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Just read this (Skyscrapers Too Pricey for Bankers Are Full of Crypto Startups) on Bloomberg and it’s another clear sign of where money has been going and I’ll comment more as I go through relevant bits of the article.

Crypto exchanges and investment funds are leasing space in several of the most prestigious buildings in Hong Kong, home to the highest rents anywhere. Companies from BitMEX to Diginex Ltd. have signed up for a combined 72,000 square feet (6,690 square meters) of grade A space in Central and Causeway Bay this year, according to Colliers International Inc.

The important thing here is that rent is a cost to any firm and space is space. The fact that crypto firms are renting space at prices that investment banks think is expensive is a red flag to me. It’s obvious that these funds have either so much money thrown at them that they can afford to splurge on prime office space or they are severely optimistic about the kind of money they are going to bring in.

Interestingly enough,

Colliers said all five leases were signed after Bitcoin peaked in December and then nosedived. These days, $1.3 million will get you approximately five floors in New York’s One World Trade Center.

It’s interesting that the commitment to space came right at the (most recent?) top for bitcoin prices. The jury’s still out whether bitcoin prices will return to those levels and even if they do, the question is when?

The article also points out that the traditional big spenders are moving away from such spaces.

Not even some of the city’s more traditional tenants like investment banks are prepared to stomach such stratospheric rents.

Goldman Sachs, meanwhile, is relocating its people in The Center in Central to Lee Gardens Three in Causeway Bay after the lease ends. That will save about 30 percent on rent, local media reported in April. The investment bank will however retain its headquarters in Central’s Cheung Kong Center.

It could be a hangover from the Global Financial Crisis (GFC) but it’s pretty obvious that the new money is in crypto and that new money didn’t experience first-hand the horrors of the GFC when credit was scarce.

Once again, I’m not saying that a crash in these asset classes is imminent or that a crash in those asset classes will cause a systemic collapse. What I’m saying is that this pursuit of prime real estate is a clear sign that:

  • New money has/is flowing to crypto.
  • Investors in crypto are pretty optimistic.
  • Credit is loose.
  • The system as a whole is more optimistic than pessimistic.
  • Cashflow constraints haven’t hit yet.
  • I wouldn’t want to be anywhere near crypto or moonshots right now.

Now, the main question is whether crypto firms are already regretting their decision to rent prime office space or whether they still have their rose-tinted glasses on?

Markets in this region have been tanking and the STI has fallen below the 200-day EMA to the point that it’s about to pull the 50-day EMA below the 200-day. While this isn’t a perfectly reliable indicator in itself, this could present a good buying opportunity if this trend continues for another 6-9 months.

Anyway, if you’ve had a tough week, here are some reads to make it better.


‘Stingy’ millionaire donates S$3.35 million from S$20 million fortune to charity after his death (TODAY)

I’ve written about people like Agnes Plumb and Ronald Read. Finally, there’s an example from our local shores. Mr. Low Kum Moh was a sub-accountant who was born into a family of fishmongers. The secret to his wealth? Frugality and investing in the stock market over a long time-frame. This is pretty much the same story as the other ones I’ve featured here. The point of it all is that great fortunes can be made by people that most would consider very normal. The trick is to find a strategy that works and keep plugging away at it.

Which brings us to the second read.


In Praise of Incrementalism (Rebroadcast) (Freakonomics)

Freakonomics was the book that convinced me that economics could be interesting and that probably saved my university life.

In this episode of their podcast, they make the point that lots of progress in this world are based on incremental progress. The problem with most of us is that we tend to view great events or inventions as if they happened miraculously.

In particular, I love this example that their guest, economist David Laibson points out:

LAIBSON: One has the impression that it’s impossible to save enough for retirement — and to a certain extent, it is impossible if you start at age 50. But if you start early in life, and every year, you contribute let’s say 10 percent of your income, and maybe there’s an employer match, so now we’re up to maybe 15 percent, and you invest that savings in a diversified mutual fund, stocks and bonds, and you have low fees, and you keep going at that year in and year out, and you don’t decumulate prematurely — it’s amazing how that process produces millions of dollars of retirement savings. So it’s kind of hard to imagine how you go from what seems like a little bit of money each year to being a millionaire but that’s exactly the way it works when you work out the math.

Instead, most people often aim for that lottery ticket like buying bitcoin. Most people who do this put very little at the beginning (like a lottery ticket) and when it starts to pay out in a substantial way, they then proceed to bet the farm thinking that what has happened will go on indefinitely.

