Year of the Ox (牛年)
March 9, 2021
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 cryptoassets and decentralized finance (DeFi) protocols we find interesting.
For those reading who are new to M31 Capital, we are a global alternative investment firm focused exclusively on digital assets backed by cryptography and blockchain technology. This new asset class, pioneered by Bitcoin, is beginning to change the way humans coordinate economic activity at a global scale and holds the potential to create trillions of dollars of value in the process. M31 Capital exists to promote this paradigm shift and to capture the unique, cryptoasset-specific investment opportunities for our investors along the way.
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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M31 Capital is looking to hire talented individuals across all roles!
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MARKET NEWS
February Performance
Market highlights and rationale from a selection of the most interesting assets in the industry:
(NOTE: M31 Capital may or may not hold positions in the following tokens)
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News Highlights:
In February, Bitcoin reached the long-awaited milestone of a $1 Trillion market cap on the back of news that seemed to go from good to better:
First the Corporates:
Followed by the Institutions:
Then the Public Sector:
M31 Capital Partner Highlights:
- Anchorage completed an $80m Series C funding round (link)
- BlockFi announced the world's first Bitcoin rewards credit card (link)
- Coinbase filed an S-1 with SEC to go public via direct listing on NASDAQ (link)
- FTX introduced support for PayPal deposits for multiple currencies (link)
- Rarestone Labs exits stealth mode with a Web3 incubator (link)
- Uniswap becomes the first DEX to process $100bn in trade volume (link)
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MARKET ACTION
$1 Trillion (aka "4 commas club")
Bitcoin reached a long-awaited milestone of $1 Trillion market cap as the price crossed $47,619.05 for the first time in history. The digital asset continued to 58.3k, where it once again printed a new all time high before pulling back sharply in the last week of February.
As someone who bought their first BTC in 2011 and has watched the market cap grow from $15,000,000 USD to $1,000,000,000,000 USD... I am in absolute awe.
For context, here's what the Bitcoin community looked like when I joined:
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...and here's what it looked like as of last week:
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Money: The Bubble That Never Pops
Of course, along with each new high comes the inevitable question: "Is it still a good time to buy?"
I got this question when BTC hit $200 ...and again at $1,000 ...and again at $10,000 ...again at $20,000 ...at $40,000 ...and now again at $50,000
I'm not saying investment timing doesn't matter or that Bitcoin only goes up forever and ever, but as investing legend Bill Miller said:
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“ The Bitcoin story is very easy: it’s supply and demand. Bitcoin’s supply is growing around 2.5% a year and the demand is growing faster than that. ”
- Bill Miller, 2020
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This not only continues to be true, but supply is now growing LESS than 2.5% and demand is clearly growing a lot MORE than that.
Investors with a long term outlook who keep this fact in mind will continue to do very well.
The Bigger Picture
Yes - the market has had a very impressive start to the year, but overall this space is really just getting started. Bitcoin only became an institutional-grade investment asset a few *months* ago, and currently every major institution is scrambling to figure out how to buy their first ever BTC.
Given where we are in the cycle and the immense amount of institutional demand, we see a lot more room for BTC and the rest of the market to run this year. In the short term, however, volatility will likely pick up and could see sharp pullbacks similar to how 2017's 20x bull run played out.
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Room to Grow
The rest of the industry is even earlier. Right now, the entire DeFi sector makes up only 3.3% (!!) of the total cryptocurrency market cap, despite being far and away the most disruptive area to traditional finance. By the end of this cycle, I expect it could account for ~20%, meaning relative outperformance of 6x.
Longer term, the TAM for DeFi is ultimately *larger* than the current financial services sector, since it adds new categories to the sector like staking, mining, NFTs, DAOs, prediction markets, etc.
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TL;DR
Bitcoin hitting a $1 Trillion market cap is a major milestone, but it's just the beginning. Many institutional entrants, Pension Funds, Endowments, Sovereign Wealth Funds haven't been able to invest in BTC because of its small size. They can no longer hide behind that excuse. Bitcoin's entrance into the 4 comma club makes it too big to ignore and opens the door to even more, even larger investors.
As for the rest of the industry, the combined market cap of the entire crypto asset class (including BTC) is smaller than the market cap of of Microsoft... a single company. In fact there are SEVERAL companies with market caps larger than the ENTIRE crypto asset class.
We've got a long way to go...
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NARRATIVE FOCUS
Year of the Ox (牛年)
February 12th marked the official start to the Year of the Ox according to the Lunar Calendar. In Chinese mythology, the Ox is considered to have the following qualities: Hard work, Patience, and Honesty. As the story goes, the Jade Emperor chose the Zodiac order by the order in which the animals arrived to his party. The Ox was about to be the first to arrive, but the Rat tricked the Ox into giving him a ride. Just as they arrived, the Rat jumped down and rushed in ahead of the Ox. Thus, the Ox became the second animal.
Forgive the forced analogy here (really, I can't help myself...), but BITCOIN IS THE OX!
