Capitalogix

Powering Bitcoin

In April, I talked about Coinbase's public offering and the top 10 growing cryptocurrencies. 

In the past couple of weeks, many currencies have reached record highs, and then seen a steep drop-off. Some say it was due to Elon Musk's SNL appearance, others say it was due to Tesla stopping support of Bitcoin short term. Still others say it was just due.

In any case, there are growing reasons to be wary of Bitcoin as a viable long-term value store.

On top of the many reasons I've talked about in previous articles, I'm hearing many more people talk about it as if they are crypto experts.  Consequently, it reminds me of the Dot.com bubble. Sure, the Internet continues to boom (but many of the early high-fliers don't exist today).  Meanwhile, it's possible crypto will evolve like the Internet, but at this point, it's hard to discern how much of the success in crypto is luck versus skill.   

There is a ton of demand and interest.  But fear of missing out and enjoying the roller-coaster ride is not the basis of a long-standing Platform. Blockchain is a different story.

Back to Crypto ... Even a blind squirrel finds a nut in a forest during a bull market. 

Governments have a disincentive to allow alternate currencies (not backed by their government).  In addition, another obstacle for cryptocurrency mining is the high cost of energy consumption. 

 

via visualcapitalist

Mining crypto takes a lot of electricity because when people are creating new coins they're really solving complex math puzzles with a 64-digit hexadecimal solution known as a hash. To solve those equations faster than your competitors you need massive data centers which can even overload local infrastructure. 

It's increasingly expensive and energy-taxing to mine new coins. For context, it's estimated that the current annual power consumption for Bitcoin alone (not including other cryptocurrencies) rivaled the state of New York, and beat Norway. 

To compare it to the tech giants, Bitcoin took 129 terawatt-hours of power consumption ... Google took 12, and Facebook only took 5. 

Many are looking for ways to decrease the energy consumption of mining cryptocurrency using methods like renewable resources. 

Biden's $4T Economic Plan Visualized

Biden campaigned heavily on an economic plan centered around bolstering the middle class, taxing the wealthy, and investing in healthcare and green energy infrastructure. There are other aspects of his plan - but those were the focuses.   

Now that he's President and proposing his $4 Trillion economic plan, we can take a better look at where he intends to spend that money. 

The NY Times put together a data visualization to put the plan in context. 

Here's the simplified version: 

via NY Times

And here it is with more detail: 

 

via NY Times

 

Much of the money President Biden intends on using to pay for this plan will come from higher taxes on the wealthy, and 15 years of higher taxes on corporations. With another portion of the money being invested in the IRS to crack down on tax evasion. 

Many people, both Republicans and Democrats alike, have fears about the new plan. 

Time will tell if the benefits outweigh the detriments, and what portion of his plan he actually accomplishes. 

Frankly, I'm not sure how much of what was talked about were trial balloons and negotiation anchor points or his intended outcomes?

Time will tell.  We sure do live in interesting times!

My Recent Podcasts with Dan Sullivan & Brett Kaufman

I recently did two interviews I want to share with you. The first was done with Dan Sullivan and Steven Krein for Strategic Coach's Free Zone Frontier podcast... and the second was with Brett Kaufman on his Gravity podcast. 

Please listen to them.  They were quite different, but both were well done and interesting. 

Free Zone Frontier with Dan Sullivan and Steve Krein

Free Zone Frontier is a Strategic Coach group (and podcast) about creating "Free Zones." It refers to the green space where entrepreneurs can collaborate and create without competition.

It's a transformative idea for entrepreneurial growth. 

In my episode, we focused on topics like building your own future, how decision-making frameworks and technology can extend your edge, and what it takes to get to the next level.   I realize there is a lot of Strategic Coach jargon in this episode, but it is still easy to understand, and there was great energy and an elevated conversation about worthy topics.

As an aside, Steve Krein happens to be my cousin, and we joined Strategic Coach entirely separately before realizing we had joined the same group. 

The podcast is 47 Minutes. I hope you enjoy it.

 

Or click here to listen on: Spotify, Google Podcasts, Apple Podcasts 

Gravity Podcast with Brett Kaufman

Normally, I talk about business, mental models, and the future of AI and technology, but Brett Kaufman brought something different out of me. 

