The SportsFolio Journal - January 2022
A New Beginning
We’re back after taking another hiatus. We used this opportunity to reflect on what we have accomplished since we issued our first publication in June of 2020. Later in 2021, we switched to a weekly release and in general, that went really well, but there were two periods of time that required us to take rather long breaks from transmission. When it was all said and done, we ended up issuing a total of 30 newsletters in 2021. If you’d like to catch up you can find our 2020-2021 archive here.
Having worked through both formats, we had time to think long and hard about what kind of publication we want to be; we are a small startup with big dreams. We are ambitious and we have a ton of irons on the fire right now. We also thought about our positioning in a crowded marketplace. The good news for you, dear reader, is that you have many choices when it comes to newsletters. If your focus is sports, Sportico has been putting out a lot of good stuff. Are you interested in finance? Matt Levine over at Bloomberg does a fantastic job with his daily newsletter titled Money Stuff, where he educates and entertains at the same time. Every is trying a portfolio approach and you will likely find something in the bundle that is of most interest to you. Air Mail is a weekly that covers a variety of areas, Puck has some really proficient writers and Alts has been growing steadily. That says nothing of traditional outlets that have done a good job of transitioning into digital, such as the New York Times and Washington Post.
After some soul searching, we came to a final conclusion regarding The SportsFolio Journal. We are becoming a monthly publication again. We certainly don’t want to overpromise and underdeliver. Honestly, the monthly approach reflects better who we are. We are not journalists trying to break news faster than anybody else; quite the contrary actually. Our true differentiation comes from slowing down, digesting and making observations that nobody else is making, finding connections that nobody else is seeing and busting myths that nobody else is exploring. We’re thinking really hard about where the world is going. Our core competency is not news, which you can get elsewhere, but insights. Our goal, then, is to become the premier destination for the insight seekers.
For 2022, we will hit your inbox less frequently, but when we hit it, we hope to make a bigger impact. We will strive to be the publication that you look forward to and we will be in your inbox on the last day of every month.
With that, let’s dive in.
LeBron and Crypto.com partnered up.
According to the press release, this partnership is about supporting educational and workforce development opportunities focused on Web3.
Crypto.com has been spending a lot of marketing dollars lately. First, they paid more than $700 million dollars for the naming rights of what used to be called Staples Center, which is where LeBron plays, on a 20-year deal. Then, Matt Damon became the face of Crypto.com, which is reported to spend more than $100 million on the partnership. This spot, ‘Fortune Favors the Brave,’ was the first output of that partnership, and let’s just say it has not exactly been a slam dunk. They also have a Super Bowl ad coming (so does FTX, a rival exchange), but the ad is not released yet.
It seems like nothing is coming cheap for Crypto.com, even the domain name. They got it from a cryptology researcher and professor at the University of Pennsylvania, who registered the domain name in 1993. He held out for a while, but eventually sold it. The amount was not disclosed, but TechCrunch reported it may have been as high as $10 million. Some others speculated that the price tag may have been $12 million.
The King clearly thinks this partnership is going to help. He said:
Blockchain technology is revolutionizing our economy, sports and entertainment, the art world, and how we engage with one another. I want to ensure that communities like the one I come from are not left behind. Crypto.com and I are aligned on the need to educate and support my community with the information and tools they need for inclusion. I’m looking forward to working with them to bring these opportunities to my community.
We agree that the blockchain, or more broadly the distributed ledger technology is indeed promising. These things that we call “digital assets” that trade on the blockchain? That’s where things get murky. That could potentially end up hurting the communities that LeBron is trying to help, and on that point, a top economist agrees with us.
The Nobel Laureate
Paul Krugman, by all measures, is at the top of his profession. He is a renowned economist and a distinguished professor at the City University of New York's Graduate Center. In 2008, he was the sole recipient of the Nobel Memorial Prize in Economic Sciences for his work on international trade theory.
He also is not a fan of crypto. Enter the first piece of evidence:
A new cohort of mayors are friends of crypto. When word got out that the New York mayor will get paid in crypto, this is how he responded.
Let us introduce the second piece of evidence.
