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“Sometimes the best investments are precisely the ones you cannot explain and probably make no sense.”
— Richard Toh
When I started writing this newsletter nearly four years ago, I kept the subject matter high-level — mostly because I didn’t understand the low level.
That’s not what I expected it to be.
Instead, I expected it to be like the morning notes I sometimes wrote for clients in my previous job as an equities trader — notes that were mostly just a rundown of news taken from a Bloomberg terminal that the clients also had but were too lazy to look at (people used to get paid for doing some surprisingly basic things in TradFi).
I figured that’s what this newsletter would be, too, because what else is there to talk about every day other than that day’s news?
But when I sat down to write the first newsletter, I quickly realized I had no idea what counted as “news” in crypto.
At that point, I had only really heard of Bitcoin, Ethereum and a few others — and I had never once heard the term “DeFi.”
I might have pretended to know a little more than that when I applied for the job but I didn’t need to know a lot more because Blockworks was looking for someone who knew TradFi better than DeFi.
So the newsletter became, more or less, me taking readers along as I learned about crypto.
I started with high-level questions like, what makes a security a security? What makes money, money? What makes protocols different from companies? What makes tokens different from stocks?
These were the kinds of things I could research in the evening and write about the next day, no matter what the news happened to be.
And that’s what I still do now because the high-level stuff turned out to be what’s most interesting to me — crypto is an attempt to reinvent finance and that makes writing about crypto an opportunity to relearn it from first principles.
But I also had to learn what is and isn’t news in crypto, and one of my first go-to sources for that was The Breakdown with NLW.
His podcast (already popular enough that NLW could go just by his initials) curated the day’s crypto stories, interpreted them for me, and put them into the macro context that I was more familiar with — all in an efficient 15 minutes or so that fit neatly within my limited span of attention.
I learned a lot.
So, about a year into listening, when NLW unexpectedly read two of my newsletters for one of his Sunday podcasts, I felt like I had arrived.
If NLW thought my writing was worth sharing with his audience, maybe, I thought, I could stop feeling like I was faking it.
(Full disclosure: I still kind of feel like I’m faking it.)
For that reason, it’s very fun for me to share that this newsletter is being rebranded as The Breakdown and paired with NLW’s podcast as one of Blockworks’ expanding roster of media brands.
Nothing much will change content-wise — I’ll still be taking you along for the ride as I try to make sense of crypto, markets and investing.
But you can expect some thoughtful updates to both the podcast and the newsletter that reflect our shared mission to figure out the future of finance.
Should be fun.
Crypto pilled?
I’ve learned more about finance in my four years writing about crypto than I did in my 25 years working in finance.
When I was an equities trader and an analyst pitched me a stock idea, my first question wasn’t “Is this stock a security?”
Nor was it my last question — before crypto forced me to think about what makes something a security, I had never even heard of the Howey test.
Now I can recite all four prongs of Howey from memory.
(Yes, I’m available to liven up your next dinner party conversation, thanks for asking!)
Nor had I given much thought to what makes something money before bitcoin forced me to think about that, too.
It’s pretty intuitive: Money is whatever you use to pay for things (just being a store of value doesn’t qualify, sorry).
But how money is created turns out to be a deep mystery.
When the economist Richard Werner went to a one-branch bank where he could personally observe every step of the loan process in hopes of proving that banks create money “out of thin air,” he failed to identify the exact moment of creation.
Money, it turns out, is emergent, like consciousness.
I stumbled upon a similar mystery when trying to determine whether token holders own the protocols they believe they’re invested in.
I’m still unsure on that one: Protocols are just software, so maybe they can’t be “owned” in the traditional sense — but if token holders can vote to change the software, maybe they can.
More intriguingly, though, asking that question has made me unsure whether shareholders own the companies they’re invested in.
Shareholders think of themselves as owners, of course, but the corporate law scholar Lynn Stout says they’re not (she convincingly argues that corporations own themselves).
Traditional investors may dismiss these questions as academic — the system works just fine for them, whatever its philosophical underpinnings.
But crypto might soon force them to start philosophizing.
Last week, Hester Peirce said the SEC is considering an exemption that would allow securities to trade on blockchains; and this week her colleague, Mark Uyeda, said that tokenization has “the potential to dramatically change how financial markets operate.”
If so, it might dramatically change how people think about financial markets, too.
It’s already happening, to some degree.
Matt Levine, for example, attributes the phenomenon of memestocks to the emergence of bitcoin, which “broke everyone’s brains” about why assets might have value.
More recently, The Economist’s Mike Bird speculated that retail investors may have been such enthusiastic buyers of the crash in equities because they’ve been influenced by the HODL culture of crypto.
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