S3T:1 Mavericks, Mainstreamers, Moths and Manta Rays: Crypto volatility mid year review, Inflation, Math based trust, Covid risk calc...

S3T:1 Mavericks, Mainstreamers, Moths and Manta Rays: Crypto volatility mid year review, Inflation, Math based trust, Covid risk calc...

What was up with crypto in the first half of 2021?

It was way up, and then it was way down. What can we learn?

Kraken's detailed technical summary provides an excellent financial review of crypto events during the first half of 2021:

  • how different sectors performed against each other (slide 9),
  • how sentiment impacted the markets (slide 10) and
  • how specific news stories drove prices (slide 14).

But what drove the extremes? Why were the highs so high and the lows so low? I think the answers here have to do with the unprecedented clash of different investing cultures.

In 2020 I could see two basic kinds of crypto investors: Mavericks and Mainstreamers:

  • Mavericks - the original diehard Bitcoin (and altcoin) HODLrs. These individuals believe that central banks and fiat currencies are fatally flawed and that crypto offers a better future well worth the risk and volatility.
  • Mainstreamers - the newer entrants who didn’t want to miss out on huge gains they were hearing about.

By 2021 I was thinking of Mainstreamers as 2 subgroups - Corporate vs Retail:

  • Corporate  - established institutional investors and fund managers, corporations (Microstrategies, Tesla) and finance (BNY Mellon, PayPal) probably nudged by Paul Tudor Jones' inflation thesis.
  • Retail - individual often non-qualified investors day trading via consumer apps like Robin Hood, Coinbase etc.

The financial press noticed and worried that Retail Mainstreamers made excessive use of leverage - borrowing in order to bet on future price movements. When they bet wrong, forced liquidations had a cascading effect and caused the market to plunge.

So who caused the crashes?

If you think the 2021 bubble and crash was exacerbated primarily by Retail Mainstreamers, listen to NLW unpack how the Grayscale Bitcoin Trust NAV trade also contributed to the bubble (and wait til you hear how goofy it was).

So no we can't blame this entirely on inexperienced retail investors using too much leverage. Corporate investors played a role as well.

Takeaway

There is so much we don't know about this emerging new financial ecosystem. It has so much promise. And yes, crypto prices are in most cases much higher than they were this time last year. And the inflation thesis remains compelling for most categories of crypto investers (Related: David Leonhardt lays out arguments and indicators for high vs low inflation scenarios for next 2 years.)

But all of us - not just the regulators - still have an extremely limited understanding of how our behaviors impact the overall system and its participants. And things are evolving FAST. This is a crash course and need to take notes as fast as we can.

DeFi and the Evolution of Trust

Excellent executive intro to DeFi Azeem Azar interviews Sergey Nazarov the cofounder of Chainlink. Highly recommended if you want to learn:

  • How DeFi helps small and large players
  • DeFi has higher yields than traditional finance

Like so many of Azeem's interviews, this one surfaced another gem: the Shift from branding based trust to math based trust. This fascinating topic is the subject of a deeper dive blog post published on the Chainlink blog in Febuary 2021. It focuses on trust as a factor for Chainlinks core business: oracle networks that provide trusted information to smart contracts.

But this shift has broader implications as well: As customers become more informed, and brands become magnets for mistrust, what then is the new basis for customer trust and loyalty?  

Brand narratives and purpose washing

The average company publishes a brand narrative like ‘we are purpose driven and we do good things’ with photos and blog posts of point in time events suggesting this wholesomeness is the totality of what the company does. This narrative is crafted by people who are distanced (deliberately?) from the day to day messiness of the company's operations.

Branding tells stories that are at best hard to verify, and often easy to expose as false or contrived. Today’s consumers - especially younger generations - are more wary. Witness the brand industry’s sustained soul-searching on the topic of “purpose-washing”...here, here and here.

Verifiable Transparency

How many companies today are willing to publish a 24/7 live dashboard describing every action and impact so their customers form their own narrative about the company, rather than believe the one crafted by the PR dept?

This kind of radical transparency comes built in with blockchain: results are mathematically calculated and continuously exposed with no spin - not crafted by internal teams seeking to create an appearance. This is verifiable transparency.

In additional to being an operational constant, verifiable transparency seems to also be a cultural theme for Blockchain based startups and project teams. Look at how most of these teams use Discord as the channel for building relationships with their customers and investors. Join their Discord channel and you get a reality-show view of internal meetings, team interactions and interactions with customers, all in real-time! Immediately you see some are well organized while others are rolling disasters. Its a level of transparency you don't get from conventional firms without being an employee.

If the world continues to move toward Blockchain-based verifiable transparency, and Discord-based customer relations, branding as we know it may lose its potency. The branding playbook will need to change - especially for customers who conclude they should trust nothing less than verifiable transparency.  

Assessing your Covid Risk

Amid back to school and surging cases, you may be wondering is it safe to go out? to travel?

The Microcovid project has created this handy calculator that lets you set a "risk budget" and then see which social scenarios stay within or exceed that budget. The tool uses the latest case data for geographic regions across the US, and allows you to specify your vaccination status.

Outdoor Almanac

What’s happening outside  

Tulip Tree Silk Moth - photo taken and identified with iNaturalist app.

Moths and Night Insects

The midday heat of August is the perfect excuse to become a night owl and observe late night moths and summer insects.

  • Lighting: Leave your porch light on for an hour or two in the evening, or set up a light colored sheet or canvas illuminated by a black light. A cheap utility light and black light bulb can be purchased at most hardware or building supply stores.
  • Timing: Experiment to see what specific times have the most activity - as this award winning young researcher did.
  • Sugaring: Kick things up a notch by creating this bait recipe for attracting more moths to your yard.

iNaturalist: Identify Species and Contribute to Scientific Research

iNaturalist offers a great way to learn the identity of almost any plant, animal or shell you observe. The Tulip Tree Silk Moth photo above was taken and identified with the iNaturalist app.

The free app (Apple, Android) allows you to snap a picture of a species, then see the likely name of that species. You can also keep a list of all your sightings and use the map feature to locate species you'd like to see. Observations are shared with scientific repositories like the Global Biodiversity Information Facility and used by researchers to better understand the status of species and health of natural ecosystems around the world.  

Night Snorkeling with Manta Rays

Excerpts from GoPro footage taken while snorkeling with Manta Rays off the Kona Coast in June 2021. A cove not far offshore from the Kona airport offers an natural trap for plankton that the Manta Rays love. If you'd like to do a Manta Ray night snorkel or dive, visit Manta Ray Dives of Hawaii.  


Let’s reS3T again soon!