Hey friends,
How are you? Long time no see 👋.
“...broadening inflation fears (*gasps*) and Elon shenanigans.”
Those words could easily have been written this week. What with Elon making $TSLA stock sale decisions via public Twitter poll 😂 and *official* year-over-year inflation measures for October coming in at the hottest clip in 3+ decades (at 6.2%).
We know — we’ve been awfully quiet since our last note in May. Mark has been busy killing it in the VC world. Nick managed two NFT funds (seriously 🤪), and more importantly, started writing about climate tech (sign up for those emails btw 🤝).
While our attention has been drawn away from this newsletter, we’ve been pleased to watch predictions from May and earlier in the year play out well 👇. Sometimes ‘setting + forgetting’ an investment (or an investment thesis) is the best way to operate.
In our last email we posited that “A supercycle in crypto would be the one that stamps it permanently as tech and an asset class that’s here to stay. We’re … optimistic that’s the case.”
7 months or so on, the amount of attention and investment that blockchain and cryptocurrency companies have received is unparalleled compared to previous cycles. Mark put out a much more comprehensive thesis on the blossoming world of crypto that you can explore here.
In addition to strong consumer momentum, perhaps the most bullish trend for blockchain and crypto is the expansion of its use beyond financial applications. Looking for examples? Here are three recent deep dives penned by Nick:
Nori, a company that’s building a carbon marketplace on the Ethereum blockchain
Crusoe Energy, a firm that converts natural gas flares into emission free electricity for Bitcoin mining (reducing methane emissions in the process) 🏭 → ⚡💸
Klima DAO, a protocol focused on making the price of carbon offsets more expensive 🌳
It’s not all ambitious new firms and free money though. In May, we wrote “One key detractor from the cryptocurrency supercycle argument? Well, while Ethereum has thousands of serious projects built on top of it and has attracted very real development talent and capital, other cryptocurrencies that are performing well are … er… a bit less serious.”
6 months ago it was $DOGE coin 🐕. Now it’s $SHIB (up to a $30B+ market cap) and a whole host of other aimless crypto derivatives (at least 4 crossed our radar while writing this, namely $GM, $VIBE, $WGMI, and $PN).
The same thing that was true 6 months ago is true now. As the crypto space booms, so do scams, meme coins, and general detritus from people looking to make a quick buck. Why are people plowing money into these purely speculative bets? More on that in a sec 👉
While we’re still bullish on the coins and projects with proven utility, networks, and strong developer basis, at this point in the cycle, we’re also eagerly awaiting a wave of creative destruction 🌊. What do we mean by that? We’d like to see all the ponzi games and hucksters get crushed. Even if that means the total market cap of crypto needs to decrease by 50% again, we’d rather see all the garbage washed out. What’s left standing after the tide goes out will come back even stronger if unfettered by lingering association with scams and shit coins.
Finally, in May we wrote “...we think the move (in inflation) will be sustained for months to come and will lead to a paradigm shift in markets out of the muted inflation we’ve seen since 2008…”
In case you haven’t been to the grocery store or pumped gas recently ⛽, inflation has been running hot this year. Everything costs more. Not only that. It’s gone up in cost more than usual.
Our view that inflation wouldn’t be ‘transitory’ post COVID used to be non-consensus. Now it’s firmly on everyone’s radar. A lot of this is attributable to supply chain disruptions. Still, we maintain no small part of it is the massive amount of money that’s been created in the past 10-15 years. We beat that drum for two years straight in this email, so nothing new there 😂.
Inflation fears have been a boon for commodities, an area we liked from an investment perspective to start the year, as well as for, again, cryptocurrencies. When the October inflation news hit the tape earlier this week, a basket of major cryptocurrencies surged higher.
Where do things go from here? The salient factors to watch are three-fold:
Inflation could be Biden’s worst nightmare, especially as he already struggles optically re: how his first year in office is going. How might policy have to shift if prices are already running hot? Could this curtail federal spending ambitions?
Inflation is definitely Jerome Powell’s worst nightmare. The Fed has been roiled by insider trading allegations. If it fails to control inflation too… well, then they’ll basically have fucked it all up. We expect Powell to get out in front of this fast with tighter monetary policy 📉
Where will consumers turn to protect their purchasing power? The answer to-date seems to be increasingly speculative stocks and cryptocurrencies. We wouldn’t be surprised if the average investor’s risk appetite continues to increase even more 👀.
Now… for the question that’s been on your mind… What’s happening to this newsletter? In case you didn’t guess after our long hiatus, we’ve both spread our wings a bit and don’t have a ton of time to write here 🥺. That said, we put this together to show you that we’re very committed to the same writing and ideating (probably better tbh) that we offered with (some) regularity here for 2+ years. To stay close to where we work, write, and crack jokes, we’d be thrilled if you did the following:
Follow @markwgrace and @nickvanosdol on Twitter
Sign up for Nick’s climate tech newsletter at keepcool.co (or just respond to this email and we’ll sign you up 🙏). This one is actually consistent 😉
No need to unsubscribe here either! Who knows — 6 months from now we may choose to pop back up out of the blue with some new hairbrained thoughts. We’re looking forward to it 🤗.
N + M