The Saturday - 4/17/21 Edition
Volume 2, Issue 14
Good morning!
Last month, we discussed Wall Street firms’ expansion into Florida and wrote the following:
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.
Two weeks ago, CNBC reported that Goldman Sachs planned on “offering its first investment vehicles for bitcoin and other digital assets to clients of its private wealth management group.”
Well, on Tuesday, E11EVEN - the world’s highest grossing nightclub per square foot - announced that guests “can begin reserving tables using Bitcoin, Ether, Dogecoin, Ripple, and a host of other cryptocurrencies.”
How about that??
The gap between investment banks and nightclubs continues to narrow. Nailed it!
It’s Saturday April 17, 2021.
Baller
On Wednesday, cryptocurrency exchange Coinbase went public in what was possibly the year’s most highly anticipated offering.
This was a seminal moment for the industry; by the end of its first trading day, Coinbase had secured an $85B market cap, a sign of traditional markets’ acceptance of both the company’s and the industry’s legitimacy.
While Coinbase’s early investors include the usual who’s who of VC firms, it also features a household name best known for non-VC activities: NBA superstar Kevin Durant.
A two-time NBA champion and the 2014 league MVP, Durant has earned $264M in NBA salary to date - good for third most among active players - and has also signed a $300M shoe deal with Nike.
In addition to his hoops career, in 2017, Durant also started his own venture capital firm. Among its first investments?
A $1M investment in Postmates that returned $15M three years later when the company was acquired by Uber, and…
An investment (size unknown) in Coinbase that has now 53x’d in four years!
Not too shabby.
Ant Financial
Last November, Ant Financial was poised to smash the record for the largest IPO of all-time, until the listing was suddenly taken off calendar. We covered this story at length already, but as a brief recap:
In October, Jack Ma (then China’s richest man) criticized the country’s financial system, which upset Supreme Leader Xi Jinping, who pulled the plug on the $34B IPO. Then, of course, Ma mysteriously vanished.
Although the Ant Financial and Alibaba billionaire founder is purportedly still alive - he made a single Zoom-like public appearance in January - the Chinese government isn’t quite done dishing out its punishment.
On Thursday of last week, the government halted all new enrollments at Hupan University, the executive management school founded by Ma that has attracted lecturers such as Uber’s Travis Kalanick and students such as Didi founder Jean Liu.
The following day, Chinese regulators handed Alibaba a record $2.8B fine for anti-competitive behavior, a penalty that the company “humbly accepted.”
Then, this Monday, Ant Financial suffered a devastating blow when the government ordered it to decouple its payments and lending businesses, and to materially scale back its consumer credit-lending business.
As part of the state ordered “rectification” process, Ant will no longer be allowed to run preferential promotions of its credit products through its payments platform and it will need to get a state-issued license to offer credit products through third-party platforms. To date, only two such licenses have been issued - both to state-owned banks, who are believed to have lobbied Beijing to crackdown on Ant and other fintech companies.
The limited ability to cross-sell credit products and potential inability to sell those products through other platforms threatens to knock Ant down from being a full-service financial services company to “only” being a mobile payment platform.
While the mobile business unit remains wildly popular, it accounts for only 36% of the company’s revenues and it is unclear how much of the remaining 64% of revenues Ant will be able to preserve. Quoting analysts covering the private company, Financial Times reports that:
Most predict that Ant Group’s valuation will only reach one-third of its highest level after Ant transforms into a financial holding company.
Jack Ma may well have been right in his criticism of China’s financial system, but being “right” here is a Pyrrhic victory at best: at the time of its IPO, Ant was valued at $315B. A $210B markdown is a heavy price to pay.
Woof
The Saturday spends a lot of time talking about equities, cryptocurrencies, etc., but memes are our favorite asset class. Some investments pay off in cash, while others pay off in laughs. What’s not to love?
The problem, however, is that it’s not all that easy to trade in jokes.
Obviously, there’s GameStop, but the company has true believers, which means that it’s not a pure joke play.
The $BUZZ ETF is another interesting option, but it invests in too many real businesses and, to make matters worse, it only rebalances monthly; by meme standards, it might as well rebalance once a decade. So we need to look elsewhere.
Of course, we look to crypto.
In 2013, a meme based on the picture of a Shiba Inu went viral and two guys decided to base a satirical cryptocurrency off of the picture. To highlight the absurdity of what they were doing, the currency’s creators made the coin - DOGE - obscenely inflationary: 10,000 new DOGE coins are minted every second. That’s 5.2 BILLION new coins per year! It almost makes you wonder why they didn’t name the thing after Robert Mugabe.
Anyways…
Ever the fan of a good joke, Elon Musk eventually decided to go long DOGE and those who have tracked Tesla over the last year can guess the outcome…
In the last year, DOGE 189x’d going from $0.002002 to $0.379520.
More significantly, in the last 5 days alone, DOGE moved up 430%, giving the cryptocurrency a $39B market cap and… crashing Robinhood’s platform. Classic.
This is obviously ridiculous. Elon himself concedes that Doge was “made as a joke to make fun of cryptocurrencies” and the entirety of his bullish case is that “fate loves irony.”
So what prompted the spike? We don’t claim to have the answer, but WallStreetBets lifted its long-standing ban on cryptocurrency discussions this week, so…
Draw your own conclusions!
This Isn’t News
Speaking of funny money…
The coronavirus pandemic has so dramatically chilled demand for glass ketchup bottles - a now-unsanitary medium that is a bit too hands on for the post-pandemic world - that there has been a literal run on… ketchup packets.
According to the WSJ, Heinz and other producers are desperately trying to reorganize production facilities to supply re-opening restaurants with individual ketchup packets, but they are unable to keep up with the demand.
In the wake of this historic shortage, hoarders are cashing in: on eBay, sellers are currently offering packets for $5 a piece, while on Facebook Marketplace, bulk sellers are listing 20 packet lots for only $50!
Forget what we said about memes. Ketchup as a store of value is our favorite investment narrative.
High IQ content today. We’ll try again next week.
Have a great weekend!