estimates for the transition time can be found on bordel.wtf (pardon their french) and 797.io/themerge. 

The UK too has now raised the cap on domestic energy prices, potentially putting the average household’s energy bill on an annualised basis at £3,549, almost triple what the number was last winter. Across the board, politicians are pointing the finger at Russia, and sure there is a case to be made that Russia pulled the trigger. But as we argued before, these commodity shortages have been years in the making, so the real question is who loaded the gun, and for many in the virtue-signalling class of politicians (who virtue-signalled their way to making policies that effectively decried investments in energy security in the name of the “green” narrative), they may find the answer in their mirrors.

What we're doing.

Since joining WeWork, we’ve been able to access many of the different locations the company has to offer. This Friday, we decided to check out the company's Waterloo office at 10 York Road, which happens to be their EMEA headquarters. Compared to Nachas Networks’ now usual outpost in Canary Wharf, this one is much bigger with 16 floors, of which the top one offers a pizzeria and cocktail bar. In addition to that, there’s also a speakeasy with pool tables, as well as a cinema and yoga studio! It’s surprising that anyone here manages to get work done, hence the ongoing joke “We Don’t Work”. HS

What we're listening to.

Like many others, I’ve been fascinated with Magnus Carlsen for years. I would hardly say I am a good chess player but as a student of elite performance, his staying power at the top is truly something to behold. This Lex Fridman chat is deep and comprehensive. And after listening to this epic, I’m even more in awe. They about him and his career but also some detail on the game of chess and his many battles over the years. Amongst the many nuggets in here, one which stood out was around how Deepmind’s Alphazero approaches the game. Alphazero is a general reinforcement machine learning system specialising in chess, shogi and go. Carlsen’s comments are really interesting. In chess it is fairly common to sacrifice pieces to make gains in the short run (up to 4 moves). But in Alphazero’s case, the sacrifice it is willing to make early on is staggeringly high with no apparent short-term benefit. However, it is over longer periods the sacrifice pays off handsomely. No human had ever done this before, showing that machine learning can definitely bring new strategies to play. Now lets do machine learning for science and many other fields and imagine what new discoveries await! DC 

This podcast from Delphi Digital, from their Disruptor’s series, was an interesting listen, featuring one of the OG developers from the Cosmos ecosystem. Cosmos is one of those projects that seems to have been around forever, but of which many know little. Yes, there’s the token (ATOM), they do something which is apparently quite cool (application specific blockchains + cross chain functionality native to Cosmos), and they have some technology with cool names like “Tendermint consensus” which seems to appear all around when we read other whitepapers. Could something be “old” from the prior generation and yet still ubiquitous? It is easy to think of Cosmos as another of those “legacy” blockchains, but it’s clear from this podcast that the community is much more sophisticated than a bunch of devs holding on to hope on a legacy idea. The fact that their technology has been applied in other major projects of much greater infamy (e.g. Polygon, BSC, Thorchain etc) suggests that there may be something much more profound behind all of this. It’s worth a listen, and as always, we are open to changing our minds. EL 

Bankless recently put out an interesting episode on censorship in China. They invited Jiajun Zeng, product lead of moderation at Bytedance (the parent company of the popular app, TikTok), to discuss his experience with corporate censorship under political pressures. The episode does quite well to explore the depth of censorship in China, from local police having access to WeChathistory to sophisticated algorithms used to detect political dissent in text, voice and images. What's most amazing is the fact that they have over 30,000 people, distributed in geographies across China for redundancy, are employed specifically for manual content moderation at ByteDance alone. The resources required to manage content moderation are massive and paid for expressly by the company itself. There's also some concerning commentary on the risks of creating or aggregating political content, and complete censorship faced by minority communities. It’s worth understanding how content publishing companies operate in China and how it differs from in the West; this podcast was certainly worth a listen to! HS 

What we're reading.

A simplified explainer for Helium’s latest HIP-70 is here. The gist of the proposal is that Helium is looking to move all its on-chain activity to Solana. The reasoning was that trying to run all two networks (IoT and 5G) on its native chain was turning out to be too challenging for multiple reasons including a different coding language (in Erlang, vs the more popular blockchain languages like Solidity and Rust) leading to discrepancies in functionality, and the subsequent complications and compromises in efficiency/speed/reliability that come as a result. On the face of it, it sounds like a sensible approach – if plan A doesn’t work, go to plan B. The problem is that almost the entirety of the HNT token’s investment case was predicated on being able to own a share of a blockchain that spans the globe, with the optionality of being the world’s single largest telco infrastructure company. Sure, revenue shares were part of the investment case too, but the occurrence of any potential cashflows is still a long-dated prospect. By moving these operations to Solana, there is a necessary loss of value of the underlying chain: fees need to be paid to Solana (sure, they may be cheap), and overall despite the promise of broad functionality of Solana, the fact that Helium is going from a state of controlling its own chain to not doing so is understandably a source of consternation for tokenholders. Whether this was a decision made of their own volition or out of necessity remains to be seen. The proposal is still up for a vote, but on the whole it seems unlikely that this will not pass. 

Elsewhere, this article about VitaDAO which appeared in Nature magazine(without having to go through a paywall!) caused some excitement within the DeSci community, not just because it was the first sign of mainstream recognition of the benefits of research DAOs, but also because it did a very good job of explaining the pain points experienced by researchers and how the DAO structure delivers material relief for some of these issues. Without stealing too much of Nature magazine’s thunder, we think this is an excellent write up and definitely worth a read. EL 

After being a poster child for “disruptive innovation” and coinciding nicely with a post covid bubble, Ark-Invest has been given a really hard time by the market not only in seeing its ETFs collapse dramatically but also in seeing its reputation taking a big knock as result. Markets are hard and to those who make fun of Cathy Wood and Ark-Invest, I would suggest generally it is not a good idea as markets (as is life) are circular. The research that Ark produces in many cases is superb and this piece about psychedelic therapeutics was right up my alley. It’s a great entry point to anyone who wants to understand a little of the science, the history and the addressable market.  

Speaking of poster children, another top holding of every growth fund for the past few years was Sea Ltd. Sea is a company we knew already from its IPO nearly 5 ago now. It had a spectacular rise after the Covid bear market and went up spectacularly on the back of searing growth in its ecommerce business, Shopee and the consistent drive from its core gaming business. There was further excitement around a push into Latam competing with Mercadolibre at one point too. But what has happened is a shining example of how having an ideological, cast–in-stone belief about a star company is a recipe for disaster. This Bloomberg article talks of a recent round of job cuts but to be honest it could have been talking about any one of dozens of high flying stocks which after having gone into outer space are coming back to earth. There is a reflexive doom loop from a collapsing stock price in a business but there is never really any acknowledgement that the price was too high in the first place. Sea has a good business and good prospects but just like any other business in any other sector, life comes at you fast and you cannot just have a straight line to ultimate success. The time ahead will determine whether they are a fallen angel or whether they have the grit to see through this patch and claim their prize on the other side. We have no idea and haven't traded the stock in earnest since the heady days of 2021 to be honest when the easy money was taken off the table. DC