Brett's Gravity Project is about living with intention, community, consciousness, and connection. He focuses on getting people to share their life experiences ... with the intent that others can see themselves in your story. 

In my talk with Brett, we do talk about the entrepreneurial journey ... but we also probe some deep insights by discussing the death of my younger brother, how my life changed almost immediately upon meeting my wife, and why love is the most powerful and base energy in the universe. 

This was not a typical conversation for me (a different ratio of head-to-heart), but it was a good one (and I've had a lot of people reach out because of this podcast). 

The episode is 65 minutes. I hope you enjoy it. 

 

Click here to listen on: Spotify, Apple Podcasts, Listen Notes

Let me know what you think.

WallStreetBets Analysis: Market Crashes & Oreos

During the Robinhood & Gamestop debacle, I wrote an article about r/WallStreetBets where I essentially said that most of the retail investors that frequent the site don't know what they're doing, but there is the occasional real post with strong research you would see at a real firm. 

As an example of good research done by the subreddit, here's a link to a post where a user (nobjos) analyzed 66,000+ buy and sell recommendations by financial analysts over the last 10 years to see if they had an edge. Spoiler: maybe, but only if you have sufficient AUM to justify the investment in their research. 

There are also posts that show a clear misunderstanding of markets, and more jokes than quality posts, but I saw a great example of correlation ≠ causation. 

In the past I've posted about the Superbowl Indicator and the Big Mac Index, but what about Oreos?

The increasingly-depraved debuts of Oreos with more stuffing indicate unstable amounts of greed and leverage in the system, serving as an immediate indicator that the makings of a market crash are in place. Conversely, when the Oreo team reduces the amount of icing in their treats, markets tend to have great bull runs until once again society demands to push the boundaries of how much stuffing is possible.

https://en.wikipedia.org/wiki/List_of_Oreo_varieties https://en.wikipedia.org/wiki/List_of_stock_market_crashes_and_bear_markets

1974: Double Stuf Oreo released. Dow Jones crashes 45%. FTSE drops 73%.

1987: Big Stuf Oreo released. Black Monday, a 20% single-day crash and a following bear market.

1991: Mini Oreo introduced. Smaller icing ratios coincide with the 1991 Japanese asset price bubble, confirming the correlation works both ways and a reduction of Oreo icing may be a potential solution to preventing a future crash.

2011: Triple Double Oreo introduced. S&P drops 21% in a 5-month bear market

2015: Oreo Thins introduced. A complete lack of icing causes an unprecedented bull run in the S&P for years

2019: The Most Stuf Oreo briefly introduced. Pulled off the shelf before any major market damage could occur.

2021: The Most Stuf Oreo reintroduced. Market response: ???

 - LehmanParty via Reddit

It's surprisingly good due diligence, but also clearly just meant to be funny. It resonates because we crave order and look for signs that make markets seem a little bit more predictable.

The problem with randomness is that it can appear meaningful. 

Wall Street is, unfortunately, inundated with theories that attempt to predict the performance of the stock market and the economy. The only difference between this and other theories is that we openly recognize the ridiculousness of this indicator.

More people than you would hope, or guess, attempt to forecast the market based on gut, ancient wisdom, and prayers.

While hope and prayer are good things ... they aren’t good trading strategies.

A good reminder that even if you do the work, if you're looking at the wrong inputs, you'll get a bad answer. 

Garbage in, garbage out. 

Assessments and You

Over the years, I've used a number of different assessment tests on myself and our team. It's a great way to help people better understand each other and the different forms of communication and problem-solving styles we use.

Here are several of the tests that have proven themselves time and again:

1. Kolbe: measures a person's instinctive method of problem-solving, and identifies the ways they will be most productive.
2. Predictive Index (PI) - helps you understand the way their traits manifest in relation to their true nature and their perceived role.
3. StrengthsFinder: helps people uncover their talents, so they can do more of those things each day.

On top of my normal tests, as a team of data scientists, it's always fun to see what's available. 

For example, Ray Dalio recently created a personality assessment called PrinciplesYou that you can take for free. I've seen a number of articles claiming that the assessment is not only accurate, but that it also has impressive insights.

