The birth of a market

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The paper that started it all…

In November 2016 I felt something in the air…my gut told me it was time for the blockchain sector to finally have its moment. After playing around with cryptocurrencies for years it was the Ethereum launch that seemed to catapult this sector from a small network of crypto geeks into a larger pool of technology enthusiasts and investors looking to be part of web 3.0 – the decentralized internet.

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Vitalik’s paper then took it to the “next level”

By Jan 2017 I had put together some capital to invest in this sector using a (modified) indexing approach. I wrote up my thesis for this fund on a dedicated blog and have continued to post monthly letters.

Thankfully I had been investing since I was twelve and had made all the mistakes in the book by now. I had also spent a long time thinking about efficient markets during my University days. This lead me to the conclusion that it made sense to stick very closely to an index weighting in order to capture what would be a very wild market. Thus far I’ve managed to beat the market by a factor of two by identifying some inefficient prices early on and biasing my allocation accordingly (specifically I was overweight Ethereum, Ripple, Litecoin) – however I can already tell this market is maturing and those easy wins (20x returns!?) won’t be so easy anymore. My plan now is to stick very closely to market weighting unless something very strange happens. I want to capture the rising ride (indexing), instead of surfing big waves (swing trading).

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The market capitalization of the blockchain sector from Sept 2016 through August 2017 – or what I like to call “the birth of a market”

My long term goal is to track this index until the market capitalization of this sector reaches 1 trillion US dollars. Seven months ago I thought this would take ~10 years, but something tells me it won’t take that long (the market is 165 billion as of this post).

However it was never the money that drove my interest in this sector, it is the love of the technology. To this day if I hear the phrase “bitcoin” or “crypto” in public I end up flush in the face, talking too loudly, trying to convince everyone in the room about why it matters. I’m still working on that pitch…

Over five years ago I made a popular video on RSA encryption which is the key to Bitcoin’s operation. Later this year I plan to produce a more general video on “What is Bitcoin” to finally tell the story of why Bitcoin matters and why it has value – the kind of video my mom would watch and understand. I plan to follow that up with a video on Ethereum as well. I’m very excited about telling this story as I can’t point at another video today that does the entire story justice. It’s one third economics, one third computer science and one third politics – I can’t wait to tell it.

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