The SportsFolio Journal - February 2022
Cryptocurrencies - Are you investing or are you speculating?
We have a new entrant to the crypto scene: Domain Money. Here is the press release. Here is the key sentence:
Domain Money is a comprehensive and secure wealth-building platform that empowers retail investors to take control and get serious about investing across both stocks and crypto.
We have long talked about a key contributor to the problem: stocks and crypto now largely having parity, at least in the eyes of the traders. This excellent Fortune article, titled Your Father’s Stock Market Is Never Coming Back made the same point:
With a Robinhood account, your first exposure to cryptocurrencies does not frame them as an unproven alternative to stocks. The two stand on equal footing. Coke and Pepsi. Feel like trading one or the other? Have at it, no difference. This is radically different from the experience of the Gen X and boomer investors … The generation creating the new conventions of the investing landscape views stocks and crypto coins as interchangeable.
Domain Money is just another effort that contributes to this problem, even when Bitcoin is potentially approaching The-Emperor-Has-No-Clothes moment.
People are realizing that Bitcoin will probably never replace the dollar as a currency. Yes, some businesses accept Bitcoin, roughly 2,300 in the U.S.; most don’t. It is also not clear why the U.S. would ever want to lose control over monetary policy and allow a cryptocurrency to replace fiat currency.
The thesis that Bitcoin is digital gold is also not holding up very well:
Further, Bitcoin does not seem to be an effective hedge against major risks, geopolitical or otherwise. When the pandemic started, it sunk by 50% in a single day and dipped below $4,000. When Russia invaded Ukraine, a real tragedy, it didn’t hold up well. It subsequently recovered a bit but only when the stock market started to recover.
So if Bitcoin is not a currency, nor a gold-like hedge, what is it? In our opinion, it is an asset proxy. Meaning, that it is not a true asset, but something that is perceived as one. Frankly, that’s what it has always been. People primarily bought Bitcoin because they saw others making boatloads of money and wanted to jump on the bandwagon; they wanted to become speculators even though most thought they were investing. They thought, wrongly, that Bitcoin was a new asset class.
The problem is the conflation of critical terms: speculating is not investing, and not everything that can be traded is an asset.
Again, Domain Money doesn’t help with this problem. The learning section of their site has an article, titled Why More Retail Investors Are Adding Crypto to Their Portfolio, which references this graph relating to the 2020 performance of various “assets.”
This is the type of graph that would actually be a great thing to put up in a college finance class. Then, the instructor can simply open it up for class discussion and ask the class: what are the issues you see with this?
Well, as you know by now, our biggest issue with this is that crypto is not an asset class to begin with and you cannot invest in it; but there is another issue with the chart.
Look carefully, nothing in this chart actually says crypto. You only see Bitcoin standing alone.
Even if we started with the premise of Bitcoin being an asset, which it is not, then this chart would still be misleading. An asset ‘class,’ by definition, includes many assets that share the same characteristics. The fact there might be some house somewhere in America that went up 400% in a year does not mean that real estate, as a class, returned 400%. Obviously, the same holds for stocks. In fact, in 2020, there was one stock that returned nearly 700%, Tesla. Etsy returned about 300%. This chart not only elevates crypto to an asset class status, but it also isolates the most popular crypto, namely Bitcoin, as a class of its own, something you don’t see with equities or real estate. This is unprincipled hype and the American public will bear the costs one way or another.
We are not anti-speculation. We are simply against selling speculation as investing. Consumers are free to purchase USDA Prime beef or standard beef, assuming both options are available, but selling the latter under the disguise of the former is not going to fly, for good reason.
So what are some speculative opportunities we see? We’ll start with a few stocks for now. Next month, we’ll talk about a crypto story that we are really excited about.
COVID-19 Portfolio Update
We don’t offer investment advice and we have talked about individual stocks only once before. It’s time for a quick update.
We were rather bullish on three stocks at the time of our previous writing, which we called The Three Musketeers of COVID. How did they fare? Not very good. Do we still believe in them? For two out of three, at least, the answer is yes. We remain on the fence with the third one, which we identified back then as the riskiest of the bunch.
Todos. It was hard to decide whether Todos was a speculation or an investment at the time. On the day we published our analysis (November 8, 2021), it opened at 4 cents and closed at 4.4 cents. The trial results for Tollovir, an antiviral pill, were a couple of months away, a big uncertainty. The data came out pretty good and Todos and NLC Pharma (Note: Todos is in the process of acquiring all related assets and IP of NLC Pharma) met both the primary and secondary endpoints. We anticipated strong data, so we added to our position at a little over five cents just before the release of the results.
