The Saturday - 3/13/21
Volume 2, Issue 9
Morning!
Sometimes, I like to think back on the controversies surrounding TARP - the Troubled Asset Relief Program rolled out in the wake of the Great Recession - and then think about the present.
This past week, with markets near all-time highs, Congress approved a new $1.9T stimulus package, bringing total aggregate COVID stimulus to $5.7T.
Anyone remember total spending on TARP?
$431B. What rookie numbers!
If history students in 2040 compare economic disasters solely by the resulting government spending, 2008 is going to look like the Dr. Evil to 2020’s Darth Vader.
To add insult to injury, according to a survey by Deutsche Bank, 40% of 18-24 year olds and 50% of 25-34 year olds plan to spend at least half of their upcoming stimulus checks on stocks.
Now I admittedly didn’t crunch the numbers, but by my estimation, WallStreetBets alone is about to pump TARP loads of money into the market on Monday.
OK, not quite, but you get the point…
It’s Saturday March 13, 2021.
Trading Places
Today’s opening story is a few weeks old, but it’s an interesting one, so better late than never.
Apparently, the state of New York is considering reviving a 155 year old transfer tax on stock sales. This tax has been shelved for forty years, but legislators want more money and, with trading volumes at historic highs, a levy on stock trades seems like low-hanging fruit… and another brazen attempt to hold back GameStop!
I kid.
Predictably, Intercontinental Exchange (who owns the New York Stock Exchange) isn’t all that thrilled at the prospect of a new tax and its CEO published an op-ed in the WSJ last month, threatening to move the NYSE to greener pastures if the tax were revived.
History suggests that this isn’t an empty threat. In 2012, France implemented a similar tax and 33% of trading volume moved out of the country. The same thing happened when Sweden rolled out its now-defunct financial transactions tax in 1984.
With today’s tech, entire trading operations could move and this would not bode well for New York. The state generates 18% of its income from the securities industry, while 60% of private-sector wages in NYC come from the finance and insurance industries.
But, if not New York City, then where?
Miami seems like an early favorite, with its sunshine, low taxes, and large talent pool. In fact, many Wall Street firms have already opened local offices and chaotic trading floors will feel homelike to locals accustomed to ordering bottle service at LIV or E11even.
Beyond all that, I’m mostly curious as to what the displaced exchange would be named.
Does it become the Miami Stock Exchange? Or do they mirror the dumbest name in professional sports and become the New York Stock Exchange of Miami?
So many questions.
Yield Stuff
Over the last few weeks, spikes in 10yr treasury yields have (at least temporarily) wreaked havoc on almost every asset class, including gold, which is down more than 6% over the last 30 days. The common narrative is that rising yields make non-yielding assets comparatively less attractive.
To crypto bulls - eternal optimists who have never met a challenge that can’t be solved by blockchain - the opportunity to generate yield is a major differentiator between crypto and other stores of value. (This, of course, requires that one endorses the Bitcoin = SOV theory.)
On Thursday, Crypto Land scored a big victory when BlockFi secured a $350M Series D fundraise, led by such Wall Street stalwarts as Bain Capital and Tiger Global.
Despite Bitcoin and Ethereum trading near all time highs, daily expenses are typically payable in USD or other fiat currencies. This is an issue for the cash-poor but crypto-rich cohort, who face staggering tax bills if they convert their coins to cash.
BlockFi addresses this problem by lending USD (a non-taxable event) against borrowers’ crypto holdings. For traders seeking leverage, the company also lends cryptocurrencies against USD.
To finance its lending operations, BlockFi takes in retail and institutional cryptocurrency and USD stablecoin deposits, loans out those funds, retains a strip of interest payments, and distributes the remainder to depositors.
With few competing capital sources, interest rates on these loans are high and so is the yield paid to depositors. BlockFi pays 6% interest on depositors’ Bitcoin deposits and 8.8% on their cash/stablecoins. Depositors also have the option to receive interest payments in USD or the cryptocurrency of their choosing.
In the last fifteen months, BlockFi’s retail base has grown from 10,000 customers to 265,000 and the company also added over 200 institutional clients, for who it performs trade execution services.
In the last year, AUM has grown from $1B to $15B, monthly revenue from $1.5M to $50M, and headcount from 100 to 530.
The kicker?
BlockFi’s Series C, which closed last August, valued the company at $450M. Seven months later, the Series D valued BlockFi at $3B.
Beeple
Let me begin by stating that The Saturday is NOT a crypto blog. Anyone remember the piece on Section 230 of the 1996 Communications Decency Act or the rant on T+ settlement periods? Not crypto stories!
Anyways, with that cleared up…
Last week, we discussed NFTs and Christie’s auctioning a JPEG by digital artist Beeple. Our take - which was more sarcasm than investment advice (nothing in The Saturday is investment advice) - went as follows:
Sure, the top bid was $3.5M as of Friday evening, but a 10-second Beeple video sold for $6.6M a week ago. Get your bids in!
Well, bidding closed this past Thursday, with the winner taking home the digital image for a cool…
For starters, and at the risk of sounding juvenile… of course the piece sold for $69M. In fact, NFTs should trade in $69 increments by law. Meme-ing the price of memes? How meta is that!
Second, it’s important to note that by “taking home” the image, I really mean “downloaded the picture to their cryptowallet” or whatever. Maybe it’s the same thing, I don’t know.
Third, I also admittedly used the term “winner” a bit loosely, because the real winner here is clearly Beeple.
Forget Jackson Pollock, Pablo Picasso, and Henri Matisse… EVERYDAYS: THE FIRST 5000 DAYS is now the third most expensive work ever auctioned during its artist’s lifetime! (The top two spots belong to works by David Hockney and Jeff Koons.)
Speaking of the man of the hour, let’s check in on Beeple:
Agreed.
If Life Gives You 2020
On Wednesday, online gaming platform Roblox went public, reaching an intra-day valuation of $45B. Not bad for a company that was valued at $4B a short year ago.
Roblox is a truly fascinating business. Moreso than a game, Roblox is a platform that allows users to congregate, socialize, work, and build their own games within the company’s virtual world.
And it is a world of its own, in the purest sense.
A bet on Roblox is a bet on the metaverse, a buzzy sci-fi term that refers to Internet-based environments where individuals can live standalone virtual lives, making friends, playing games, and building businesses together. Real(ish) businesses, at that.
Roblox makes money by selling its own virtual currency, Robux, that users then spend on the platform. Want a hat for your virtual avatar? 5 Robux, please. Feel like playing virtual ping pong? That’ll be 10 Robux.
What is truly fascinating about the company’s business model is that most of the game development is done by fellow gamers and, when one user pays to play an on-platform game, Roblox and the user-developer split the proceeds.
Per CNBC:
In short, Roblox wants to give the building blocks for a metaverse to its users, who will in turn create the digital world as they see fit. And as an economy in the metaverse continues to grow and develop, Roblox will get a slice of each transaction.
Through the last nine months of 2020 alone, Roblox earned over $1B from the sale of its virtual currency. The company now boasts 31 million daily users and estimates users’ average playing lifetime at 23 months.
As for the virtual businesses? Over 1,250 user-developers earned at least $10,000 for their creations last year, while 300 of them earned north of $100,000. Year over year, sales grew by 82%.
So, it turns out that my grandfather was right after all: computer games are ruining the youth! Back in my day, if you wanted to play Mario Kart with your friends, they had to come over and hang out with you in person!
With that being said, the way that 2020 and 2020: The Sequel have gone, I can’t really blame kids for trying to build their own world!
“If you don’t like something, change it.”
Pre-teens are so Maya Angelou.
Have a great weekend!