The Breakdown - HODL FOMO vs. Speculative FOMO: Why This Bull Market Will Be Different

Episode Date: November 18, 2020

Today on the Brief: Tesla to join S&P 500 Airbnb files for IPO  The Mooch wants crypto  Our main discussion: HODL FOMO vs. Speculative FOMO. The 2017-2018 bull run was driven by ICO mania and a relentless get-richism that was nothing if not short-term. As bitcoin passes $17,000 and questions of looming all-time highs start to make their way into mainstream press, it is a very new set of actors and a new set of thinking that is driving this movement.

The real juice on this was the COVID-19 response from central banks, especially in that it coincided with the having. The narrative of a fixed supply in the context of an unlimited supply world finally clicked, and in so doing, it has driven an entirely new wave of evangelists. Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the Big Picture Power Shifts remaking. our world. The breakdown is sponsored by crypto.com and nexo.io and produced and distributed by CoinDest. What's going on, guys? It is Tuesday, November 17th, and my goodness, happy 17,000. Today we are going to be talking about why this bull run will be different, and specifically we're going to be exploring

the idea of hoddle fomo versus speculative fomo. First up, however, let's do the brief. First up on the brief today, Tesla is finally joining the S&P 500. Last month, I was joined on this show by Kathy Wood, who is currently managing three of this year's 10 most successful ETFs with her ARC innovation funds. One of the things she's most known for is her early and persistent bet on Tesla. She stuck with this stock through so many news cycles, and one of the things she mentioned was just how crazy it was that Tesla wasn't in one of the major indices, given how important a stock it had become. Well, that is finally changing. Starting on December 21st, Tesla will be in the S&P 500

index. Now, inclusion in that index requires four consecutive quarters of profit, and Tesla has had five for the first time in its history. As you might imagine, the market obviously likes this. Tesla shares soared 13% on the news, and you've got to say it's pretty rough for the bears who will finally have to own some via index exposure, even as they're potentially shorting the underlying. For those of us in the crypto community, Tesla is useful as the most contentious thing that isn't Bitcoin, so it's good to see a new front open up in that holy war. Next up on the brief today, Airbnb Files for IPO. Airbnb has long been one of the most coveted Silicon Valley jewels yet to go public,

but it has also been subject to much speculation about whether it would choose a SPAC, a special purpose acquisition company, to go public instead of going through the IPO process. That speculation increased this year given the terrible context for a travel company during a pandemic. However, on Monday, Airbnb filed its IPO prospectus with the SEC, see, and interestingly, I think it's a display of business adaptation in the context of the pandemic. International travel has obviously been totally destroyed, but Airbnb says there are a few areas that have shown resilience, including domestic travel, short distance travel, travel outside their biggest cities, and long-term stays. Basically, it sounds to me like

its traditional business line absolutely cratered, but it was able to, based on the nature of its inventory open up a new business line around people who are trying to set up new work-from-home lives outside of cities. In this, Airbnb has actually done much better than the hotel industry because of the ability to retrofit its inventory for a different type of habit. So why is this interesting? Well, when it comes to figuring out what happens next and what the real meaning of this year has been, the thing that I'm most focused on is longer-term behavior shifts, where short-term demand destruction becomes a longer-term change in how people live. Things like the travel industry and how people choose to work and where they choose to live

are some of the areas where I think that impact is likely to be most profound. So seeing that Airbnb, although certainly not doing as well as it was before the pandemic, has been able to weather the storm by virtue of the fact of people's behavior shifts still being able to work with the inventory they have, is pretty fascinating to me. Finally on the brief today, the mooch wants Bitcoin. Well, maybe. So Anthony Scaramucci is perhaps best known for being the White House Director of Communication for 10 days under Trump. He was fired after giving an interview he thought was off the record where he basically just ripped on other members of the Trump administration.

