March 20, 2024 | Read Online

This issue is brought to you by:

"For whatever reasons, markets now exhibit far more casino-like behavior than they did when I was young. The casino now resides in many homes and daily tempts the occupants."

- Warren Buffett

The Crypto Convergence of Finance and Entertainment

It used to be that in order to send someone a message, you'd go to the post office (or, if it was urgent, a telegraph office).

For an evening's entertainment at home, you'd go to the living room and gather around the radio.

To watch a movie, you'd have to go to a movie theater.

To find out what movies were playing, you'd make a phone call, probably from the phone on the wall in your kitchen.

If the theater was somewhere unfamiliar, you'd consult a folded-up map.

If you were meeting friends, you might bring a camera along to commemorate the occasion.

To see the photos, you'd take them to be developed at a Kodak kiosk in a parking lot somewhere.

As ancient history as all that sounds, our social lives haven't changed very much — we still do all these things.

The difference now is only that we do them in one place: All of these activities have converged on the phone in your pocket.

Blockchain technology might do the same to your financial life.

The tokenization of everything

Some of your financial life has already converged to a digital wallet on your phone, probably Venmo.

But if tokenization does what Larry Fink thinks it will do — "We believe the next step going forward will be the tokenization of all assets" — a lot more of it will eventually be happening on MetaMask or Phantom.

Instead of having your ETFs with Vanguard, your stocks with Fidelity, a checking account with Citi and a 401K with that place you can never remember the name of, all of your assets might someday be self-custodied in a digital wallet on your phone.

When you decide to sell Apple, you could sell it with whatever broker you want, not just Fidelity, because that's who happens to custody them for you — your custodian is now on your phone.

You could also use a fraction of an Apple share to pay for coffee, via a protocol that automatically swaps it for USDC or whatever other means of exchange the merchant happens to accept.

You might even pay for that coffee with a fraction of your house. Or an NFT. Or the Picasso on your wall.

Or a share of the claim you have on your niece's future earnings that you received in return for paying her MIT tuition (with 10 or 20 of the WIF tokens held on your phone, perhaps).

That's all a long way off, of course. No one actually wants any of that now.

But if tokenization catches on in alternative assets like private equity or pre-IPO shares — as it's beginning to — people might start expecting all of their assets to be tokenized.

If so, that would make everything tradable, all of it from your phone, at any time of day or night.

This is likely to be a mixed blessing.

The casino that's always with you

The tokenization of everything is still a ways off, but the convergence of entertainment, gambling and investing is already underway.

In his most recent investor letter, Warren Buffett warned that this way lies danger: "The casino now resides in many homes and daily tempts the occupants."

Seeing as Buffett is not a regular crypto user, I suspect he doesn't know just how right he is.

When you make a good trade on Drift (a decentralized perps exchange), for example, it offers a celebratory message for easy sharing on social media:

As silly as that seems, I can attest that seeing your P&L in big green letters is a dopamine rush equivalent to getting at least a few likes on a Twitter post.

It's also a nudge to do another trade and see if you can get an even bigger number to share on socials for an even bigger dopamine rush.

I wouldn't know, because I would never do something as gauche as advertising a trading win, but I am probably just showing my age with that — the generation that thinks nothing of publicly sharing their payments history on Venmo presumably won't think twice about sharing their trading wins, either.

Or maybe it's my prior life as a trader that makes me feel uncomfortable with it — on trading desks, it's an unspoken rule that you only talk about your bad trades. Crowing about your good ones is bad juju.

On Drift, bad trades do not get a shareable popup because who shares bad news on social media?

But less and less trading happens on trading desks these days and more and more of it happens on phones — in part because crypto protocols like Drift enable you to make those trades 24 hours a day, 7 days a week, 52 weeks a year.

With 3x leverage, of course, to make it 3x as entertaining.

Entertainment has converged onto our phones and now investing is converging with entertainment.

Crypto is the most entertaining form of "investing," of course — so I expect we'll be doing a lot more of it.

― Byron Gilliam

This issue is brought to you by:

Harpie protects your crypto from becoming a part of the billions ($) lost to theft every year — for free.

Get Harpie

We're Watching

Andy Constan Founder of Damped Spring joins the show for a discussion on what the Fed needs to do in their fight against inflation. As CPI prints continue to come in hot, financial conditions remain loose & markets melt-up, will the Fed be able to cut rates in 2024?

Watch or listen to On the Margin on YouTube, Spotify or Apple.

Thank you to our sponsor:

2A new age of content is here.

Access aligns creators and users with staking. Support your favorite creators and get rewarded in ACS while doing it!

Access offers 90+ subscriptions to choose from, including CoinGecko, The Block, Cryptoslate and a wide variety of independent researchers and artists.

With over $4.4 million locked in subscription pools to date and 200,000 unique subscribers on platform, Access is becoming the go to place to engage, support, and consume content.

Get started today

Daily Insights

Eric Balchunas @EricBalchunas

Pretty wild that not ONE of the newborn nine saw outflows yest after 5 straight down days and 11% drop. $IBIT & $FBTC keeping alive their Vgrd-esque 47-day inflow streak. On flip, $GBTC fell on black days (again), but remember those ppl leaving are pre-ETF invs, not new buyers.