Thoughts about the markets, automated trading algorithms, artificial intelligence, and lots of other stuff

  • Functional Mapping: Nature’s Desired Path

    There's a concept in design and transportation called Desire Paths. 

    The desired path is the path that users take despite the intended path by the builder of a community or application. 

    Here's a great example. 

    6tj18p093vb81Reddit via itstartswithani

    And, here's a whole community forum focused on desire paths. 

    It's often easier to take advantage of human nature … or just nature … than fight against it. 

    To that effect, I shot a short video on how this relates to your business and tech adoption. I call it functional mapping. Check it out. 

     

    Understanding the natural path for both technology and your clients makes it easier to understand and anticipate the capabilities, constraints, and milestones that define your path forward.   That means you actually have to understand the different types of users and what they expect to do.

    6a00e5502e47b28833026bded38d1b200c-600wi

    Each stage is really about the opportunity to scale desired capabilities and automation.

    It isn't really about building the technology, rather, it is about supporting the desire.

    You don’t have to get it right.  You just have to create momentum in the right direction.   Meaning, if you understand what is coming, you don't have to build it … but you should figure out where you want to build something that will move things in the right direction.

    You’ve probably heard me talk about how Capabilities become Prototypes. Then Prototypes become Products.  And, ultimately, Products become Platforms.

    This model is fractal.  That means it works on many levels of magnification or iteration.

    What first looks like a product is later seen as a prototype for something bigger.

    SpaceX's goal to get to Mars feels like their North Star right now … but once it's achieved, it becomes the foundation for new goals.

    This Framework helps you validate capabilities before sinking resources into them. 

    It helps you anticipate which potential outcomes you want to accelerate.  Rather than simply figuring out what the easiest next step is … you have to figure out which path is the best next step to your desired outcome.

    The world is changing fast! Hope you're riding the wave instead of getting caught in the riptide!

  • The Future of the Blockchain

    Last week, I talked about market performance in 2021.  A decent portion of that article talked about cryptocurrency and the recent downturn (after a stellar 2021).  I'm a skeptic by nature, so it's hard for me to get behind any specific coin (even Bitcoin) at this point in time.

    This week, I had a conversation with good friends, including John Raymonds, about the topic as well.  John is much more active in the space and brought up some good points.  Something I noticed was how the level of discussion is starting to elevate and mature. People are beginning to think about secondary and tertiary value propositions. The conversation even made me think about repurposing some of our underutilized hardware in our server room for some crypto-related purposes.

    So, today, I want to focus on a different aspect of the equation … the potential value propositions of cryptocurrency as a technology – and the blockchain. 

    To start, I want to talk about Industrial Revolutions.  In part because we're at another inflection point. 

    A Look at Industrial Revolutions

    The Industrial Revolution has two phases: one material, the other social; one concerning the making of things, the other concerning the making of men. - Charles A. Beard

    There are several turning points in our history where the world changed forever.  Former paradigms and realities became relics of a bygone era. 

    Tomorrow's workforce will require different skills and face different challenges than we do today.  You can consider this the Fourth Industrial Revolution.  Compare today's changes to our previous industrial revolutions. 

    Each revolution shared multiple similarities.  They were disruptive.  They were centered on technological innovation.  They created concatenating socio-cultural impacts.

    Since most of us remember the third revolution, let's spend some time on that. 

    Here's a map of the entire "internet" in 1973. 

     

    6a00e5502e47b2883301bb096809ce970d-600wi

    Reddit via @WorkerGnome.

    Most of us didn't use the internet at this point, but you probably remember Web1 (static HTML pages, a 5-minute download to view a 3Mb picture, and of course … waiting for a website to load over the dialup connection before you could read it).  It was still amazing.

    Then Web 2.0 came, and so did everything else we now associate with the internet; Facebook, YouTube, ubiquitous porn sites, Google.  But, with Web 2.0 also came user tracking, advertising, and we became the "product."  Remember, you're not the customers of those platforms – advertisers are.  And if you're not the customer, you're the product. And when you're not the customer, there's no reason for the platforms not to censor your thoughts to control the narrative. 

    Putting You In Control

    Web3 (and the blockchain and its reliant technologies) brings the power back to the people. 

    Primarily due to decentralized access with equal treatment for everyone.  Governments are already being pressured by Bitcoin and other cryptocurrencies.  But so are banks and brokerages, due to smart contracts and Ethereum.  Soon, even VCs will be impacted due to OHM fork treasuries or initial DEX offerings. 

    As Web3 gets more mature, so will decentralized finance.  Meaning, big banks, governments, ISPs, and more will have less control over the applications and uses of the technology. 

    If handled correctly, that means competition can discourage the productization of your digital presence.

