ESG = CCP
May 6, 2022
Welcome to the M31 Capital Investor Newsletter! We use this platform to share monthly updates on the industry, our views on the broader market, important crypto-native metrics, as well as to highlight specific DeFi & Web3 protocols we find interesting.
We at M31 Capital have staked our careers and our reputations on the success of this technology. As always, we thank you for putting your trust in us and for your support of this new asset class. Please feel free to reach out to our Investor Relations team with any questions, ideas, feedback, or just to say hi: contact@m31.capital.
Nathan Montone
Chief Executive Officer
M31 Capital Management, LLC
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Sponsored by: Blockware Solutions
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April Performance
Market highlights and rationale from a selection of the most interesting assets in the industry:
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(NOTE: M31 Capital may hold positions in the tokens listed)
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P A R T N E R H I G H L I G H T S
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- Circle raises $400m in funding round led by Blackrock (link)
- Helium network crossed 700,000 hotspots around the world (link)
- Fireblocks adds support for Terra as institutional demand increases (link)
- Tokemak to partner with Citadel DAO to bring BTC liquidity into DeFi (link)
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M31 Capital is currently accepting new investors globally
We are open to qualified U.S. & non-U.S. investors
(including self-directed IRAs)
The Fund will accept new subscriptions on the 1st of the month
Contact us to see if you qualify
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April Showers?
Equities had a rough month, falling 15-20% on continued fears over a hawkish Fed. The NASDAQ had its worst month since 2008 and dragged everything, crypto included, down with it.
Where the crypto market still looked like it might at least eke out small outperformance vs. other asset classes, a weekend (w)reckoning in the last 2 days of the month evaporated that lead and sent every sector screaming lower.
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Price is What You Pay, Value's What You Get
The biggest dislocation in the market right now is the uncanny divide between price and fundamentals.
As we highlighted in a recent Weekly Airdrop, fundamentals are extremely strong. DeFi revenue is on track to more than double Q/Q despite the pullback in prices and this is pushing P/E ratios to very attractive valuations.
Tokemak, highlighted recently, has a market cap of $150m but is earning ~$5m/month (with only 20% of its assets put to work)... it is trading at a 2.5x P/E
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Usage and adoption of Web3 protocols like Arweave (AR) and Sentinel (DVPN) have similarly gone vertical since the start of the year, catalyzed in large part by the geopolitical uncertainty driving prices down. Meaning, the sector should provide good value once the dust settles.
And BTC continues to strengthen every day. Importantly achieving legal tender status in another several places: Central African Republic, Prospera, Madeiras. Not that you'd know it by looking at the price.
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TL;DR
Short term, the market is focused more on fear than fundamentals, though with BTC (and equities...) down -50% from its peak, it's likely risk assets have priced in most of the Hawkish downside.
And with nothing but positive news for the crypto space as far as revenue generation and user activity, attractive opportunities are emerging left & right for long-term investors.
Bigger picture, I fear more for the Fed than for Bitcoin... they'll soon be forced to choose between exacerbating already record-high inflation by reversing course and printing more dollars, or committing political suicide by forcing a recession ahead of midterms (...and then still printing more money).
Bitcoin, on the other hand, just needs to produce another block 10 minutes from now.
The longer the Bitcoin network continues to do just that, the stronger its value prop becomes to those that have already adopted it (El Salvador, Central African Republic, Prospera, Madeiras) and those taking steps in that direction (Mexico, Panama, Brazil, etc.).
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N A R R A T I V E F O C U S
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ESG = CCP
When email started gaining real traction, it represented a new technology that obviated the need for a longstanding incumbent, the U.S. Postal Service.
By dematerializing mail, this seemingly magical new technology could teleport messages from one end of the planet to the other instantly, a huge leap vs. the T+7 promised by the snail-mail Postmaster General.
This story sounding familiar?