Paul Krugman also happens to be a New York Times opinion columnist, and previously he published an opinion piece on crypto. He noted that, twelve years after its introduction, “cryptocurrencies play almost no role in normal economic activity.” When one commenter inquired about the legality of crypto, this is how he responded:
I think we'll be cracking down on the illegal stuff. As for the rest, well, yes, anyone can create something, call it an asset, and if people buy it, then I guess it is an asset. Dogecoin was literally started as a joke, and still it trades for high prices. The only sad thing is that the name turns out to be about canines, not the rulers of the Venetian Republic.
We interpreted that to mean that Paul Krugman is seeing right through the myth that Bitcoin is NOT an asset, which is the root problem of where the finance world finds itself today.
Now we have another NYT opinion piece from him. It is the third piece of evidence that makes it very clear that Krugman is not a fan of crypto. Unfortunately, it also seems to suggest that he is not asking the most critical questions: Is Bitcoin an asset in the first place? Can one invest in it?
We have no doubt that his intentions are noble and he is genuinely worried. He says:
Still, some people are being hurt. Who are they?
Investors in crypto seem to be different from investors in other risky assets, like stocks, who consist disproportionately of affluent, college-educated whites. According to a survey by the research organization NORC, 44 percent of crypto investors are nonwhite, and 55 percent don’t have a college degree. This matches up with anecdotal evidence that crypto investing has become remarkably popular among minority groups and the working class.
So, right there, LeBron’s vision is diverging from Krugman’s expectations. Yes, we know, one is about the technology (which we are also bullish on) and the other is about speculative vehicles, but the two are closely connected and selling one without the other is rare. Can Crypto.com really be expected to highlight that nuance?
But there is an even more fundamental reason why we feel that Krugman’s piece will fall short of what he wants to do. What will happen is that the anti-crypto crowd will commend him, the pro-crypto crowd will bash him, and it is unlikely that we will persuade many, or at least as many as he wants to.
What is the problem? The problem is that Krugman still gives Bitcoin too much credit by calling it an asset class:
So crypto has become a large asset class even though nobody can clearly explain what legitimate purpose it’s for.
He also suggests that it is an investment:
Investors in crypto seem to be different from investors in other risky assets, like stocks, who consist disproportionately of affluent, college-educated whites.
He suggests that it can be valued and that it may be a bubble:
Maybe the rising valuation (although not use) of Bitcoin and its rivals represents something more than a bubble, in which people buy an asset simply because other people have made money off that asset in the past.
Crypto, generally, is none of those things. Certainly, Bitcoin isn’t. First, it’s not an asset because it does not have cash flows, therefore, it cannot truly be valued; valuation is all about cash flows. Secondly, one cannot invest in Bitcoin; investing is about estimating the value of an asset, comparing it to the price and making a decision assuming a sufficient margin of safety exists. Thirdly, Bitcoin, therefore also cannot be a bubble, because a bubble is the overpricing of an asset relative to value. This NYT piece comes closer to identifying the root problem, but still doesn’t quite get there.
In sum, Bitcoin is not an asset, one cannot invest in it, it cannot be valued and so it cannot be a bubble. It’s simply an application of the Greater Fool Theory (which is different from a bubble), where your only way out is to find somebody else who is willing to pay a higher price.
Krugman, arguably one of the top twenty economists in the world, misses all these critical points. This is not a knock on him because this is a mistake made by many, including Christine Lagarde and Janet Yellen. All of these people at the top of the food chain are trying to warn the public but, unintentionally, end up legitimizing Bitcoin even further and elevating it to a level it does not deserve. Once Bitcoin is compared to a risk asset, like, say, Netflix stock (which shed 22% of its value in a single day recently, good for an almost $50 billion decrease in market cap), we are now only disagreeing about valuations. That can only be good for Bitcoin.
We are really excited to have the opportunity to connect with you again and we hope that you enjoyed this issue. Next up is more “asset class” stuff, a quick update on our stock ideas from a few months ago, and one coin that we are really excited about, one that seems to be one of the leading candidates to power up Web3. ‘Til then …