Unfortunately, this is almost always precisely the time when things start to go bad. Think of someone who bought bitcoin at $500 or $1,000. After seeing the price of bitcoin go to $10,000, they feel like a genius and proceed to place even bigger bets. Well, the bet may have paid off temporarily but look at how it’s turned out.

Which brings us to…


Bitcoin Bloodbath Nears Dot-Com Levels as Many Tokens Go to Zero (Bloomberg)

I’ve been writing about the problems with Cryptos since late last year (see here, here and here). To be honest, I’m not as pessimistic about crypto now as I was last year. Of course, there’s nothing fundamental to base my thoughts on but buyers are surely not as euphoric about cryptos as they were late last year.

I suppose the article compares the crash in cryptos to the crash in the tech sector during the dot-com era as prices in both situations have nothing fundamental to support them but I would argue that bitcoin is in a worse situation because, in case of the dot-com stocks, you could at least see if things were getting better based on a turn-around in cashflows and profits.

For bitcoin and cryptos, you have to track whatever these cryptos are meant to replace and see if those things are getting replaced at all.

Anyway, here’s the million-dollar picture from the article above.



Have a great week ahead!

So, the price of bitcoin and other cryptocurrencies have taken hit once again.

I’m not surprised at how things have turned out. I can say that I’m kind of glad that the vindication in my view that it’s a mania has come so quick but who knows, bitcoin and other coins could easily bounce back up 50% from here.

Some signs that cryptos as asset (*cough cough) have been been much too popular of late:

  • A colleague and I are supposed to give a presentation for the economic and financial aspects of cryptos tomorrow.**
  • I recently heard (from two different sources, no less!) that Singaporean civil servants have been punting on cryptos.*** It’s literally a punt because these people are just putting in a few hundred to a few thousand dollars, at best and monitoring the prices a few times a day.
  • Bitcoin and strip club? Anyone remember the days before the GFC when bankers were throwing parties in Las Vegas?
  • Lastly, anyone remember this guy? I was just telling my colleagues how people like Roubini and John Paulson have fallen off the radar since the GFC. It’s quite telling that the bears have been mostly forgotten which shows how positive it’s been for investor sentiments.****

I’m not saying that financial markets are any safer but let’s not deny how overhyped cryptos were in 3Q and 4Q of last year. If cryptos were in a bubble and that bubble has now burst, then I suspect the prices of cryptos should have a lot more room to fall.


*Any sound financial advisor wouldn’t advise his/her client to take this on in a portfolio in a huge way.

**When Singaporean pseudo-academia is interested in something, it should set alarm bells ringing.

***These aren’t public servants who have any expertise in the matter by the way. They probably have no idea what’s the difference between each coin and at the moment, it’s not like the differences matter much anyway. If more than a handful of public servants are into something, it’s probably the end of the party.

****Even the latest drop in the financial markets (minor relatively to history) are being framed as a good thing. That’s how positive things are right now.

I chanced upon this clip the other day while listening to Ben Carlson’s and Michael Batnick’s excellent podcast. If you haven’t been in the markets for more than 10-15 years, you should watch it. If you have, you should watch it anyway.

The clip is about 30mins long and is a good look at what the psychology in the markets are like during a boom. These were times when most new investors (in their 20s) were barely born or those who have limted investing experience (like myself) were still in the early days of our schooling life.

Amazingly, there were quite a few people interviewed who called it fervour and so many of the new participants in the stock market were people who had never touched the markets before (there was a cop, owners of a carpet business) and these people were doing incredibly stupid things (day-trading, buying stocks without even knowing the name of the company or what it does, buying on rumours etc.). Problem is, they made money doing these stupid things. And as anybody will tell you. If you get rewarded doing stupid things, you keep doing more of it.

The problem, as pointed out in the episode (#9, in case you’re curious) is that all the people who called it were basically early. I don’t know the exact date that the show was broadcast or when the people were interviewed for the show but let’s assume that the show was broadcast in mid-1997, that would still have made all the experts in the show who were calling it a bubble early by about 2.5 years.

The amazing thing, as I watched the clip, is how many parallels I could see with 1997 and markets in 2007 and markets today. While the S&P 500 and Dow has been climbing new heights many times over this year, I don’t think there’s a bubble in equities. Stocks aren’t cheap but how many people who have never touched the stock market in their life are coming to the party? Not many. Many people are still scarred by the Global Financial Crisis of ’08/09.