As you would expect, the Postal Service fought the adoption of email (or "bitmail", if you will) every step of the way, even going so far as to lobby Congress for a digital stamp tax of 5-cents per email!
The always-helpful United Nations chimed in as well, recommending government coordination around a global tax on email...
And what was the primary argument they used to try and kill email? wait for it...
"It's bad for the environment!"
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"E-mail uses too much energy!", critics claimed, "it should be banned!". It MUST be bad for the planet - just look at all those servers!
Similarly, Bitcoin is a new technology that obviates the need for the longstanding incumbent. By dematerializing money, this seemingly magical new technology can teleport value from one end of the planet to the other instantly, a huge leap vs. the T+7 promised by the snail-mail Commercial Banks.
Which is why Bitcoin now, like email then, is getting attacked in exactly the same way:
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You read that right. Bitcoin will use 100% of the world's energy by... *checks notes*... two years ago!
Besides their perfect track record of being wrong, these ESG critiques also invariably fail to account for the costs of the technology being replaced.
Summing up the collective impact of all the gas-guzzling USPS trucks, upstream coal-powered postage stamp manufacturing facilities, the deforestation impact from envelope demand, etc., would have shown the U.S. Postal Service used egregiously more energy and was magnitudes of order worse for the environment than email.
The ESG impact is just more diffuse and cumbersome to calculate than email servers in a warehouse.
Similarly, it's a lot easier to calculate Bitcoin mining's energy use than the energy use of its alternative, the U.S. Dollar:
- Bitcoin mining uses 220 TWh/yr of the world's total energy consumption of 160,000 TWh/yr. That's 0.14% or 1/7th of 1%. Over 60% of that is clean & renewable energy (~2-3x more than other major industries), mostly coming from sources that are currently going to waste. On top, it is incentivizing innovations in sustainable energy and energy capture like nothing else.
- USD uses an unknown amount of energy. You'd need to sum the collective impact of every bank branch on every street in the world plus every one of their computers used to send & receive USD (the literal "PETROLdollar"). A currency whose value is backstopped by cruise missiles, aircraft carriers, guns, tanks, and drones which are quickly pointed in the direction of any country who dares de-Dollarize. Not to mention the costs of war and the human lives lost...
All of this in order to send a tree-killing paper version of money around the world more slowly and cost-inefficiently than BTC.
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GSE-Friendly
Bitcoin wins when it comes to Environmental impact, no question. But why does such little attention get paid to the 'S' or 'G'?
- Governance: The 'G' focuses on enforcing accountability and transparency (what's better than 100% transparency?), preventing "anti-competitive practices" (Bitcoin is open source!), and ownership & control (no one has more control over the Bitcoin network than anyone else).
Even with regard to equitable employee compensation, nothing is more equitable than Proof of Work where everyone's salary is the same: 6.25 BTC per block.
- Social: The concerns of the 'S' focus on "Diversity & Inclusion" and human rights. Bitcoin is not only inclusive, it is provably inclusive. Unlike every other company, industry, or entity on the planet, it is programmatically & mathematically impossible for Bitcoin to discriminate. Pure code neither knows nor cares about the race, gender, age, or sexual orientation of the sender, receiver, miner, or holder.
On the human rights front, Bitcoin not only allows anyone to participate but it also forces no one. Unlike the mining of certain other shiny Store-of-Value assets, there is zero coercion involved in the manufacturing of BTC. Bitcoin mining and maintenance is 100% voluntary.
The Gerontocracy
Bitcoin, like email, is a better product than what it replaces. It is better for the consumer, better for the planet, more fair, inclusive, open, etc.
"So", asked Peter Thiel during his Bitcoin 2022 keynote, "Why isn't BTC already a $10T market cap?"
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In his view, the weaponization of the ESG term by America's finance gerontocracy is no different than the narrative control tactics employed by the CCP, and is the single largest thing holding BTC from reaching a market cap of $10 Trillion or more.
ESG is a "hate factory for naming enemies", according to Thiel.
