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“While enthusiasm may be necessary for great accomplishments elsewhere, on Wall Street it almost invariably leads to disaster.”
Meta Miss Mailbag!
Q: Any takeaways from the Meta miss?
Lots!
One is that TikTok is no joke. All those goofy videos are hoovering up so much of our time that the world’s eighth largest company is having to fundamentally rethink its business model.
We live in the attention economy and the Facebook miss is a reminder that attention is limited.
This, I think, is a major bear case for metaverse businesses, relative to Web2. Your time on the internet can overlap with other activities: scroll through Blockworks while you’re watching Netflix, check Twitter at the bar when your friends start boring you, etc. But there’s no multitasking in the Metaverse, you’re either in or you’re out. How much time are you really going to spend in there?
Facebook is battling TikTok for your attention now and they’ll be battling everyone for your attention in the metaverse. The FTC should really drop it’s antitrust lawsuit because Facebook has the least-defensible moat in mega-cap tech. The tweak to iOS tracking policy alone has caused a $10 billion headwind for Facebook. $10 billion!
Crypto investors should take note: there are few, if any, defensible moats in the world of crypto, which does not bode well for long-term investor returns. Crypto investing may prove to be more like commodity investing than stock market investing: more tactical, less buy-and-hold.
Q: Does the Meta miss mean less rate hikes?
That’s a ridiculous question. But now that you mention it … maybe!
I’m increasingly of the opinion that monetary policy primarily affects inflation by manipulating asset prices up and down. The relationship between short-term interest rates and inflation is tenuous, at best. But it has an obvious and immediate effect on asset prices.
Powell’s best chance at lowering inflation may be to lower the stock market. So to the extent the stock market goes lower on its own, Powell won’t have to force it down with rate hikes.
There may be a more direct read-across to rate hikes as well.
Facebook’s ad revenue is highly leveraged to goods (as opposed to Google, which is more levered to services). Advertising has been shifting from goods to services lately, which is bad for Meta, but good for everyone else.
Inflation has been persistent in large part because the world’s supply chains were not prepared for consumption to move wholesale from services to goods in the pandemic. To the degree it shifts back towards services, supply chains should untangle and inflation should start to abate.
Q: I always read about the Powell Put. Is there a Powell Call, as well?
I think there must be: anything with put options will surely have call options, too.
OK, fine, you can’t literally buy a Powell Put. But in the same way the Fed will limit your downside by intervening in markets if they sell off too much, I think the Fed is likely to limit your upside, too. If the stock market were to sprint 20% or 30% higher, I expect Powell would seize the opportunity to take rates significantly higher and start unwinding the Fed’s balance sheet by selling all the stuff they bought during quant easing. So you could look at QE as the Powel Put and QT as the Powell Call.
Importantly, the Powell Call is currently less out-of-the-money than the Powell Put.
Q: Is Doomberg right that bitcoin’s a Ponzi?
I’m a big fan of Doomberg’s work, but you’ll be unsurprised to hear that I respectfully disagree on this one.
Amid other (admittedly thoughtful) critiques, he writes, “Bitcoin is not worth 36,000 US dollars … It is worth 36,000 tethers, the dominant underlying stablecoin in which it transacts.”
But I think that’s an unfair depiction of things. As of midday today, Coinbase had traded 13,700 BTC for USD and only 570 for USDT (Tether).
So, for the moment at least, it’s very much easier to swap your BTC for dollars than it is for Tether.
He also says the “leverage ratio” in crypto is “enormous” because the market cap of $2 trillion compares to only a few 10s of billions of USD “in the system.”
But no one thinks BTC is collateralized by fiat — that’s the last thing Bitcoiners would want! USD is just the unit of account as it’s the most common way to get in and out.
There is definitely a “greater fool” element to crypto. Bitcoin doesn’t generate any intrinsic value (in fact, it generates negative value in the sense that miners have to be paid to secure the network). So to make a profit you’re entirely dependent on a future someone being willing to pay more for it than you did.
But that doesn’t make it a Ponzi. And there are lots of good reasons, greater-fool and otherwise, why future someones will willingly cash you out of your bitcoin for more USD than you put into it.
Q: So I can ignore that FUD then?
No, you should probably read it. He makes some points that need pondering, especially around MicroStrategy and El Salvador.
We think of those two as champions of bitcoin, but they are bringing USD liabilities into the system, which raises systemic risk.
Q: What’s the most hopeful thing you saw in crypto this week?
I noticed that a DAO is planning to buy an NBA team.
@KrauseHouseDAO, can you please buy the Knicks?
The New York Knicks would be the perfect proof-of-concept for the entire DAO space. Decentralized organizations are generally dismissed as being too unwieldy to be used as a management structure.
But is there any lower bar than improving on the three-decades of mis-management of the Knicks?
I’d be willing to let the Frog Nation takeover even, no background checks required.
Q: Any other takeaway from this week worth mentioning?
I had an excellent pad thai last night. Extra spicy, with shrimp and mixed veggies. Delicious.
The metaverse has been here for decades. But it's getting more immersive, faster than ever.
For expert panels like "Shaping a Metaverse", come to Permissionless. Thursday, February 10, 2022 Tuesday, February 15, 2022
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Written by @bgilliam1982 and @aaronhasapen.
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