    Removing Barriers

    There are many practical ways this would impact your life – but let's look at one that's already happening. 

    El Salvador recently made Bitcoin legal tender.  Talking about all the reasons this happened is beyond the scope of this article, but it does make El Salvador an excellent case study for the possibilities. 

    To start, it's now easier and quicker to buy a beer there (with Bitcoin) than it is in the US with cash.  It also stabilizes pricing in a civil war, because it's easy to move both in and out of the country. 

    Consequently, it also means that their currency holds its value as they travel to other places. 

    Let's take this to the extreme.  Let's say someone was to convert all their net worth to Bitcoin, and put it in a hardware wallet.  They could conceivably memorize their seed phrase, throw the wallet in a fire, and fly to El Salvador with only the clothes on their back.  After finding a way to scrounge up the money to buy another hardware wallet through random acts of labor … they would be in a completely new country with their entire net worth and no other footprint.  It's scary – especially for governments and their taxing authority.  But, it creates a new set of potentials and freedom.

    Now, take it a step further.  What would the world look like if you had all your health data, insurance, etc., with you anywhere you travel?  The world becomes your oyster in a way that was almost impossible before. 

    And that's only the beginning. 

    But, to bring it back to my skepticism again, there are a lot of roadblocks, inferences, and time in between today and the decentralization of the internet and finance.  And for now, that thought experiment only really works if you're willing to move to El Salvador.  The larger countries seem to be doing everything they can to discourage the adoption of cryptocurrencies. Though I think the smaller countries view this as a chance to become one of the new hubs of the world.

    However, maybe it's time for this quote by Elon Musk: 

    "Stop being patient and start asking yourself, how do I accomplish my 10 year plan in 6 months? You will probably fail but you will be a lot further ahead than the person who simply accepted it was going to take 10 years."

     

     

  • Here Are Some Links For Your Weekly Reading – February 6th, 2022

    Have you paid attention at all to the Spotify controversy?

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    Here are some of the posts that caught my eye. Hope you find something interesting.

    Lighter Links:

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  • How Much Electricity Does Bitcoin Use?

    Electricity use is one of the common complaints people have when talking about Bitcoin adoption and mining. 

    So, how much energy have we been using to mine Bitcoin?

    More than you might’ve guessed.

    The world is changing.


    Bitcoin-energy-usage

    via Daily Infographic

    I know several people that are getting more into mining as cryptocurrency continues to grow in popularity (despite the downturn). 

    While this amount of energy usage is startling – and bad for the environment – there are many ways to reduce the consumption of electricity by cryptocurrencies. 

    On the other hand, this might be an interesting alternative data source that gives us a different perspective about the ongoing popularity and commitment people have towards a currency.

     

  • It Isn’t Whether Tom Brady Is Retiring – It’s About When … and Why We Care?

    In 2017, I wrote an article “asking” why the Patriots were so good. Then Tom Brady left, the Patriots have suffered (somewhat), and Tom Brady won another Super Bowl with the Buccaneers. 

     

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    Now, several sports pundits are reporting that he may be retiring. Tom Brady insists that he hasn’t made a final decision yet. 

    Of course, there is the matter of the $15 Million portion of his signing bonus that becomes payable to him on Friday. That might explain the “confusion” on timing?

    Regardless, all this talk reminded me about what makes Tom Brady special. 

    There is a difference between ‘luck’ and ‘skill’.

    Both exist … yet, luck favors the prepared.

    In life, as in sports, hard work often beats talent (especially if talent fails to work hard).

    But, when you see this picture from the 2000 NFL Combine, it’s hard to believe that Tom Brady would be a 7-time Superbowl MVP taking the Buccaneers to the Super Bowl in his first year with them. All at the geriatric (for an NFL player) age of 44. 

     

    6a00e5502e47b28833027880138f19200d-600wi

    via CBS Sports

    When I talked about the Patriots, I focused on the fact that they were a well-oiled machine with a powerful framework of success that allowed individual greatness to shine. 

    I think Brady’s continued success is emblematic of that. 

    Tom Brady is a paragon of culture, process, and hard work. Much of his approach was molded by his time with Belichick, but of course, he gets enormous personal credit as well. 

    He expects the best of himself and brings out the best in his teammates. That’s enabled him to stay a top-level competitor despite not being the strongest, fastest, or most mobile QB (and that was when he was young). 

    As well, Tom Brady is remarkably consistent and disciplined; his diet, his routine, his exercise, his film routine, etc. All NFL athletes have impressive routines for the most part, but take a look at Tom Brady’s routine. It’s a routine built for him and his needs – and he’s got it dialed in. He doesn’t need to waste time trying to get big in the gym, so he focuses on 9-key exercises to support his goals. 

