#136 - Canadian Inflation, Red Bulls Marketing Strategy and The History of Bubbles
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In this week's episode of Reformed Millennials, Broc and Joel discuss how markets are reacting to world events, Red Bulls incredible rise as the best marketing and Sports Business operator, and the history of bubbles.
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The Japanese yen just hit a six-year low against the U.S. dollar.
It's down 5% so far in 2022, weakening even more in recent days as, "the Fed climbs an uphill battle to fight inflation".
But the way I see it is like this: Is the yen getting destroyed normally evidence of risk appetite or risk aversion?
It feels like risk appetite to me.
Historically, the weaker yen comes along with a bid for risk assets.
So until the market proves otherwise, I would consider these to be encouraging developments.
💸Reformed Millennials - Post of The Week
“Unless you buy a stock at the exact bottom (which is next to impossible), you will be down at some point after you make every investment. Your success entirely depends on how dispassionate you are towards short term stock price fluctuations.” -Joel Greenblatt
Not all current losses mean the same thing. It depends on what each investor wanted to do with that position, their time frame, risk management and Portfolio process.
If someone no longer holds conviction in the position (that is showing a big loss) and is only holding with the hope of making it back to even. You better cut your loses and run.
BUT if someone understands the business, bought for a very LT hold (also adding over the months and years as the Company executes), most of the current drop is Macro related while the company is performing well - some people refer to this as bag holding. I would just call it a normal part of being a LT shareholder.
If we expect to hold positions 5-10 yrs (as long as thesis holds), we would be delusional in thinking that none of the tranches bought along the way would never show a big loss (either due to major Macro events, valuation cool-offs or occasional Business stumbles).
Volatility and occasional big drawdowns are par for the course for any Business focused long-term investor.
10% once per year or so
20% every 5 years
30% every decade
50% a few times per century
As long as you...
Have a long investment time horizon
Are diversified across asset classes
Have good cash flow
You can keep calm and think long-term.
“acquire rather than sponsor”
It was a HUGE first weekend In F1. Like many, I was introduced to the sport through the Netflix Drive to Survive Series.
For me, the most interesting and important lesson from F1 is the one being taught by the Red Bull Team.
Given the explosion of consumer interest in F1, Red Bull acquiring its racing team in 2004 for $1 & a promise to invest $400M over 3yrs might be one of the best ROI marketing activations ever: impressions impact + additional revenue (other brands' sponsorships) + team value accretion.
“acquire rather than sponsor” mentality is so fascinating for a consumer packaged goods company— and at this point, they are pros at both marketing a beverage AND running sports teams given their extensive team portfolio.
Dan McMurtries of Tyro Capital - 3 Rules
Americans be fat (anything saying it will make everyone skinny, sell)
Moms be shopping (buy) any time the core consumer is the middle-upper class mom you should buy
No the company is not going to cure alzheimer's - AVOID
Economics of the Halvening
So what is the upshot of these changes on Supply and Demand of ETH?
On the supply side, these changes are expected to further slowdown the inflation of Ethereum and potentially actually make it deflationary sustainably.
There will be two counteracting forces on supply:
The issuance of new tokens given as rewards to stakers, expected to be in the 0.5-1% range of outstanding Eth per year but will vary depending on the number of Ethereum staked.
The burning of base fees which can change dramatically depending on transactions, but assuming current levels of ~4-5K/ETH burned may reduce supply by 1.5%. However, a reduction in fees with sharding would mean that many more transactions would be needed to maintain the same level of burn.
Overall, the supply of Eth is likely to move in the + or - 0.5% range per year, although it could deflate much more if transaction volume picks up. Overall, one would expect initially it to continue to inflate, and then perhaps start to deflate as volumes pick up with reduced fees.
On the demand side, with transaction fees are expected to go down significantly, both with the increasing prevalence of L2s (unrelated to the shift) and sharding (enabled by the shift to PoS), there is expected to be an increase in the number of transactions happening and users coming into the ecosystem.
One important point to note is that now the ETH rewards go to long-term holders of Ethereum who have locked up their ETH. Earlier, there was an immediate downward pressure on demand with miners wanting to sell their rewards. This shift should reduce the downward selling pressure on ETH since the long-term holders may not want to sell their rewards immediately.
Additionally, since the staked ETH gets locked up, this reduces the amount of ETH that is available to be used.
Already today, about 40M ETH is locked up across the DeFi ecosystem as below.
Similarly, already 10M ETH has been staked on the ETH 2.0 smart contract. Once the migration is complete, that number will likely go up, depending on the yields available at the time. In some sense, the DeFi yields available will start to compete with the ETH staking yields available since ETH holders can choose where to deploy their ETH asset.
If the ETH staked goes to 30-40M ETH, and with 40M ETH locked in Defi, that implies that 70-80M out of ~115-120M ETH may be locked up, meaning only ~40M ETH of Supply will be truly available.
Given other use cases of ETH and the need for ETH to continue to participate in things like NFT, that will mean that everyone that needs ETH to participate in this ecosystem will be “competing” over the remaining 40-50M ETH.
As long as demand for ETH continues and people continue to need ETH for DeFi, NFT and other things, that should exert upward pressure on prices. Overall, with lower transaction prices, that is likely to help ETH maintain and grow its use in new experiences and ecosystems over competing L1s.
However, it is worth noting that one obvious risk is the growth of L2 chains which might reduce the need for ETH in that Ethereum functions as the chain of chains that transactions are recorded to.
The move from PoW to PoS should further improve Ethereum’s tokenomics by reducing supply growth and aligning the rewards and incentives to long-term holders of Ethereum who have staked/locked up their Ethereum.
It also allows holders to more directly consider ETH as a yield generating asset (via staking) which may attract even more institutional interest given the 8-10% ETH denominated yields available, which is a return comparable to stock market (ignoring movement in ETH price relative to USD which could swing it to be more or less favorable).
Additionally, lower fees should lead to more use cases and more people and transactions occurring (although Layer 2 chains could pose a risk to this since although more transactions happen, they might occur on L2 chains and be aggregated onto the Ethereum mainnet).
When you combine this with the fact that supply growth slows down and many ETH tokens will be locked up in DeFi or Staked, that means we may have more and more Demand for ETH competing for fewer and fewer available ETH.
🌊 Canadian Companies To Peruse 🌊
HONESTDOOR - Raises 2.2mm seed round!
🔮Best Links of The Week🔮
DCF model for Ethereum by Coinstack (which I don’t fully agree with since it converts ETH denominated rewards into $ at current prices to calculate the $ value of ETH but is interesting) and The Investment Case for Ethereum
Distant NASA Spacecraft Snaps Stunning Images of Jupiter and Its Moons