Less meaningful, but still fun, I also found a website that lets you test your performance on various reaction and memory tests. Unsure how scientific it is, but it was an interesting use of 10 minutes nonetheless. 

via Human Benchmark

 

Progress starts by telling the truth ... most often to yourself.  

Timeless Wisdom From Socrates

Small distinctions separate wise men from fools. Perhaps one of them has to do with what the wise man deems important.

Socrates' Triple Filter

In ancient Greece, Socrates was reputed to hold knowledge in high esteem.  One day an acquaintance met the great philosopher and said, "Do you know what I just heard about your friend?"

"Hold on a minute," Socrates replied. "Before telling me anything, I'd like you to pass a little test. It's called the Triple Filter Test."

"Triple filter?"

"That's right," Socrates continued.  "Before you talk to me about my friend, it might be a good idea to take a moment and filter what you're going to say. That's why I call it the triple filter test.

The first filter is Truth.  Have you made absolutely sure that what you are about to tell me is true?"

"No," the man said, "Actually I just heard about it and…"

"All right," said Socrates. "So you don't really know if it's true or not. Now let's try the second filter, the filter of Goodness.  Is what you are about to tell me about my friend something good?"

"No, on the contrary…"

"So," Socrates continued, "You want to tell me something bad about him, but you're not certain it's true.  You may still pass the test though, because there's one filter left.  The third filter is Usefulness.  Is what you want to tell me about my friend going to be useful to me?"

"No, not really."

"Well," concluded Socrates, "If what you want to tell me is neither true, nor good, nor even useful … then why tell it to me at all?"

With all the divisiveness in both media and in our everyday conversations with friends, family, and strangers ... this is a good filter for what you say, what you post, and even how you view markets. 

How Does That Apply to Me or Trading?

The concept of Socrates' Triple Filter applies to markets as well.

When I was a technical trader, rather than looking at fundamental data and scouring the news daily, I focused on developing dynamic and adaptive systems and processes to look at the universe of trading algorithms to identify which were in-phase and likely to perform well in the current market environment.

As we've transitioned to using advanced mathematics and AI to understand markets it becomes even more true. 

Filter Out What Isn't Good For You.

In contrast, there are too many ways that the media (meaning the techniques, graphics, music, etc.), the people reporting it, and even the news itself, appeals to the fear and greed of human nature.

Likewise, I don't watch TV news anymore either. It seems like story after story is about terrible things. For example, during a recent visit with my mother, I listened to her watch the news.  There was a constant stream of "oh no," or "oh my," and "that's terrible". You don't even have to watch the news to know what it says.

It's also true with what you feed your algorithms. Garbage in, garbage out. Just because you can plug in more data, doesn't mean that data is adding value. Deciding what not to do, and what not to listen to is equally as important as deciding what to do. 

Artificial intelligence is exciting, but artificial stupidity is terrifying. 

What's The Purpose of News for You?

My purpose changes what I'm looking for and the amount of attention I pay to different types of information. Am I reading or watching the news for entertainment, to learn something new, or to find something relevant and actionable?

One of my favorite activities every week is looking for new insights and interesting articles to share with you and my team.  If you aren't getting my weekly reading list on Fridays - you're missing out. You can sign up here. 

Getting back to Socrates' three filters and the business of trading, I often ask myself: is it important, does it affect our edge, or can I use it as a catalyst for innovation?

There's a lot of noise out there competing for your attention. Stay focused. 

Onwards!

 

Gaining Insight & Ideas from Hedge Fund Letters

Most Hedge Fund letters are hard to come by. They're sent to their investors and are not generally posted publicly. 

However, Milton Financial Market Research Institute puts out a quarterly collection of letters they've curated since 2016. 

These letters contain a lot of insight into not only the performance and approach of the funds but also the markets and the world as a whole. 

 

via Milton FMR

This is a valuable resource to gain a more holistic view of the markets and the fund industry.

Hope it helps.

Also, please let me know if you are aware of other sources like this.

Ikigai in the Post-Quarantine World

Getting old is tough ... and it gets tougher the older you get.   As a result, finding your 'reasons for being' and joy in life become increasingly important as well. 

2020 was a year of massive upheaval for many. Stress, change, pandemics, quarantine, new jobs, new goals ... or at the other end of the spectrum, lack of change, lack of a job, or lack of purpose.