Turns out, however, historically, his main thing has actually been finance, and his hedge fund Skybridge managed $9.2 billion. In a series of filings with the SEC, Skybridge has signaled that two of its funds, quote, may seek exposure to digital assets. And interestingly, this isn't necessarily just a Bitcoin thing. Quote, investment funds may invest in digital assets without restriction as to market capitalization or technological features or attributes, including lesser known or novel digital assets known as altcoins, and may invest in initial coin offerings, which have historically been subject to fraud. Hold aside the language which looks lifted straight up from the

beginning of 2018, and really what they're saying is we can do anything we want in this space. This potentially opens a new front in the institutional narrative we've been exploring, which is a little bit more what I might call shark money. But either way, I do think it's part of a larger trend. And in fact, that trend is what we're talking about today. So with that, let's shift to our main discussion, hoddle fomo versus speculative fomo. The idea of this discussion is that bull markets have underlying narratives which shape motivations. And of course, those motivations dictate the type of action investors take in the context of those markets. We just hit 17,000 this morning. I'm recording at 7.14 a.m. and Twitter is exploding even though it's so early. And it's impossible right now

not to explore connections back to 2017. In fact, I'm not sure, but it seems to me that we might finally start to get those set of articles as we get closer and closer to the all-time highs. I already saw something about 17,000 go over the Bloomberg wire, for example. So as we are, a stones throw away from Bitcoin all-time highs, there's also another connection, which is that this time of year is the same time of year that the mania of 2017 really kicked into overdrive. It was the Thanksgiving holiday and people talking to their friends and family that really sent that whole thing going nuts. However, Having lived through both then and now, it is so clear that this time is fundamentally different. Brady Swenson from Swan wrote an awesome thread about it that inspired this show.

And we're going to read that thread, but really that thread is about fundamentally what's new and unique this time around. And so before we get to that, I need to give some context on what that time was. This episode is brought to you by crypto.com. Super app that lets you buy, earn, and spend crypto all in one place and earn up to 8.5% per year on your Bitcoin. Download the Crypto.com app now to see the interest rates you could be earning on BTC and more than 20 other coins. Once in the app, you can apply for the Crypto.com metal card, which pays you up to 8% cashback instantly on all purchases. Reserve yours in the Crypto.com app today. Many investors want to be a part of the next bull run.

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Get started at nexo.io. To me, the last bull market was summed up perfectly in one New York Times headline from January 2017. Everyone is getting hilariously rich and you're not. What's important to remember about that time is that although Bitcoin was obviously the big, huge asset in the space, in many ways it wasn't what was driving the mania. What was driving the mania was the initial coin offerings, the ICOs. There are a lot of reasons that ICOs hit such a nerve with people. One that I don't think we necessarily discuss enough has to do with the idea that people

had spent the last 10, 15 years watching these tech startups make billionaires out of seemingly regular people who were invested in them, but they couldn't access them because of accredited investor laws, and it felt like they finally got an opportunity to be on the cutting edge of the future. Mostly, however, it was that there was a shit coin waterfall famously named that had been set up to make investors extremely wealthy. Basically, you had a situation where the earliest funds got 90, sometimes 100% discounts on the ICO price of the token. Those funds were used as social proof to recruit another set of pre-ICO investors who got a smaller discount, call it 20 to 50%. They're still, again, 20 to 50% off what the ICO price was. Those funds then come in and you have even

more social proof and then it's turned over to retail who gets theoretically to get in on the ICO. The ICO has a price, all of a sudden those funds who have come in both early and the earliest get whole, if not way higher than whole, and just absolutely can dump on retail from there. And this happened over and over and over again. The point is that this was not a group of investors who had anything resembling long-term conviction. This was a Rube Goldberg machine of money that for a very short amount of time, and it even felt like everyone knew that it was going to be a very short amount of time was incredibly lucrative. Since then, many things have changed. First of all, the ICO movement was swept entirely away, and as much as some would like to compare,

Defy isn't even close. First, this stuff actually exists, even if you don't care about it, even if you think it's money games. Defy stuff does still exist, which is one thing that's very different from pretty much all of the ICOs that happened in 2017 and 2018. Much more important, though, is that there's none of that retail mania. And perhaps there would be if it was less complex, but it isn't. It's simply too complex. The barriers to entry are simply too high for people who aren't really technologically enfranchised to really get hurt in this space. And to me, where ICOs really got pernicious was the retail focus. It was the fact that the people getting dumped on were the people at the end of that shi-coin waterfall. And moreover, that

promoters often got very vulnerable people to be at the end of that shi-coin water. Put differently, there are no Korean pensioners in the D5 movement, and that's made it fundamentally different. It's a lot more that's changed since then, however, than just DFI not being as pernicious as the ICO movement, which is not hard, frankly. Digital assets have, moreover, separated from one another. Stable coins have their own narrative, I believe, that thanks to Libra is something much closer tied to the wider world of global currency battles and central bank digital currencies in that rise in conversation than it is to something like defy. The Bitcoin pretenders are nowhere to be found. People were realistically worried about things like Bitcoin Cash back in 2017.