    The System is the ‘system’; but, within it, you can measure what works, who contributes, and then use those insights to identify the best things to try next.

    Win, lose, or draw … some things speak for themselves. And whether he retires today, next year, or never, we don’t need to wait five years to know he’s a Hall of Fame player with an incredible career. 

  • Here Are Some Links For Your Weekly Reading – January 30th, 2021

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    Here are some of the posts that caught my eye. Hope you find something interesting.

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    Trading Links:

  • 2022 Predictions

    About a month ago, I shared visualcapitalist's 2021 predictions to check how well they fared at the end of the year. 

    Honestly, the list was pretty good. It wasn't perfect, but you wouldn't expect it to be. 

    In that article, I asked this question: 

    What's going to happen as a result of the continuing pandemic, inflation, interest rates, the ongoing supply chain issues, and the growing anxiety and unrest brewing underneath the surface of the new normal? In January, we'll get to see VC's predictions. Before that, what do you expect to happen in 2022? – How'd These 2021 Predictions Fair?

    With that, here are visualcapitalist's 2022 predictions: 

    Prediction-consensus-2022-1via visualcapitalist

    Let's be clear – most predictions are either vague and easily guessed (and therefore not helpful) or random conjecture. 

    But, there's value in prediction, and there's value in analyzing the data before you. The caveat is that prediction is better when it's applied to human nature and not the machinations of fate, and data can be a distraction if it's not being carefully curated and analyzed to remain relevant to your goals. 

    For example, I agree with their general direction for technology. Tech is continuing to grow in influence, and as Web 3.0, the blockchain, and AI mature as platforms for sub-technologies, I think their importance is only going to skyrocket. 

    Prediction can also be entertainment. I certainly catch myself looking for patterns and differentiators for everything from whether my meal is going to come to the table correctly, to who's going to win the Super Bowl. 

    I know the chances are low, but I still think it's going to be the Cowboys … 

  • How Markets Performed in 2021

    2020 was a roller coaster of volatility, and while 2021 was as well, most asset classes saw improvements as the world reopened. 

    But it wasn't all smooth sailing.  There were significant supply chain struggles and rising inflation … not to mention the rising cases of COVID. 

    Regardless, markets are not the economy, and while there are numerous factors to think about, I've always found markets interesting. 

    Maingraphic-asset-class-2021via visualcapitalist

    2021 was a year of rampant speculation, in part because so many systematic traders underperformed.  For example, Renaissance reportedly saw ~15 billion in outflows last year (despite double-digit returns) as their clients likely moved towards more "exciting" opportunities. 

    Of course, some of those "exciting" opportunities were cryptocurrency-related.  Moreover, chasing performance like that is often mean-reverting.  Yet, I've seen a massive increase in interest among various business groups in crypto, Web 3.0, and the Blockchain. 

    Cryptocurrencies

    While crypto generally performed well in 2021, 2022 has seen a drop that erased over $1 trillion in value. 

    Crypto-Performed-in-2021_03via visualcapitalist

    The reality is that crypto markets matured a lot in 2021.  The thousands of coins are mostly a distraction, but there are many interesting coins from various sectors with interesting technology behind them.  There is increased infrastructure and decreased correlation between coins.  Unfortunately, not enough to keep this drop from affecting the whole space. 

    So the question is, is this a "discount" for people to buy into the space, or a sign of future troubles?

    It's no secret that I've always been a fan of Blockchain but cautious of cryptocurrencies. 

    I think there is a lot of money to be made speculating in cryptocurrencies, but how much of that money being made is attributed to luck vs. skill?

    Crypto's are interesting, in part, because they're a digital currency decentralized over a peer-to-peer network.

    The more people are willing to accept it as a medium of exchange, the more valuable it becomes (and the more it becomes a stable store of value).

    Supposedly, decentralization provides it safety from censorship and government interference – meaning it has value as an international currency and as a currency for black-market transactions.  But, in my opinion, that remains to be seen (and I consider it unlikely for most cryptocurrencies).

    However, the worth of a Bitcoin isn't just based on sentiment (on one hand, there are desires to avoid fiat currency vagaries, government interventions, and scrutiny, while having a fair price discovery method, etc.  … on the other hand, there are also the costs to mine a Bitcoin, transaction fees, etc. and crypto has recently been under fire for its huge environmental impact).

    Compared to a reserve currency – whose worth is primarily influenced by trade value and other macroeconomic factors – watching crypto's volatility can be scary. 

    That being said, as adoption increases and more businesses enable it, it's possible that it will continue to legitimize.  For the time being, I remain a long-term skeptic because there is too much working against it. 