So where is the bubble? The obvious answer for me is in the startup scene and the cryptocurrencies.

The startup scene

Startups or Venture Capital is a brutal game where the odds of finding a success story is probably 1 in 20 or worse. Yet, SoftBank’s Masayoshi Son managed to raise a $100b Venture Capital fund.

Even the ones that ‘succeed’ are still burning through investors’ monies at an incredible rate. Take Uber for example. As recent as Aug 2017, Uber was estimated to be burning through cash at a rate of $2b a year. If Uber’s business model is anything like Grab’s, I’m not sure how they are going to ever make money. Grab’s model is basically predicated on subsidising both the consumer and drivers in order to grab (pun intended) market share.

So, if all these ride-sharing/hailing companies aren’t making money right now? What happens when investors get sick of throwing good money after bad? For one, those companies have to start monetising their customers. Maybe they raise money through selling ads on their cars? Or they raise prices of the rides and reduce the incentives given to drivers? The question is how much profit will they have even after doing all that? Will that be enough to give a significant rate of return to investors?


I cannot even tell you how ridiculous this one is. The bubble in crypto is painfully obvious for anyone who has studied markets.

  • Buyers who don’t even know what they’re buying? Check.
  • Unregulated asset class? Check.
  • Totally unrelated businesses trying to ride the crypto wave? Check.
  • Institutional investors coming late to the party? Check.

It’s painful to see how some people who are only about 20 years old think that they are going to become multi-millionaires in just a few weeks when they’ve never had more than a few thousand dollars just a few months ago. I guess this is what older investors mean when they say that there are no old and brave men on Wall Street. The markets are where brave men die young and cautious people live longer.

What to do about all this?

The best thing to do about all this is to stick with the strategy that you already have. As an investor, it’s not easy to find bargains in the market as it was a year ago when things were murkier and when almost everyone thought that things were going to get worse.

I don’t know if the bubbles pointed out above will pop soon or they will go on for some more. All I know is that I’m staying away from those places.

I was going to do a piece of bitcoin as an asset class but this morphed into a very long piece so I’m splitting this up into two parts. This part covers how to value bitcoin and a guess on what the future holds for bitcoin speculators. Catch up on part 1 here.

Putting a value on bitcoin

If bitcoin is unlikely to be the next form of a widely accepted currency, then why has the price gone up so much? Well, the short answer to that is that the price has gone up because the demand for it has done up relative to the supply.

In economics, the theory goes that there are three reasons why people demand any sort of money:

  1. Transactional purposes
  2. Precautionary purposes
  3. Speculative purposes

The above is for money in general but it’s useful to think along those lines for the demand of any particular form of money. And since almost all societies already have an accepted form of payment (the local currency or a foreign one), the demand for bitcoin is mostly confined to the last purpose- the opportunity cost of holding money is low, therefore, let’s hold in the form of a moonshot such as cryptocurrencies.

The next question, then, is whether buyers of bitcoins are buying it cheap, fair or at ridiculous prices? The only way to answer this question is to figure out what is the intrinsic value of a bitcoin and what is the price today relative to the value.

With asset classes as such bonds, equities or real estate, the typical way to value these assets is to ask ourselves: what are the payoffs (coupons, dividends, rental) over the remaining life of the asset, the associated probabilities of those payoffs and arrive at a value of the asset as it is today. Comparing that with the price one would pay for the asset, we can then determine if the asset is priced fairly or not.

In contrast, valuing an asset class such as commodities or foreign exchange is inherently more tricky. After all, before bitcoin, there was another commodity that was a darling for some “investors”. Unfortunately, this is what Warren Buffett has to say about it:

“I will say this about gold. If you took all the gold in the world, it would roughly make a cube 67 feet on a side…Now for that same cube of gold, it would be worth at today’s market prices about $7 trillion – that’s probably about a third of the value of all the stocks in the United States…For $7 trillion…you could have all the farmland in the United States, you could have about seven Exxon Mobils (NYSE:XOM) and you could have a trillion dollars of walking-around money…And if you offered me the choice of looking at some 67 foot cube of gold and looking at it all day, and you know me touching it and fondling it occasionally…Call me crazy, but I’ll take the farmland and the Exxon Mobils.” – Warren Buffett on CNBC, March 2, 2011 (source)

If you think about the amount of utility by investing in an asset that doesn’t provide any income, then you better be darn right about the capital gains. Unfortunately, none of us are time travellers (if you are, please get in touch!) or have a crystal ball so betting the farm on an outcome that is speculative in nature is a fool’s errand.