Bitcoin Bull
"Hard Money" displays exactly these Ox-like characteristics - Hard Work, Patience, Honesty - and "Soft Money" (Fiat) displays the opposite, Rat-like characteristics: Laziness, Greed, and Cheating.
- HARD WORK: Bitcoin's Proof of Work consensus model means one must actually do the work necessary to bring new BTC into existence. There are no shortcuts.
- PATIENCE: Like the Ox, Bitcoin is slow and steady. The Difficulty Adjustment makes it impossible to expedite the block creation process, no matter how much one might want to
- HONESTY: New units cannot be brought into existence without a corresponding increasing in value creation. Economists call this "Honest Money"
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Fiat Money: Lazy, Greedy, & Dishonest
The Rat is not Hard Working, but preys on the hard work of others (a literal free ride from the Ox). Fiat money similarly relies on the hard work of others, and when fiat-issuing Central Banks get a "free ride" by creating dollars they didn't have to work for, other people then need to work twice as hard to make up for it.
The Rat is not Patient. In its greed to be first it front-ran the Ox. Fiat money is similarly impatient. Modern economists want to believe they can expedite economic recovery through various interventionist monetary and fiscal policies, which *at best* only delay the inevitable.
Lastly, the Rat is not Honest, it instead relies on its ability to cheat. Stiffing your bovine chauffeur is cheating. Printing / counterfeiting money out of thin air is cheating. Behind the doublespeak rhetoric of "Quantitative Easing", "Asset Purchasing", "Stimulus", "Monetary Base Expansion", etc. is the simple fact that you can't get something for nothing.
Increasing the money supply without a corresponding increase in value creation and economic output is Lazy and Greedy, and pretending doing so is somehow good for society is Dishonest.
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Conclusion
As well intentioned as they may be, the temptation for those in power to print money (deliberately inflating prices) and lower interest rates (artificially inflating asset valuations) has proven too strong to resist. 50 years after leaving the Gold Standard, we have the results of yet another failed experiment in fiat money which centralized power and printing press privilege in the hands of a small number of individuals:
- $20 Trillion in zero or negative-yielding government & corporate debt
- Lowest interest rates in the last 5,000 years
- Highest amount of global debt ever in human civilization…
The solution to complex problems is usually counterintuitive - and Bitcoin is about as counterintuitive as it gets. Solutions to problems brought on by the Age of Abundance lie in scarcity, and solutions to problems of discretionary monetary policy lie in immutability.
Bitcoin's scarcity and immutable monetary policy put a reality-based check on credit expansion and capital markets as a whole.
As we put 2020 (the Year of the Rat) behind us, let's take lessons from the Chinese parable and our failed fiat experiment to move towards a more Honest Money in the Year of the Ox.
If you are interested in investing with M31 Capital, visit this page to access our subscription materials. You can also always reach our Investor Relations team at: contact@m31.capital
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PROTOCOL HIGHLIGHT
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
DAOs: Decentralized Autonomous Organizations
Like traditional companies, DAOs are Organizations, meaning they are groups of people who contribute and strategically allocate resources for some end goal. The difference is they are fully Autonomous, running themselves with no reliance on any 3rd party, and Decentralized - anyone anywhere in the world can contribute. They are governed by their users under a predefined set of rules rather than by the ad hoc decisions of centralized figures (e.g. CEO, Fed Chair, King).
The First DAO
Bitcoin provided the world with the first example of a Decentralized Autonomous Organization. With no CEO or Board of Directors to allocate resources, Bitcoin relied solely on its users to do the work necessary for the Bitcoin "organization" to function. The users became de facto employees of the Bitcoin Network, and were financially compensated (in BTC) for their work of constantly maintaining the Bitcoin ledger. The entire organization is fully automated and decentralized.
More commonly we call them "Bitcoin Miners", but the fundamental idea is the same: a group of individuals financially compensated for dedicating their time, energy, etc. to do work required for the organization to succeed.
The Time is Right For DAOs
- Globalization: Not only is a DAO workforce global from day 1, but any geopolitical risks of operating exclusively or primarily in one country are effectively eliminated.
- Remote Work: DAO employees can work from anywhere and at any hour of the day. The normalization of remote work is a catalyst.
- Gig Economy: Work at multiple DAOs at once. Your talents are limited only by the number of hours in the day, not by employment restrictions prohibiting you from working several jobs at once.
- Network Effects: when designed correctly (i.e. the incentives to participate overwhelm the incentives to attack), the network effects of DAOs can be extremely powerful. Especially combined with their borderless, permissionless features.
- Transparency: Everything is recorded on a transparent and secure ledger that is immutable and distributed to all participants, giving a much higher level of organizational transparency
Examples
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If you want to start working at a DAO today, take a look at
M31 Capital's Jobs Board to see opportunities at some of our token investments.
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FROM OUR TEAM
What We're Reading
A selection of our favorite articles this month:
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Upcoming Events
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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