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👀 Fund up 39,000% eyes new token

👀 Fund up 39,000% eyes new token

PLUS: How to lose $500K in seconds

Alex M.
September 14, 2023

GM everyone. This is 2036, the crypto newsletter that pays you.

Here’s what we’re serving up today 🍲: Dan Morehead is like the godfather of crypto. His bitcoin fund is up ∼39,000% over the last decade. Now, he has sights on a new type of token.

Let’s dig in.

🥔 Today’s meat and potatoes

Get smarter on crypto in 2 minutes

In 2013, Dan Morehead sent this email to his business associates:

Luckily for all of them, they agreed to buy a sh*t ton of bitcoin at $65.

Since then, Dan has been writing regular letters to his investors. His latest one came out this week.

You can read the whole thing here, but we summarized it for you with everything you need to know:

1/ We now see the light at the end of the bitcoin-ETF tunnel.

It’s hard to overstate how important the bitcoin ETF is.

Grayscale’s win against the SEC showed us that when boundaries are overstepped, the US court system has a path to rectification.

This means crypto could still get encouraging regulatory clarity in America.

2/ Crypto tokens are analogous to the early days of stocks.

In the future, many companies will never be listed on the New York Stock Exchange. Instead, they’ll have a token.

Today, there are only 300 tokens with a market cap of over $100 million.

This universe will grow exponentially as crypto becomes more mainstream.

3/ Investment outperformance (“alpha”) will be found in tokens with solid fundamentals.

Crypto tokens today are like Chinese stocks in the early 2000s: lots of terrible ones with horrible governance but a few long-term winners 🇨🇳.

The problem (and opportunity) is that most people can’t tell the difference.

Fundamental value investing - popularized by Warren Buffett in the 1960s - will likely become the standard for crypto investing, the way it is for stocks today.

That means looking at tokens that:

generate revenue
have solid token economics and
strong product-market fit

i.e. the complete opposite of degen-YOLO-narrative-driven crypto investing today.

But by applying fundamental analysis, you can front-run the institutions that will come and invest through that lens, too.

Take Arbitrum, for example.

It’s 40X cheaper and 20X faster to transact on Arbitrum than on Ethereum. Yet you can deploy the same apps and have the same security as on Ethereum (we explain how here).

Arbitrum has contributed 100% of the incremental growth in the Ethereum ecosystem this year.

And it generates revenue: if a user spends 20 cents on a transaction, Arbitrum makes roughly 10 cents of profit.

Here are some of their stats over time:

Arbitrum generates ∼$100 million of revenue per year and ∼$50 million of profit.

It’s currently valued at roughly $5 billion - 50X forward earnings.

That’s not expensive for a business growing at triple digits. Many software stocks (Shopify, ServiceNow, CrowdStrike, etc) trade at 50X earnings and are growing much slower.

[Note: Arthur Hayes, the King of crypto trading, also invests using fundamental analysis. We wrote about his portfolio here. Both Dan’s fund and Arthur Hayes also own Uniswap]

4/ Crypto is in its dial-up-to-broadband moment.

Crypto is at a point much like the Internet was 20 years ago: slow and clunky.

But transactions are getting faster and cheaper all the time.

Similar to how we couldn’t envision what the Internet would become 20 years ago, we have not seen anywhere close to the full use case of blockchain yet.

Expect it to be very different to what we have today.

Early Internet pioneers thought that if we ignored scarcity, we could create abundance.

But it has always been harnessing scarcity that creates abundance.

And for the first time in the digital realm, we have it.