A Thoughtful Bull on the Future of Crypto

The Best Crypto to Invest In….

The research team’s view on the top cryptocurrencies is a simple one. We stick to investing in the stock market. We have no view on Bitcoin and Ethereum, much less other digital assets. Our researchers lack even basic social media accounts. If you see us expounding on blockchain technology or which token will become the largest cryptocurrency, we encourage you to have us committed.

The same cannot be said of our friend Isaac Lidsky. We first mentioned Isaac in our last post, “Heretics Corner: Some Bear Takes on Bitcoin.” That piece stemmed from the observation that hostility towards crypto bears had silenced a group of skeptics with substantial investing experience.

Having put the piece out, we realized that it was, by definition, lopsided. We only presented the bear views as we felt there was plenty of euphoria and stock market speculation. We want to ensure an even-handed approach to presenting views and information on a topic as controversial as this.

As the debate around inflation, fiat currencies, and regulatory change swirls, we felt this an opportune moment to give the floor to Isaac. Isaac Lidsky’s past successes across myriad fields of business and law make him a uniquely qualified voice in the hyperbolic debate that often consumes cryptocurrencies.

What we find most interesting about Isaac’s views is that he does not emphasize the speculative nature of Ethereum itself.

His relentless focus on the utility and scope for social improvement strikes us as a level-headed voice amidst a sea of promissory claims around what a given token’s price will be. To our knowledge, Isaac is not out spending $100s of thousands on “shillfluencers” trying to manipulate the price of these things. KCR objects to this type of conduct as sharp losses destroy investor wealth as explained in our Bear Traders piece.

Instead, his firm Senary Ventures, is working to achieve the promise and opportunity he believes rests in the use of Ethereum. What KCR’s research team finds fascinating is that Isaac’s world-view on Ethereum and cryptocurrencies actually syncs up tightly with KCR’s long-standing aversion to reckless speculation.

For example, he minces no words in discussing the behavior of Robinhood’s trading app, an organization we have written about in context to Mr. Buffett , CEO of Berkshire Hathaway, and Mr. Klarman, author of Margin of Safety book. We also find his comments about the role of big tech, which is firmly in the crosshairs of regulators, interesting as it pertains to our Nifty Fifty work. His letter closes with the quote below. To us, it speaks to the idea that the size and scale of some of today’s largest firms have become adverse to their future prospects as investments.

In today’s digital life, we’re unwitting products, internet giants minting trillions by manipulating our attention and renting it to anyone who’ll pay for it. We’re paying dearly. Let’s give web3’s future more of our attention. -Isaac Lidsky

Please find below Isaac’s views on Ethereum and crypto. We would like to remind our readers that these are not the views of KCR or its research team. We provide these because we seek balance where there is bombast. If you would like to learn about Isaac, who is, in our view, one of the most accomplished individuals we have had the privilege to know, you can watch his TED talk, visit his website, or the website of his firm Senary Ventures.

Ethereum Explained by Isaac Lidsky, a Leading Mind on Digital Currencies

A peaceful revolution that promises immense progress for humanity is well underway. It is unlocking the unbounded potential of human coordination at global scale, transforming every industry, creating new ones, and reshaping the very fundamentals of value creation and distribution. With its new economics it will usher in a new era, more productive, more equitable, and more humane. Its blessings are inevitable, yet it is largely going ignored.

We’re missing this milestone in the progress of mankind because we’re unable to see beyond its inception. Our eyes temporarily blinded by the brilliance of its big bang, we’ve yet to notice the atoms and molecules that have already crystallized from the energy of its origins. These hidden miracles are nonetheless miraculous.

We should embrace the stars and planets they portend, seek to understand the life destined to emerge from the mist. We should study our new physics, taking great care to harness its forces for good.

Extending our metaphor, the big bang was the invention of Bitcoin. We’re blinded by its “what,” stuck struggling to make sense of the tremendous explosion we now call cryptocurrency. The miracle, however, lies in the “how.” Those of us who have shifted our focus from Bitcoin’s extrinsic value to blockchain’s intrinsic lessons are building a better future upon its teachings.

Fascination and fear, confusion and conflicts of interest, greed and grist—the motivators of our Bitcoin myopia are many. Shortsighted, we debate endlessly whether Bitcoin is a “real” currency, whether it’s a bubble, whether it’s better than gold or oil or dollars, whether it belongs on the balance sheet, whether Wall Street should profit from its promotion.

