I wrote this email to a friend on the topic of crypto and my take. All disclaimers apply here and will be fun to go back and re-read this a few years from now to see how wrong or maybe right I was…

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Let me start by saying I really have no idea where any of this ends up but do feel it is important to have a defined point of view on this stuff at this point even if it ends up being totally wrong. So not investment advice or advocacy, mostly one dude’s opinion.

Crypto to me starts with a very basic premise:

“I’m me, you’re you, and who owns what when”

Lots to unpack there as it relates to identity, transactions, property rights, audit trail, etc.

What’s fascinating is that there is a way to digitize so much of what has been embedded in commerce and collaboration to provide proof – proof of identity, proof of ownership, proof of compensation due for facilitation of a connection or commercial transaction.

So what is Bitcoin? At its core it is a hash. A unique set of numbers associated with a unit of measure.  My Dad did cryptography in the Navy in the 50s before the NSA was formed for secure messaging and trying to figure out what the Russians were saying. Encrypted, digitally created codes. Dandy, why is it valuable? Because people think it is. Don’t let it be lost on you the Bitcoin as well as other crypto assets are denominated in US Dollars.

But do let it give you pause that why can’t banks process transactions on a weekend, why does it take days to transfer payments, why does it take days and lots of hands to process a securities or real property transaction. That is inefficient and not digitized…but can be.

So what is this? To me, it is an architecture and you should approach it that way. Bitcoin is an application. A currency application and actually the easiest place to start. What Venmo, Cashapp, etc. have done to digitize the movement of dollars but are still burdened by banks, bank infrastructure, clearing, etc.  What is a wire, what is an ACH payment, what is tapping your credit card on a point of sale reader at the grocery store? Electronic bits and bytes that lead to a journal entry of debits and credits.  Expensive, slow, error/fraud prone, single currency denominated (USD). 

Back to “I am me, you are you and who owns what when.”  To me, there are three layers of crypto related to protocols and standards of communication and commerce. Consider what SMTP is to email, HTML is to web pages, and ABA codes are to wires.

Down stack crypto platforms and application tokens are where this gets interesting. Ethereum is essentially the “oil” of crypto. Required to make it go, enable transactions, enable settlements.  All this bullshit around non fungible tokens (NFTs) which is essentially the next evolution of digital rights management and authenticity proof is enabled by Ethereum. Check out what NBA Topshots is doing. Unique, digital assets of f’ing highlight reels. Really? Sure, why not. The local yokel flea market signed player card going digital. Collectibles and their digitization and securitization is a whole additional world like Otis and RallyRoad.  Too much liquidity in the system driving up asset values, but I digress…

Buy the oil/gas, not the car.  Side note – you should watch Duped You on Netflix. Fascinating around art and art fraud but good reinforcing on the former.  “Is it real, is it authentic?”

But it doesn’t stop there. Application tokens are utilized for smart contracts (who owns what when with no question of identity) and other utility functions like search, identity verification, settlement, temporary possession, etc.

The architecture doesn’t belong to Microsoft, Google, or Amazon it is fundamentally distributed. The applications don’t belong to Stripe, Paypal or Visa, they are distributed and enabled.

Should you invest in it? Hell if I know. Have I? Yes, on a small dollar methodical “dollar cost average” approach over the last 3+ years via a Coinbase account. It amounts to what a single angel investment would be and yes, I am up, considerably, but I also know it could tank. Don’t care.  Heavy ETH, some BTC and then a long tail of emerging software platforms and application tokens using what Coinbase lists as the “quality filter.”

Should you?  Don’t know. Maybe take 1% of investable assets and roll into it via Coinbase.  I would focus on down stack platform and tokens. CoinDesk 20 is a nice reference point on building a portfolio.

You will see more brokerages and ETFs emerging in the space which seems an unnecessary layer of fees to add to direct purchase.  Hype and hustlers.  Oh and serious f’ing volatility. What ETFs did to normalize the stock market and reduce volatility is alive and well in crypto.  Big swings. Prepare to lose it all…and gain it back in a day.

Bitcoin is a thing and is valuable because others think it is valuable. It is not the cost per coin as this is fundamentally about math and finite supply.  If you own dollars, pounds, euros, or yen, you should add some bitcoin.  Will you buy your coffee with it tomorrow? Probably not.

Ok, sorry for the manifesto. Key takeaways:

•  I am me, you are you
• Who owns what when
• A distributed architecture for commerce and collaboration that no one entity owns
• It is more speculation than investing although I have tried to have an informed point of view that leads to an investor approach
• Consider it a “meta” portfolio allocation that hedges against inflation, way of life disruption and assets that move between national borders without friction
• I have no f’ing idea what will happen