On the Eve of Thanksgiving, Some Food for Thought

It’s the day before Thanksgiving, a time for giving thanks and sharing.

So I’d like to share some things that have been on my mind recently.

  • Fifteen years ago, my nephew left his successful law practice, bought some land and started a vineyard. Three years ago, a former employee of mine walked away from his job to grow marijuana in Washington State. A sign of the times.
  • At the crypto conference I recently attended in Los Angeles, the consistent message from almost everybody was that adoption/commercialization and meaningful enterprise usage of crypto was still two to five years away. We’re pre-inflection point, in other words. As this juncture approaches, most people expect prices will significantly rebound. I expect a rapid to extremely rapid ascent.
  • The New York Times is running a series of articles on the rise of China. The first article on Sunday was quite good. It pointed out that nobody expected a communist country/economy to prosper. While that’s true, China fits a certain mold common to Asia – an autocratic country run by a close-knit privileged elite. The only difference is that China is nominally “socialist” with a large capitalist component. Many other Asian countries are nominally capitalist with a large (and bloated) state-run component. Our notion of democracy and capitalism doesn’t exist in Asia, except for Japan and Korea to a certain degree.
  • That said, China is coming on fast and furious. It now leads the U.S. and every other country in the number of internet users, college graduates and homeowners (the U.S. used to take pride in dominating homeownership rates).
  • It’s not my imagination. The quality of crowdfunded investment opportunities really took a leap forward this year. Volume is up too. Private equity crowdfunding did not have the bubble that crypto had, and I think it’s better for it.
  • The common complaints about bitcoin are that it’s too slow or too unstable. One drawback that hasn’t drawn much notice, however, is that it’s too small. Bitcoin currently has a market cap of $89 billion. The California Public Employees’ Retirement System’s (CalPERS) income portfolio alone is $84.7 billion. Its total fund is valued at $348 billion. As I write this, the market cap of the top 100 cryptocoins is $167 billion. Crypto’s current fall has not only made it tough on retail investors, but it’s made it too small for the big institutional money to play with…
  • Or at least that’s the argument I’ve been hearing, anyway. It’s not quite true, though. Institutional money will NOT be plunging into the crypto market overnight. Institutional investors will start small and ramp up gradually. The biggest funds won’t be putting in more than 0.5% to 1% to start off. The crypto markets can handle that.
  • Is 2019 the year of the dapp (decentralized app)? Looks like it could be. I just spoke to my fellow startup aficionado and founder of StartEngine, Howard Marks. He’s created a dapp for his new tokenized secondary marketplace where everyday investors will be able to trade their pre-IPO securities instantly. Sounds like the days of illiquid shares are coming to an end.
  • My personal cryptocurrency portfolio looks ugly right now. I’m not thinking of selling. On the contrary, I’m pretty sure I’ll be buying… and soon. I love buying low. And crypto is now at a low point. Could it go lower? Sure, but any kind of rebound should easily zoom past where prices are now.
  • Some sectors where I think early-stage startups are primed to make a mark? Wearables (more specifically, hearables) and big data. Just a couple of the topics I am writing about for the December issue of First Stage Investor.
  • Another crypto trend I see emerging? Companies raising through equity offerings with plans to issue tokens later.
  • My father-in-law reads the obituaries every day. Me? I track the bitcoin obits. The count is currently at 318, meaning 318 times some know-it-all journalist has written off bitcoin. So far this year, bitcoin has died 72 times. It sounds like a lot, but it’s far off last year’s pace of 125 deaths. Bubbles make people nervous. The first obit appeared on December 15, 2010, titled “Why Bitcoin can’t be a currency.”

Happy Thanksgiving, everybody!

Andy Gordon

Co-Founder, Early Investing