Don’t misunderstand, I think gold has some utility. It has served as a hedge against inflation, is used in jewellery and as insurance in the event you need to escape your country but the price of gold beyond the costs associated with those options is pure speculation. bitcoin, I believe, has even less utility apart from being a conversation at a cocktail.

Prof. Aswath Damodaran has a fantastic post on bitcoin and cryptocurrencies and how to think about the definitions of various asset classes (read the full thing here) but I present his brilliant summary of my point:

 You cannot value Bitcoin, you can only price it: This follows from the acceptance that Bitcoin is a currency, not an asset or a commodity. Any one who claims to value Bitcoin either has a very different definition of value than I do or is just making up stuff as he or she goes along.

In short, what a bitcoin is worth is only as much as the next person willing to pay for it.

Will it end well?

This is where things get interesting. What I’ve covered so far shows that bitcoin has value only insofar as people’s willingness to pay for it and the willingness to pay for it, right now, seems to be pretty much only because people think that it’ll continue to go up further. Why would it go up further? Simply because it may gain widespread acceptance and be the currency (amongst many others, crypto or otherwise) of choice.

The last line hints at a plausibility of reality or what Howard Marks calls a “grain of truth”. Unfortunately, Marks was referring to how bubbles form and in his checklist, he listed nine bullet points that lead to a boom/bubble:

  1. A benign environment
  2. A grain of truth
  3. Early success
  4. More money than ideas
  5. Willing suspension of belief
  6. Rejection of valuation norms
  7. The pursuit of the new
  8. The virtuous cycle
  9. Fear of missing out

Of course, Marks was referring to the investment climate in general but when applied to just Cryptocurrencies, I think 2, 6 and 7 have either already been covered or are pretty obvious. What some people don’t realise is that 1, 3, 4, 8 and 9 have played out in some fashion.

The general investment environment has been pretty positive since Trump’s election with equity markets all up substantially since the beginning of the year (point 1). The price of bitcoin going up 700% in one year has already given plenty of laypeople some success (think bitcoin jesus and Ms bitcoin Mai) and that the feeling that the only way for bitcoin is up (point 3 and 8). After all, when civil servants (that’s referring to me, by the way) in the education sector start about bitcoin, beware.

As for point 4, the whole concept of Initial Coin Offerings (ICOs) just underscores how there is too much money floating around that people are willing to part with money* for nothing more than a digital representation to an idea. The worst part about the idea is that the startup is practically joining a space that is already crowded with a thousand other similar ideas. And that’s just in the cryptocurrency space. Softbank has a 100 billion dollar venture capital fund which just shows how much money there is floating around to fund ideas that are probably more moonshots than sure things.

As for point 9, there are now traditional Wall Street firms getting in on the boom (admittedly, they are just dipping their toes there) and there are cryptocurrency hedge funds and even fund-of-funds. If you don’t know what those mean, no worries. Basically, it just means that more money is being channelled towards cryptocurrencies.

Closer to home, just a few months ago, a student of mine was looking into buying bitcoin and while my school may not be looking to buy the currency, the fact that suddenly interest in the subject has increased drastically shows that no one wants to miss out on knowing what this exciting, new thing is all about. News about Google searches for buying bitcoin getting more popular than buying gold just strengthens the point that there are many people who are trying to get on board a ship that (perhaps?) has sailed.

Well, that’s just Howard Marks’ checklist. I saw a chart (it’s a little dated) that compared the rise in the price of bitcoin to other bubbles that have come before it.



The thesis here is that most bubbles increase a 1000% over 10 years before popping.

Well, from the chart, bitcoin rose a 1000% in just three years. And with the benefit of hindsight, we now know that the bubble hasn’t burst but has expanded further to 3700% since 1 Jan 2015.

So, that’s it from me. I think I’ve pretty much convinced myself that while the technology underlying bitcoin has its use, I’m not so optimistic on the token itself given the competition from existing currencies as well as new cryptocurrencies. And it’s ironic that the price of bitcoin is still quoted in USD so that says a lot about what our anchor still is.

Furthermore, the psychology behind bitcoin has pretty much fueled a buying frenzy (as evidenced by the exponential increase in price) and has checked off a lot of boxes that have plagued other manias before it. I’m not sure if the bitcoin/crypto boom is over but I’m pretty sure it’s not going to end well.



snarky notes:

*remember, money can be used to consume goods today or invested for surer returns.