    Many of my initial complaints are centered on coins as currency.  I get that there are already many interesting uses of Blockchain that will also help to bring credibility to coins as a store of value. 

    The question for me is, even if cryptocurrency is here to stay long-term (and avoids government control), which coins will it be?  Do they even exist today?

    I'm positive there is money to be made related to the Blockchain, NFTs, and cryptocurrencies.  But, at this point, it's a speculators game, and I think the best way to capitalize on this trend sustainably is to sell picks and shovels for the gold rush, instead of trying to stumble upon gold. 

     

     

  • Here Are Some Links For Your Weekly Reading – January 23rd, 2022

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    Here are some of the posts that caught my eye. Hope you find something interesting.

    Lighter Links:

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  • Media Bias and You

    Information is Power.

    Consequently, your choice of information source heavily contributes to your perceptions, ideas, and worldview.

    Coincidently, news sources are a lightning rod for vitriol and polemic.

    I am still somewhat surprised by the abject hatred I hear expressed towards a particular news source by those who hold an opposing bias.  This often leads to claims of fake news, delusion, and partisan press.  Likewise, it is common to hear derision toward anyone who consumes that news source.

    Perhaps the reality is that most sources are flawed – and the goal should simply be to find information that sucks less?

    It's to the point where if you watch the news, you're misinformed, and if you don't watch the news, you're uninformed.  News sources aren't just reporting the news … they're creating opinions and arguments that become the news.  Moreover, many consumers don't care enough to think for themselves or to distinguish facts from opinions.

    Here's a chart that shows where news sources rank on various scales.  It has default options and over 1400 sources you can add to the interactive version.  You can click the image to go to an interactive version with more details.  It gets updated every year, and Version 9.0 just got released.

    Screen Shot 2022-01-23 at 2.03.35 PM

    via Ad Fontes Media

    I once spent fifteen minutes arguing about how you know whether the information in this chart is accurate.  If you're curious about their methods, click here. 

    The "new normal" is to distrust news agencies, big companies, the government, and basically anyone with a particularly large reach. 

    Perhaps even more dangerous is the amount of fake news and haphazard research shared on social media.  Willful misrepresentations of complex issues are now a "too common" communication tactic now on both sides … and the fair and unbiased consideration of issues suffers.  

    Social media spreads like wildfire, and by the time it has been debunked (or proven to be an oversimplification), the damage is done.  Once people are "convinced," it is hard to get beyond that. 

    In reality, things aren't as bleak as they seem.  People agree on a lot more than they say they do.  It is often easier to focus on "us" versus "them" rather than what we agree upon jointly.  This is true on a global scale.  We agree a lot.  Most Democrats aren't socialists, and most Republicans aren't fascists … and the fact that our conversation has drifted there is intellectually lazy.

    This idea that either side is trying to destroy the country is clearly untrue (OK, mostly untrue).  There are loonies on the fringes of any group, but the average Democrat is not that unlike the average Republican.  You don't have to agree with their opinions, but you should be able to trust that they want our country to succeed. 

    I don't know that we have a solution.  But there is one common "fake news" fallacy I want to explain at least a little. 

    It's called the Motte and Bailey fallacy.  It's named after a style of medieval castle prioritizing military defense.

    Launceston_Castle_-_geograph.org.uk_-_22242

    Launceston Castle via Chris Shaw, CC BY-SA 2.0

    On the left is a Motte, an artificial mound often topped with a stone structure, and on the right is a Bailey, the enclosed courtyard.  The Motte serves to protect not only itself but also the Bailey. 

    As a form of argument, an arguer conflates two positions that share similarities.  One of the positions is easy to defend (the Motte), and the other is controversial (the Bailey).  The arguer advances the controversial position, but when challenged, insists they're only advancing the moderate position.  Upon retreating, the arguer can claim that the Bailey hasn't been refuted, or that the critic is unreasonable by equating an attack on the Bailey with an attack on the Motte. 

    It's a common method used by newscasters, politicians, and social media posters alike.  And it's easy to get caught in it if you don't do your research. 

    Conclusion

    As a society, we're fairly vulnerable to groupthink, advertisements, and confirmation bias. 

    We believe what we want to believe … so it is hard to change a belief (even in the face of contrary evidence). 

    But, hopefully, in learning about these fallacies, and being aware, we do better. 

    I will caution that blind distrust is dangerous – because it feels like critical thought without forcing you to think critically.

    Distrust is good … but too much of a good thing is a bad thing. 

    Not everything is a conspiracy theory or a false flag.

    Do research, give more credence to experts in a field – but don't blindly trust them either.  How well do you think you're really thinking for yourself?

    It's a complicated world, and it's only getting more complicated.  But, hopefully, it encourages you to get outside your bubble and learn more about those with whom you disagree.