Musings on cryptocurrencies, NFT and GCB

Here are some quick thoughts on something that is red hot in the market.

1. Cryptocurrency is a better form of store of value than gold. Being digital it is easily transferred, sold and stored in very small spaces (e.g. thumbdrives)

2. It is irrefutable that Bitcoin has been the asset of the decade with 200%+ compounded annual return since 2011-2020. See source by Charlie Biello below.

3. As a value investor “trained” from the learnings of Benjamin Graham, Warren Buffett and Phillip Fisher. We know that at the end of the day, value is what the product or company brings to society. Consider the following:

A. We pay for a standup comedy to laugh and be entertained.

B. We pay for transportation to fetch us from location A to location B.

C. We pay for a brand new mobile phone because it may be faster, more intuitive or have some brand new feature like a 20 megapixel camera.

Society pays for things that bring value to them, whether explicit or implicit. As investors, any asset may be classified into productive assets or non productive assets. 

Productive vs non-productive assets

An example of a productive asset is a real estate which you can lease out, provide shelter for another family.

A non-productive asset would be gold for it simply sits there till it is picked up or sold.

Cryptocurrency by itself produces no cash flow. So it falls under non-productive assets or a commodity. But based on increasing use cases, society has been evolving to value intangibles higher than that of tangibles. If this is a trend, the shift towards digital asset may only be just beginning. 

Record purchases and the new trends

Consider in Singapore 2 recent record purchases - how an NFT recently set a record of being sold for S$93m while a GCB (size 32,159 soft) was sold at S$128.80m to the wife of a recent billionaire’s wife (Ms Jin Xiao Qun from Nanofilm)

This draws parallels in a world. The buyer of the NFT - the first 5000 days believe the digital asset is worth 1 billion dollars while no one would expect the GCB to be worth a billion someday.

But if the world is to be inherited by the young. And the millennials continue the trend towards buying digital assets, being asset light or minimalistic through renting their homes and living on the gig economy. Perhaps there could be a case for the future of digital assets.

After all, a digital shopfront on Lazada may reach anywhere from 100 - 1000 customers a day as opposed to a physical shopfront in a mall.

Technology is anything that does something better. So perhaps the transfer of value and payment (currently in cash or digital cash) could be done better via crypto.

In that context, if the use cases for crypto rises with institutional adoption. It certainly will have a place in one’s portfolio in the near or distant future. As always, never invest in any asset more than what would affect your sleep should it go to 0 (the sleep number being your % of portfolio in that asset class).

Till next time, invest well.

Joel Siew