Regardless of the reason, many people struggle to get up in the morning. This is a shame because life is so much better than the alternative (and life becomes even better when you learn to enjoy living and let go of what isn't serving you). 

There's a Japanese concept called Ikigai that may help.

Ikigai centers around finding purpose as you grow older.  Paradoxically, it makes sense to start the process as early as possible. 

Here is an infographic that lays out some "Reasons for Being."

  

via InformationIsBeautiful

Finding your "reason to be" and living with purpose are keys to making the most of your time.

The beauty of 2021 being a fresh start is that you can also change your approach and your vision.

The graphic highlights something interesting (yet almost counter-intuitive) ... When two areas intersect, it creates something positive (e.g., a passion or a mission).   However, where three areas intersect, it creates a pain point (for example it could be what you're good at, you love doing it, the world needs it ... but it doesn't make you any money – so now you're struggling).

Worth examining and thinking about for a bit.

On a related note, here is a TEDx talk about the 9 common diet and lifestyle habits that help people live past 100.

 

TED-ED via YouTube

And here is a link to Dan Sullivan's free e-book on his plan to live to 156. 

Live long and prosper!

Is Cryptocurrency Here to Stay?

I've always been a fan of Blockchain, but I've always been a bit more cautious of cryptocurrencies. 

Blockchain is the technology foundation behind cryptocurrencies and an important enabling technology for the next generation of technological innovation.

This week Coinbase went public at an astronomical valuation.  They were backed by venture capital firms like Andreessen Horowitz and Union Square Ventures.

This makes sense to me because the VCs were able to capitalize on the "Fear of Missing Out" and "Animal Spirits" driving the market without the concentration risk of a particular cryptocurrency.  In a sense, it is the same reason I am bullish on Blockchain itself.

Making sense of cryptocurrencies, however, is tougher for me to justify. There are over 1000 currencies out there – and the list is growing.  But valuation isn't really about first-mover advantages or features ... You also must consider government policies and regulations and a host of other issues.

Consequently, it's hard to recommend putting money in any coin as an investment.

Speculating (or "trading") is a different conversation. 

Clearly, there is a lot of money being made and lost ... but how much of those gains and losses can be attributed to luck and how much to skill?  A better question is ... If you traded cryptocurrencies, how much of your gains or losses would be due to luck versus skill?

For the past few years, it felt as if the buzz had died down a little. Despite that, Bitcoin prices and many other cryptocurrencies continued to increase in value - though with much more volatility than normal investments. 

This week, Dogecoin (a cryptocurrency that started as a meme) jumped from $.07 a coin to $.35 a coin, capitalizing on press and support from Elon Musk.  But it's not the only cryptocurrency doing well. 

 

via How Much

A lot of the jump in the price of many coins recently coincided with the GameStop trading surge and was likely driven by the sentiment of those same retail traders. 

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 clearly 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. 

For an extra laugh, here's a still relevant video from 2017 on why you should invest all your money in Bitcoin. 

 

via AwakenWithJP

 

AI Meets Dr. Seuss

Dr. Seuss was recently in the news for stopping the release of 6 of its books. 

Whether it was a marketing ploy or not, I've been seeing a lot more Dr.Seuss content. 

To start, here's a video of an A.I. written Dr. Seuss book with animation. 

 

via Calamity AI

In addition, here's an A.I. remastered World War II cartoon written by Dr. Seuss with a character named Private Snafu. It's one episode of a series of shorts that were banned post-WWII, and it's one of the more tame episodes.  For an extra piece of trivia, the name of Private Snafu and his series of shorts was based on the military acronym for "Situation Normal: All F***ed Up". 

It's an interesting piece of history ... enjoy. 

 

via Adam Maciaszek

While produced by Warner Bros., these shorts which were made for the US military did not have to go through the Production Code Administration and thus got away with raunchier humor, foul language, and what we would today categorize as racist propaganda against the Japanese and Germans. 

While it's okay to acknowledge that we should be doing better today, I also think it's interesting and informative to watch older materials in the context and time period they were written. 

Racism isn't okay, but if you don't know history, you're doomed to repeat it, and art can be discussed and enjoyed within that context as well.