"Crypto Is Here To Stay" - Billionaire Bill Ackman U-Turns With Several Investments

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by Tyler Durden
Monday, Nov 21, 2022 - 03:10 PM

With cryptos making headlines every day - and not in a positive way with the post-SBF fallout snowball gathering pace downhill - none other than billionaire hedge fund manager Bill Ackman offered a surprising rejoinder to the bears in a brief Twitter thread explaining why he is u-turning from skeptic to investor in the crypto ecosyste.

The last couple of days have seen Ethereum monkeyhammered lower relative to Bitcoin as the FTX Hacker dumps his horde of stolen tokens...

“The FTX issues are really an urgent reminder of the need for regulatory clarity and a real regulatory framework for crypto,” Christian Catalini, founder of the MIT Cryptoeconomics Lab, said on Bloomberg TV.

He added that hype and speculation over the minting and trading of tokens “has generated a massive distraction from building actual products and services that reach consumers, solve actual problems.”

And that reflects the attitude shift that the Pershing Square founder has had as he says "crypto is here to stay" comparing crypto's potential social impact to the telephone and the internet...

The telephone, the internet, and crypto share one thing in common.

Each technology improves on the next in terms of its ability to facilitate fraud.

As such, I was initially a crypto skeptic, but after studying some of the more interesting crypto projects, I have come to believe that crypto can enable the formation of useful businesses and technologies that heretofore could not be created. The ability to issue a token to incentivize participants in a venture is a powerful lever in accessing a global workforce to advance a project.

The problem with crypto is that unethical promoters can create tokens simply to facilitate pump and dump schemes. It may in fact be that the vast majority of crypto coins are used for fraudulent purposes rather than for building legitimate businesses.

Despite crypto’s ability to facilitate fraud, with the benefit of sensible regulation and oversight, crypto technology’s potential for beneficent societal impact may eventually compare with the impact of the telephone and internet on the economy and society. 

Initially, I assumed that there is no intrinsic value to any of the tokens and therefore they simply represent a modern-day version of tulip mania without the aesthetic benefits.

But after examining a number of interesting crypto projects, I began to understand how a token could build intrinsic value over time.

Two examples may help to explicate my view: @helium created a global Wi-Fi network used by @limebike and others to track devices globally as well as for other uses which benefit by access to global Wi-Fi networks. 

Helium’s global network of 974k hotspots was crowd created by individuals who purchased and deployed Helium hotspots to mine HNT, its native token. Customers who wish to use the network must purchase HNT and burn it, ie, remove the ‘consumed’ HNT from its total supply of tokens. 

As a result, over time, a two-sided market for HNT develops in which miners buy hotspots and deploy them around the globe to earn tokens. Users, in turn, purchase HNT tokens in order to use the network. The more demand for the network, the more demand for HNT. 

Given HNT’s ultimately finite supply, the balance between supply and demand yields a market price which increases or decreases over time along with the success of the Helium Wi-Fi network. As such, HNT becomes a valued commodity whose price is determined by supply and demand. 

DIMO collects valuable auto data from data ports in cars. It does so by allowing car owners to mint tokens by capturing data from their own car. The data are valuable for the car owner as well as for auto manufacturers, suppliers, insurers, municipalities, etc. One can envision a two-sided market for DIMO tokens developing over time where data-users buy and burn tokens that are minted by car owners with DIMO data collection devices. (Disclosure: I am a small investor in DIMO and am uninvolved in Helium.) 

To understand the benefit of crypto-based business models, imagine how difficult it would be to create Helium’s million-node network of global hot spots where each node is placed in a location to optimize the coverage of the network. Helium miners earn more tokens for siting their nodes where they are most needed as miners earn more tokens the more their node’s signal is demanded by users. Consider the capital investment and time required for Verizon or ATT to create the same network. Consider the regulatory hurdles and international coordination that would have to be overcome compared with the Helium model. While @Tesla can build DIMO’s dataset for its own cars, how can any other automobile company create a similar dataset for their own vehicles that were manufactured before connectivity and data collection became feasible. Furthermore, how can any company create a dataset of all cars on the road today? While all cars made since 1996 have OBD (onboard data) ports, other than DIMO’s token-incentivized model, I can’t envision how a company in a non-crypto world can create real-time access to this data.

Disclosure: I am a small direct investor in crypto projects.

The other two are @ORIGYNTech and Goldfinch Finance. I am also an investor in seven crypto VC funds and a small investor in companies that help with tax compliance and/or reduce fraud in crypto i.e., @TaxBit and @trmlabs.

In total these investments represent less than 2% of my assets. I invest more as a hobbyist trying to learn than as a careful investor as I minimize the time I spend on non-Pershing Square investments so please don’t rely on my due diligence or take any of the above as an investment recommendation.

All of the above said, I think crypto is here to stay and with proper oversight and regulation, it has the potential to greatly benefit society and grow the global economy.

All legitimate participants in the crypto ecosystem should therefore be highly incentivized to expose and eliminate fraudulent actors as they greatly increase the risk of regulatory intervention that will set back the positive potential impact of crypto for generations.

As always I welcome your feedback. 

With Pershing Square 'buying the dip' as it were, perhaps this is the point where retail exuberance will morph into institutional investment?

“We’ve got to get past this early stage of amateurs in crypto,” Bobby Lee, founder of crypto storage solution provider Ballet Global Inc., said on Bloomberg Television.