Imagine for a moment that none of that matters, and think of Bitcoin as a simple game: The players work together to keep track of a ledger that records the number of tokens each player possesses. Players can send each other tokens. When they do so, other players perform magical mathematical machinations to ensure that nobody is cheating, competing to be first and earning some brand new tokens created as a reward if they win. That’s it; the sole purpose of the game is to keep track of a token inventory.

Stop there. It doesn’t matter if the tokens are worth anything. Don’t worry about the (brilliant) complexities of the deflationary token issuance model. Pretend there’s no outside market to buy and sell the game’s tokens. Keep it simple.

What’s so special?

The game is permissionless and decentralized. It’s permissionless because anyone with a computer can play. You don’t need an account. You don’t even need to identify yourself. Just boot up, download the game rules, and start sending, receiving and/or winning tokens.

It’s decentralized because there’s no central authority involved. The players of the game—and only those players—operate their common enterprise. There are no referees, no judges, no police, no advertising-supported “free” platforms to tailor-mediate reality. All players are equal; there are no special rights, powers or privileges. The ledger itself is open and transparent, free for anyone to download. It exists on millions of computers and nowhere in particular at the same time.

And yet it works. At a global scale, people can engage in a common enterprise, without policing authorities or extractive intermediaries, without identification or verification, equal in their rights and responsibilities, yet nobody can cheat. It’s that last part that is miraculous. The Bitcoin network harnesses pure self-interest to enforce compliance with its rules. Players “want” tokens, and they earn them by ensuring that nobody else can steal them. As a direct result, token transfers are meaningful—they’re secure.

At T-0, Bitcoin’s new tokens brought a new form of energy to mankind. As is our nature, we set out to characterize this new energy, to categorize it, capture it and trade it. But the characteristic sound and fury of those zero-sum endeavors have obscure positive-sum ambitions both grander and nobler.

How can we use it? That’s the animating inquiry of the modern economic revolution unfolding beyond the Bitcoin headlines. It’s the real point of this all, which so many of us are still missing.

In the chaos of cryptocurrency creation, a nineteen-year-old polymath prodigy saw the atomic foundation of a better world. Vitalik Buterin understood that the true significance of a Bitcoin token is its intrinsic ability to enable Bitcoin’s permissionless, decentralized game, not the token’s extrinsic value outside the Bitcoin network (just as Monopoly money is required to enjoy the game, notwithstanding its lack of value outside that context). Considering the hyper-specific, single-purpose Bitcoin game—in which players win newly created tokens by helping to transfer preexisting tokens between other players—he wondered what other, new games we might create together using blockchain’s permissionless, decentralized architecture.

Rather than design his own games, he created Ethereum, a universal blockchain platform that enables us to make our own. We write the rules of our games in Ethereum’s “smart contract” programming language, which we publish openly to the Ethereum network for anyone who wishes to play. As with Bitcoin, users of the Ethereum network can earn rewards by doing the computational work required to execute games on the platform. Those rewards are earned in eth, Ethereum’s universal token, which can be incorporated into any of the games written on Ethereum to act as tokens within those games, too. Where Bitcoin is hyper-specific, Ethereum is perfectly generalized; it is Turing complete in the terminology of mathematics, meaning any game whose rules can be mathematically described can be implemented on Ethereum’s distributed universal computer.

Thus began our peaceful revolution. The Ethereum network (and successors like it) renders superfluous the people and institutions we had deemed indispensable to coordinate human activity at scale. Referees, judges, police, advertising-supported “free” internet platforms, central banks, Wall Street, media distributors—neither extrinsic enforcement nor extractive intermediation survive Ethereum’s innovation. As a result, the value siphoned from zero-sum enterprises that concentrate data and power is recaptured in positive sum collectives of common purpose. And fragile internet hub-and-spoke architecture that forces our surrender of privacy to hackable data masters is replaced by the democratized cryptographic security of peer-to-peer exchange in which we are self-sovereign.

If this all sounds too fanciful, compare Robinhood and Uniswap:

Audaciously named, Robinhood is a typical intermediation racket that steals from the common many and gives to the privileged few. While peddling a false promise of democratized access to Wall Street, in fact it serves up its “retail” investors as prey for Wall Street’s predation. Come one, come all, you, too, can invest in stocks (stonks!), it proudly declares. Meanwhile, it sells aggregated trading data to exclusive hedge funds for the ultra rich so they can profit at the direct expense of Robinhood customers. (And it conveniently halts trading in stocks moving against its Wall Street owners on tides of popular revolt.) Zero-sum intermediated trade in equity, plain and simple, Robinhood has made a fortune deceptively branding an age-old racket.