If that sounds a little extreme, consider what they call us! A "scientific" study published last month concluded - using science! - that Bitcoiners are psychopaths.
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Did I mention they used SCIENCE to come to this conclusion?? And as we know from the last 2 years, Science Is Never Wrong.
If you disagree, I have a scientific study that will prove you're a psychopath too.
It would be funny if it weren't so deranged. But the idea that attempting to flee a corrupt financial system makes you a psychopath is exactly backwards.
Just ask any of the 29,266,991 Venezuelans buying BTC to survive hyperinflation.
In fact, repeatedly abusing your citizens and then gaslighting them when they try to leave is textbook toxic relationship...
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Conclusion
ESG in the West, much like the narrative control tactics and social credit scoring practices of the CCP in the East, has become a tool for exerting power and control over disruptive industries.
This narrative control tactic is now being focused on Bitcoin because it makes every other industry look terrible by comparison:
- Environment (A+): Bitcoin's high renewable energy composition highlights the environmental exploitation of the petroldollar system
- Social (A+): Bitcoin's provable fairness highlights the discrimination & coercion inherent to the mega-corps
- Governance (A+): Bitcoin's success as an open monetary system highlights the absurdity of an opaque & Cantillon monetary system
Bitcoin is an unbelievable net positive for the environment and more importantly humanity. However, the point here is not to make the case that Bitcoin is ESG-friendly, but rather to show that efforts to comply with the ESG narrative are made in vain, since an industry will never be ESG compliant if it does not support The Current Thing.
The ESG critique of BTC is the primary thing standing in the way of a $10T market cap. Addressing its hypocrisy will unlock that $10T of human progress which has always been the result of a hard money standard.
If you are interested in investing with M31 Capital, visit this page to access our subscription materials.
You can also reach our Investor Relations team at: contact@m31.capital
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P R O T O C O L H I G H L I G H T
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In our ongoing effort to be a value-add educational resource for our investors, we include a section in each newsletter highlighting an interesting or important part of the crypto ecosystem
Citadel DAO (CTDL)
There are currently 19m BTC in circulation but only 1.6% are being used productively within DeFi. Given the high yield generating opportunities within DeFi, that means ~$710bn is sitting on the sidelines leaving money on the table.
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Bitcoin Citadel
Citadel DAO aims to build the largest community-owned BTC position in the world. The DAO utilizes customized strategies to earn a high yield on its treasury value, denominated in BTC.
Citadel will function as a distributed asset management protocol, where the core asset managed is BTC, and the supplemental assets (CVX, Badger) are used to enhance the yield that accrues to the treasury’s BTC holdings.
While the TGE date has not been announced yet, you can check your eligibility here.
Valuation
FRAX and TFL will be spending $32m to buy up ~1.524m worth of xCTDL. Assuming this sale will account for 50% of the entire public sale, the treasury will bootstrap ~$64m in assets. Since the public sale will account for 60% of the initial supply, we estimate the initial supply at launch will be ~5.23m CTDL tokens.
An implied MCAP of ~$130.9m at launch is based on the initial LP pool that will be seeded at a price of $25/CTDL.
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Takeaway
With a dedicated focus on BTC only, strong support from the right strategic DeFi partners, and attractive yield opportunities, Citadel DAO is likely going to be one of the most interesting projects to keep an eye on this year.
If just 4% of the wrapped BTC supply migrates over to Citadel, it is not unthinkable to see Citadel's BTC treasury reach ~$1B by this time next year.
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If you want to start working at a Web3 project today, take a look at M31 Capital's Jobs Board to see opportunities at some of our token investments.
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W H A T W E ' R E R E A D I N G
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A selection of our favorite longform content this month:
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U P C O M I N G E V E N T S
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The M31 Capital team will be speaking at and attending a number of upcoming conferences and events. Please reach out if you are interested in connecting, or better yet - meet us there:
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