Go listen to Raul Paul talk about why he left the Bitcoin space for a while. He thought that these chain forks were going to destroy the network effect that made it so powerful. There is also some amount of regulatory clarity now, at least in the context that Bitcoin and Ethereum have been called sufficiently decentralized. They're not going to be treated as securities. The window for engaging at least with those base level assets has been absolutely opened. Most importantly, however, though, is that the Bitcoin narrative has simply separated from the rest of the field. Part of this was due to the fact that in the cold days of 2018 and early 2019, the people out evangelizing were not talking about random altcoins and tokens. They were talking about Bitcoin. This gave institutional

actors and a different set of investors more time to really marinate on the specific asset, not the field as a whole. But of course, the real juice on this was the COVID-19 response from central banks, especially in that it coincided with the having. The narrative of a fixed supply in the context of an unlimited supply world finally clicked. and in so doing it has driven an entirely new wave of evangelists, which gets us to the biggest differences. The biggest differences in this bull run are in who is trying to accumulate and why. Here it's time to read Brady's excellent thread.

Hoddlefomo equals escape velocity. The 2017 run was driven by short-term retail and trader speculation, a fear of missing out on fiat gains. This run will be dominated by fear of missing out on adoption of Bitcoin as a reserve asset by individuals, corporations, and even nations. As opposed to speculative FOMO, the adoption of Bitcoin as a reserve asset is an intentional decision to hold it for the long term, aka Haudel. While we saw speculative FOMO during the last bull run,

during this run, we are seeing the beginnings of HOTLFOMO. Widespread HOTELFOMO begins with widespread trust in Bitcoin. Bitcoin has been significantly de-risked in the past few years. The fork wars ended in a decisive win for Bitcoin. Major corporations such as Square, Visa, IBM, and Fidelity are investing in Bitcoin projects. The U.S. Office of the Comptroller of the Currency declared national banks can legally custody Bitcoin.

U.S. Congressman Patrick McHenry said last year that, quote, the world that Satoshi Nakamoto, author of the Bitcoin White Paper, envisioned, is an unstoppable force. Paul Tudor Jones, when investing almost 2% of his fund's assets into Bitcoin, said, quote, every day that goes by that Bitcoin survives, the trust in it will go up. The Bitcoin network has run with 99.98% uptime for almost 12 years and has never been compromised. And perhaps most important to kicking off the Hoddle FOMO, Michael Saylor shocked the Bitcoin world this year by moving his public company micro-strategy

onto a corporate Bitcoin standard by acquiring 38,250 Bitcoin for the corporate treasury. That move was soon confirmed as trendsetting by the acquisition of 50 million worth of Bitcoin by square as a corporate reserve asset. Trust in Bitcoin is spreading quickly. Bitcoin is no longer an internet curiosity. It has emerged as a major player on the world stage. In 2017, speculators were chasing one another in a game of cat and mouse. The vast majority of those involved were denominating their gains in fiat.

When the game came to an end, those speculators fled back to their unit of account. There will be no such mass flee in this cycle of hoddlefomo. The speculation has moved from short-term fiat gains to the prevention of long-term fiat loss, a fundamentally different kind of speculation that requires hoddling the speculative asset for the long-term. Hoddlefomo will not lead to the bursting of a short-term speculative bubble. Instead, it will steadily build a rising foundation for the Bitcoin price, block by massive block, as the phenomenon proceeds to add new long-term Bitcoin hoddlers to the network. The hodlfomo cycle will not end.

The fundamental shift of Bitcoin as a short-term fiat-denominated speculation into a long-term fiat hedge speculation is the fuel that will achieve Bitcoin's escape velocity from fiat's gravity. The point returning to something I said before is that narrative-shaped motivations and motivation shape actions. This is the narrative for this new bull run that shapes the motivation and who decides to get in. That motivation to get in to preserve wealth in the face of potential debasement of fiat currency creates a different type of action that, as Brady so brilliantly points out in this thread, is different. It's long-term, and that long-term time preference is all the difference in the world. I have no doubt that on this path we will see big spikes up and retracements

down because that's just the nature of it and wait until you see the articles that come out as we get closer to the all-time high. There's no way that you don't see a whole wave of retail FOMO in which will create a short-term price bump as it always does. But I think that on a fundamental level, this shift that has been identified here is right on and is at the epicenter of why this will be different. Anyways, guys, let me know what you think. It's always dangerous to say this time is different, but I think this time is different. Until tomorrow, guys, be safe and take care of each other. Peace.