Fifth Era/Blockchain Coinvestors Update #20
We had a shock this week.
We read the newsletters of all of the fund managers that Blockchain Coinvestors is backing. That's a lot of insight and perspective to work through each month - but well worth it. However, because of our in-process coinvestments into Brex, Uphold and Wyre, we were behind on our reading and had to do some catching up. So perhaps you already know what we want to share this week. It got us questioning what we should expect in the year ahead as investors in Internet, Fintech, and Blockchain businesses. Because if the world's assets are about to dramatically change their relative values, it must have an impact on those technology companies that are building out the infrastructure to support the world's new digital monies and assets. Which are the focus of Fifth Era and Blockchain Coinvestors' investing activities.
It began with Dan Morehead of Pantera's headline.
TWO CENTURIES OF DEBT IN ONE MONTH
The United States printed more money in June than in the first two centuries after its founding. Last month the U.S. budget deficit – $864 billion – was larger than the total debt incurred from 1776 through the end of 1979. With that first trillion we defeated British imperialists, bought Alaska and the Louisiana Purchase (13 states’ worth of territory), defeated fascism, ended the Great Depression, built the Interstate Highway System, went to the Moon, and some other stuff.
It made us want to check the facts, but the US Treasury has it all in plain view. It's true.
We hunted around some more and it turns out that almost the same is true in the much older economies of Europe, Japan, and so on. Money has just been printed up in amounts that are unprecedented and almost inconceivable before this global pandemic began.
Now Alison studied Economics at Cambridge University and has a keen appreciation of how demand, supply, and price work together. All that demand curve analysis can't help but leave some intuition about how this should work out. Simply put, if you have an asset that is not supply constrained and you glut the market with it, its value can only go down.
The problem is that when every other fiat currency is also being printed in vast quantities, it can be hard to see.
However, when you take a look and compare the prices of the supply constrained assets of the world denominated in fiat currencies it's interesting to see what is going on right now. The red line is gold that is at an all time high. Other supply constrained precious metals, rare earths, and so on are also spiking in price right now. The blue line is Bitcoin, which is designed to be supply constrained as we know, and it too is moving up.
We are not traders or speculators, but we can't help but think a lot more fiat currency is going to be shipped to every household and business in the world in the coming months since this pandemic is not ending in 2020, and perhaps will not end in 2021 either. And our good friend Pete Briger of Fortress, and our son Max who works at Oaktree Capital, have convinced us that the greatest distress lags the bottom of the recession by a year or so, in which case it is still ahead of us, and governments will have a lot more "too big to fail" bankruptcies to bail out as well as all those mom and pops that deserve support too.
So whatever the economists have learned over decades of playing about with their demand, supply and price models is about to happen across the world's asset markets on an even greater scale than year to date.
Apparently some of the world's leading liquid asset investors think so too. Paul Tudor Jones has written about this recently, and we went back and reread his white paper since with a month or two of experience, it begins to become much more obvious to us why he wrote it (Click here to read the paper on Scribd).
It's about now that Matthew wishes he had spent more time in Econ 101 paying attention to John Locke, Adam Smith, Milton Keynes, and all the others. Because we are living through the greatest financial demand and supply curve experiment across asset classes that the world has ever lived through.
So what else are the world's central banks doing apart from printing up boat loads of money?
Well finally, the forward leaning ones are rolling out their new central bank digital currencies. China is doing its pilot with private sector companies that serve hundreds of millions of users in a directive way.
In the US, the initiative to launch a digital dollar is less clearly constructed, but it seems to us that the best way to get started would be to enable the largest banks and payment companies in the US to support some digital money so that when we eventually have a digital dollar they can support it too. So it's easy to connect the dots to the OCC greenlight for national banks to offer Bitcoin access and custody to their clients. If you are not ready to get them testing your new central bank digital dollar, at least get them to prepare for its arrival by building out their infrastructure to support the digital money you do have - Bitcoin.
As we were musing on this, we read the Quarterly update from Blockchain Capital Fund IV, and while we can't share what Bart, Brad, and Spencer wrote in it, the light bulb really went on when we looked down the list of blockchain businesses they have backed and how they play against this narrative. We went through our Fifth Era and Blockchain Coinvestors' combined portfolio from being investors also in 1Confirmation, 1kx, Blockchain Ventures, Blufolio, Castle Island, Digital Currency Group, Draper Goren Holm, Fabric, Future\Perfect, IDEO CoLabs, Pantera, and others. It made for exciting reading.
The good news for Fifth Era and Blockchain Coinvestors is that we are already investors in the leading blockchain businesses that have built out the wallets, custody solutions, exchanges, trading and settlement platforms, payment systems, and so on that power the emerging digital money and asset space.
What a great time to be investing in the most precious of supply constrained assets - innovation, technology and disruptive teams of entrepreneurs building out the future. Especially those who are creating the infrastructure that will support the world's new digital monies and assets that are coming fast now.
It's a great time to be a technology investor.
Register Now For Our Upcoming Webinars
Are part of your summer plans to further your education in blockchain technology investing? We can help! Join us for an upcoming webinar.
The world has changed in the last 4 months. But what does that mean for the future? In this webinar, we explore how the Covid-19 pandemic may have pushed us faster into the future.
How the Pandemic of 2020 Accelerated our Future, August 10th, 7am PST
How the Pandemic of 2020 Accelerated our Future, August 10th, 12pm PST
Our webinar library can now be found at www.fifthera.com/webinars.
Recent Appearances
Please use the links below to access our most recent webinar and podcast appearances:
We posted our most recent Blockchain Coinvestors webinar called "2020 Blockchain Predictions: Mid-Year Update" at www.fifthera.com/webinars.
Matt Walsh and Nic Carter are the General Partners of Castle Island which is one of our funds and is also backed by Fidelity and Highland Capital. They recently interviewed us for their own blockchain podcast series.
Stephanie Christopher, CEO at The Executive Connection (TEC), sat down with us to walk through the future of the digital economy in her podcast TEC Live - Business Leadership Insights.
Learn More
Also visit us at www.fifthera.com and www.blockchaincoinvestors. com to find more information and request our investor materials.
We thank you once again for your support, and we hope that in this challenging time you and your family and loved ones are staying safe and healthy.
Best wishes,
Alison Davis
Matthew C. Le Merle