Strong data, however, did NOT translate to price appreciation. In fact, the stock could have been bought under three cents just last week (and also today). We are long on TODOS and added more at a little over three cents recently. We understand there will be dilution here, and that is an overhang on the stock price. That said, this really feels like a story that people are not paying attention to. In addition, Jon Najarian is aware of TODOS, which can’t hurt:
If we are not in investment territory at around three cents (remember: investing is not just what you buy but also at what price point you buy it), we feel we are pretty close. TODOS is a small company, and it is unclear whether they can execute perfectly. That said, we don’t think this stock is priced to perfection. Solid execution, which we believe they have delivered so far, can still produce a reasonable return here.
Adamis. The price behavior of this stock has looked really strange lately. We had made an entry at a little over $1 a few months ago, just after we discussed it in this newsletter. It has quickly declined to 60 cents afterward and has been hovering around the 60-cent mark ever since. Until today, with one exception, it has not closed below 57 cents or above 63 cents since January 13, 2022. Today, it closed just a little over 63 cents after the company announced some news.
The company has two FDA-approved products: The first one is SYMJEPI, an injection indicated for the emergency treatment of allergic reactions. The second one is ZIMHI, a high-dose (5mg) naloxone injection for the treatment of opioid overdose. US WorldMeds has the distribution rights for both products. The real prize, however, may be Tempol, Adamis’s antiviral pill, and a competitor to Todos’s Tollovir. Adamis submitted a fast-track application to FDA for Tempol for the treatment and prevention of COVID-19. A decision is expected by March 10, 2022, a potential near-term catalyst.
Similar to TODOS, what happens to the company arguably remains a function of what happens with COVID. There is certainly a perception out there that COVID is coming to an end, and the CDC loosening the masking requirements is the evidence that supports this thesis. The anti-thesis is that COVID unfortunately turned into a political tool, and it is only a matter of time before another variant of concern emerges, one that is possibly more dangerous than Omicron. The WHO shares that view, and so do more than a few notable doctors, including this gentleman, who spent 16 years at Harvard.
Eric Feigl-Ding 💙💛 @DrEricDing🔄STOP THIS CYCLE—"Every strain of #SARSCoV2 to date… has been replaced by a new variant that is more transmissible, more immunity-escaping or both. This pattern will likely be repeated..." ➡️Need multi-layered mitigation! Boost + test + mask + ventilate! https://t.co/NiwisghdU3 https://t.co/f2zn3EW43O
We want COVID to end, no question about that. But it is hard to ignore the possibility that the virus might simply keep mutating, and things may get worse before they get better. If that happens, we think the world will need pills in addition to the vaccines, and Adamis is well positioned to potentially capture some of that market. Obviously, the data needs to deliver, but we felt that the risk-return tradeoff is reasonable and added a bit at around 59 cents.
Aditxt. This one has been the most disappointing of the bunch. With the other two, while the prices took a hit, there have at least been significant developments that set the stage for future price appreciation. This one, we were a bit concerned that data may not be good:
Aditxt seems slightly riskier compared to the other two, and there is a chance to lose a meaningful amount of capital if the pill doesn’t deliver in the trials, or it does but something derails the acquisition.
This is exactly what happened - Phase III data for a potential COVID treatment did not deliver. This was not an Aditxt trial, but rather a trial connected to a company, AiPharma, an acquisition target for Aditxt. Investors are still waiting for an update on the acquisition, and generally speaking, there has not been a lot of communication. We remain hopeful that the company can turn things around. At a little under 40 cents, the price may be attractive for some (we added at around 37.5 cents), but this trade continues to be riskier, in our opinion, than the other two.
This is it for this week. As mentioned earlier, we will be sharing what we think is an exciting crypto story unfolding when we hit your inbox next month. See you then.
** Disclaimer: This article provides opinions and information, but does not contain recommendations or personal investment advice to any specific person for any particular purpose. Before making any significant investment decision, please educate yourself about the risks and consider speaking to a reputable professional investment advisor who has a legal fiduciary duty to you. We are not getting compensated for this article. The author of this article has long positions in Adamis (ADMP), Aditxt (ADTX) and Todos (TOMDF).