Uniswap is a new molecular financial primitive built on Ethereum (one of the “games” run on the Ethereum universal computer). It enables its users to share the value they create by trading cryptocurrencies among themselves. When you trade on Uniswap, you earn Uniswap tokens. Fees paid to the protocol accrue to the token-holders pro rata. Likewise, token-holders govern the protocol through pro-rata votes. As Uniswap’s trading volume grows, its tokens necessarily become more valuable. Uniswap is a permissionless, decentralized protocol owned an operated by a community consisting of its investors, developers and users. Because they are aligned in common token economics, common ownership and common control, Uniswap is a collective enterprise with a common purpose. It exemplifies Blockchain’s new positive-sum economics.

Perhaps we need fewer headlines about Bitcoin’s current price in our mainstream media and more articles about projects like Uniswap. Likewise, while it’s wonderful to celebrate Tesla’s use of Bitcoin to sell cars, there are far greater wonders to explore in the applications using the Uniswap protocol to build a more equitable financial system—projects leveraging the compounding forces of blockchain’s open architecture. Most Bitcoin billionaires deserve far less attention than many of web3’s brilliant innovators, and the story of blockchain’s promise isn’t about Wall Street or wealth concentration. Those old tropes miss the new idea.

This story is about us. Facebook without Facebook, Uber without Uber, Apple Music without Apple, commerce without banks—a world in which we create and share value together in common purpose, without exploitative intermediaries, isn’t tomorrow’s potential, it’s being built today. It’s a world that rewards productive participation, not power concentration. It’s a better, positive-sum world that respects human dignity, values our autonomy and protects our privacy.

In today’s digital life, we’re unwitting products, internet giants minting trillions by manipulating our attention and renting it to anyone who’ll pay for it. We’re paying dearly. Let’s give web3’s future more of our attention.

  1. As a reminder for our Financial Advisors: our models are available on a continuous basis, and most have been in production for over a decade.  If you are looking for simple, concentrated, low turnover, and tax efficient model portfolios we would like to talk with you.  KCR also offers a wide range of easy-to-use but sophisticated tools.  Our toolkits can help identify mispriced stocks with the best and worst risk/reward characteristics, estimate a stock’s duration and warn you when a company is engaging in low-quality accounting. Over the last 12 years, KCR has built and offers time-tested and class-leading products built by experienced and proven money managers for fixed to low prices.
  2. Kailash Capital’s sister company, L2 Asset Management, runs market neutral, long/short, large-cap, and mid-cap long-only portfolios with a value and quality bias.  L2 employs a highly disciplined investment process characterized by moderate concentration, low turnover, high tax efficiency, and low fees. While nobody can predict the future, we believe the recent resurgence in risk-adjusted returns seen across all products is the beginning of what may be a long period where speculation is punished, and prudence and patience rewarded.
The topics discussed in this article are aimed at seasoned professionals, as such, we have included some extra for anyone seeking out more information related to the topics above.



The information, data, analyses, and opinions presented herein (a) do not constitute investment advice, (b) are provided solely for informational purposes and therefore are not, individually or collectively, an offer to buy or sell a security, (c) are not warranted to be correct, complete or accurate, and (d) are subject to change without notice. Kailash Capital, LLC and its affiliates (collectively, “Kailash Capital”) shall not be responsible for any trading decisions, damages or other losses resulting from, or related to, the information, data, analyses or opinions or their use. The information herein may not be reproduced or retransmitted in any manner without the prior written consent of Kailash Capital. In preparing the information, data, analyses, and opinions presented herein, Kailash Capital has obtained data, statistics, and information from sources it believes to be reliable. Kailash Capital, however, does not perform an audit or seeks independent verification of any of the data, statistics, and information it receives. Kailash Capital and its affiliates do not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only and is not intended to provide, and should not be relied on for tax, legal, or accounting advice. You should consult your tax, legal, and accounting advisors before engaging in any transaction. © 2021 Kailash Capital, LLC – All rights reserved.

Nothing herein shall limit or restrict the right of affiliates of Kailash Capital, LLC to perform investment management or advisory services for any other persons or entities. Furthermore, nothing herein shall limit or restrict affiliates of Kailash Capital, LLC from buying, selling or trading securities or other investments for their own accounts or for the accounts of their clients. Affiliates of Kailash Capital, LLC may at any time have, acquire, increase, decrease or dispose of the securities or other investments referenced in this publication. Kailash Capital, LLC shall have no obligation to recommend securities or investments in this publication as result of its affiliates’ investment activities for their own accounts or for the accounts of their clients.

September 1, 2021 |

Categories: Quick Takes

September 1, 2021

Categories: Quick Takes

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