Thursday Fishy Mailbag
Q: Is SBF trading sardines?
Yes, but I don't think he's trading trading sardines.
Sardines used to be a tradable commodity and there's a famous (possibly apocryphal) incident from the early 1900s when the price of tinned fish skyrocketed on rumors that the fishing nets off the coast of California were increasingly coming up empty.
A classic bubble ensued. After a successful run of trading, one speculator decided to treat himself to a very expensive tin of sardines.
They were rancid.
Perplexed that such a highly sought-after luxury could be inedible, the trader complained to the seller, who set him straight: "You don't understand. Those aren't eating sardines, those are trading sardines."
The moral of the story is that trading often becomes dissociated from the underlying value that is ostensibly being exchanged.
The purest possible example of trading sardines was perhaps trading bitcoin on FTX in late 2022 when FTX no longer held any bitcoin.
So news that Sam Bankman-Fried is dealing in tinned fish while in prison seems a poetically perfect bookend to his rapid rise — by providing us with trading sardines to trade — and his even more rapid fall from buying far too many of the trading sardines himself.
I'm counting on Michael Lewis to find out if he's developed any quantitative models to inform his trading decisions, and whether he's outperforming the more experienced inmates.
Q: Is crypto back?
It increasingly looks that way, yes.
Most hopefully, the industry is attracting inflows again: Tether's market cap is hitting new highs (up $7 billion over the past two months), Wormhole just raised a whopping $225 million at a $2.5 billion valuation, a bridge to a yet-to-be-built blockchain attracted $390 million in its first few days (now over $600 million), and, most fun of all, altcoins are booming.
What's it all mean?
It's hard to say at this early stage, but at the very least it means that the 2024 vintage of crypto conferences are going to be lit.
Q: AI tokens? Really?
I hear you.
It's easy to dismiss AI-themed tokens as the bubble du jour, but things like AKT, TAO, IMGNAI, and RNDR are substantial enough that you can at least tell a story as to why they're up in price — and maybe even why they might eventually be up in value, too.
My intuition is that these are mostly trading sardines at this point — people just want more things with an AI angle to trade — but I could be wrong.
In a recent note, Arca's Jeff Dorman laid out the use case for AKT and RNDR (marketplaces for computational resources) and the bull case for TAO (decentralized machine learning).
Similarly, in the wake of the OpenAI drama, it's becoming clearer how something like the STORE protocol, which aims to use crypto tokenomics to provide cloud services, could become the decentralized infrastructure layer for AI.
Still, I don't think there are enough Arca-type investors in crypto to facilitate the kind of price discovery required for us to be confident that the prices of AI-related tokens are any indication at all of their value.
That could mean the prices are too low, of course, but it seems far more likely that the price of anything associated with AI is too high.
Q: Isn't this all going to end badly again?
There's every chance, yes.
But speculation is a use case and even if all the AI-themed tokens flop, I'd still argue that crypto has served a purpose by meeting our demand for more things to speculate on.
There are not many AI-related stocks to trade and it will be years before the current bumper crop of AI startups provide more of them by going public.
In crypto, however, tokens can be listed at any stage of a project's existence — or before there even is a project.
This could become a repeating occurrence. If people got comfortable trading tokens, crypto could regularly fill our demand for whatever the latest investment fad is before IPOs can fill it in TradFi.
It's not exactly Warren Buffett-style investing, but it's responding to the market's demand — and it should be fun, too.
Q: Why is Wormhole worth $2.5 billion?
That's only the price someone decided to pay, we don't yet know what value they'll get.
But as for why it might be worth $2.5 billion, I would simply note that Wormhole is a "messaging platform" and there's another messaging platform that is possibly the best business ever.
Visa is worth $500 billion.
(Not investment advice.)
Q: Why should I care about decentralization?
The case for decentralization can get a bit abstract — trustless, permissionless, distributed — but here's a real-world issue that it would solve: People have been getting barcode tattoos that point to their favorite song on Spotify.
Many of them subsequently discover that the address at which Spotify keeps a particular song often changes: "We can't guarantee that existing codes will work if the linked content gets re-uploaded."
With a crypto-enable, decentralized version of Spotify, the URL that your tattoo points to would never change.
(There should be a trading sardine for that.)
— Byron Gilliam
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