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Breakout room breaking down bitcoin - sean walsh - toronto - 2018

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Is Bitcoin a bubble or the greatest invention since the internet?

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Breakout room breaking down bitcoin - sean walsh - toronto - 2018

  1. 1. Breaking Down Bitcoin Bubble Or Greatest Invention Since The Internet? Toronto – April 2018 @SeanWalshBTC - www.linkedin.com/in/SeanWalsh
  2. 2. 12,000 Years Of Shell Money?! 10,000BC - Paleolithic era shell hoards found from Red Sea to Switzerland 5,000BC - Neolithic era shell money in South Pacific & Asia 1,600BC - Chinese Shang Dynasty, bronze cowrie shell money 1700s - used throughout India, Africa, Asia, Europe, South Pacific 1850 - used as legal tender in West Africa 1920 - Replaced by modern currency in remote parts of Africa 2017 - still used in Solomon Islands and Papua New Guinea @SeanWalshBTC - www.linkedin.com/in/SeanWalsh
  3. 3. Sean Walsh • CEO, Hyperblock Technologies • $106M acquisition of CPTO (TSXv) on 4/3/2018 • Redwood City Ventures (Bitcoin/Crypto Focus) • Advisor, Science Inc. Blockchain, Los Angeles • Advisor, GlobalLive Technology Partners, Toronto • Previously VP at Bertram Capital ($1+B Silicon Valley Private Equity firm) • Online and Mobile Product Strategy + Customer Acquisition Contact Information: • Twitter: @SeanWalshBTC • www.linkedin.com/in/SeanWalsh
  4. 4. Notable Projects • Advisor, Science Blockchain • Blockchain Startup Incubator • ICO Advisor • Science Inc - $1.4B in exits • Top Blockchain Security Datacenter in North America (aka crypto mining) • Bitcoin, Ethereum, Zcash, Litecoin, Etc. • Server sales + leasing + repair + hosting, new Blockchain proofs of concept @SeanWalshBTC - www.linkedin.com/in/SeanWalsh
  5. 5. 20 MW Datacenter Overview
  6. 6. Course Objective Format: alternate slides for 7-8 min, then 2-3 questions Objective 1: Cover the most important investment-related elements of Bitcoin for asset class evaluation. Objective 2: Provide an inside look at how we at RWCV analyze and model Crypto investment opportunities. Reality: We have over 60 slides, and not much time. Download this deck from my Twitter… @SeanWalshBTC - www.linkedin.com/in/SeanWalsh
  7. 7. Important Disclaimer 1. I’m not a registered investment advisor, or tax advisor, or attorney. 2. Do not rely on anything I say as professional advice. 3. These are just my personal opinions. (which are often wrong anyway) @SeanWalshBTC - www.linkedin.com/in/SeanWalsh
  8. 8. Bitcoin’s Special Synergy Ecommerce Monetary Factors Social Networking 1. Ecommerce/Online User Acquisition 2. Social Networking / Viral Marketing 3. Monetary/Economic Factors 1. Monetary History 2. Asset Design 3. Foreign exchange 4. Global trade @SeanWalshBTC - www.linkedin.com/in/SeanWalsh
  9. 9. Our Investment Approach We start by establishing the “First Principles” of the investment we are considering. These are the most essential elements of our thesis. Note: If you don’t really know your investment, you aren’t investing… you’re gambling. @SeanWalshBTC - www.linkedin.com/in/SeanWalsh
  10. 10. Step 1: First Principles 1. What is Bitcoin? What is money?? 2. What is the current market situation? 3. How does Bitcoin work? 4. What transactions can Bitcoin improve? Who uses it? 5. What fundamentals drive the value of Bitcoin anyway? 6. Any evidence to suggest price will continue climbing? 7. What risks are commonly discussed? 8. Resources for further study? @SeanWalshBTC - www.linkedin.com/in/SeanWalsh
  11. 11. Principle #1 – What Is Bitcoin? • The best form of money ever invented • But, what is money? 1. Unit of Account 2. Means of Exchange 3. Store of Value • How to compare different monies? SDDRFT 1. Scarcity 2. Durability 3. Divisibility 4. Reconizability 5. Fungability 6. Transportability @SeanWalshBTC - www.linkedin.com/in/SeanWalsh
  12. 12. Bitcoin Glossary Terms: Network – Blockchain – Block – Peer-to-Peer Network – Centralized Network – Bitcoin Node(s) – Segregated Witness – SegWit1x and 2x – Hard Fork – Bitcoin Cash – Transaction Capacity User – Bitcoin Wallet – Bitcoin Address – QR Code – Private Keys – Bitcoin Exchange – ICO – Alt-Coin – Hardware Wallet Mining – Blockchain Security – Block Size – Block Time – Mining Difficulty – Mining Reward – Transaction Fees – Global Network @SeanWalshBTC - www.linkedin.com/in/SeanWalsh
  13. 13. Important Note… It’s looking incresingly likely that BTC and BCH will co-exist, however tense their relationship may be on Twitter... Note that we invest in both. Bitcoin BTC (Bitcoin Core) BCH (Bitcoin Cash) + @SeanWalshBTC - www.linkedin.com/in/SeanWalsh
  14. 14. 1. Scarcity: limited, predictable supply 2. Durability: won’t decay 3. Divisibility: easy to subdivide 4. Recognizability: difficult to counterfeit 5. Fungibility: units are exchangeable 6. Transportability: easy to move They all boil down to trustworthiness of the money (faith). Principle #1 – “Moneyness”- 6 Characteristics of Money @SeanWalshBTC - www.linkedin.com/in/SeanWalsh
  15. 15. S Dur. Div. R F T Gold = 18 S Dur. Div. R F T USD = 13 S Dur. Div. R F T Arg Peso = 10 S Dur. Div. R F T Frequent Flier Miles = 5 S Dur. Div. R F T Starbucks Cards = 6 S Dur. Div. R F T Cowrie Shells = 15 @SeanWalshBTC - www.linkedin.com/in/SeanWalsh
  16. 16. 0 1 2 3 4 Scarcity Durability Divisibility Recognizability Fungibility Transportability Principle #1 – “Moneyness” Bitcoin SDDRFT Score = 22 (out of 24) @SeanWalshBTC - www.linkedin.com/in/SeanWalsh
  17. 17. 0 5 10 15 20 25 Cowry Shells Gold USD Arg Peso Frequent Flier Miles Starbucks Cards Bitcoin “Moneyness” @SeanWalshBTC - www.linkedin.com/in/SeanWalsh
  18. 18. How To Know When Money Earns Faith… What is Bitcoin Money backed by? It’s users’ faith in it’s future… (AKA, neck tattoos) Shout out to Mike Novagratz @SeanWalshBTC - www.linkedin.com/in/SeanWalsh
  19. 19. But… It Ain’t Just Bitcoin… I’m convinced that Paleolithic ballers were covered in Cowrie Shell tattoos… Roman Imperatorial Coinage from 1st Triumvirate circa 59BC @SeanWalshBTC - www.linkedin.com/in/SeanWalsh
  20. 20. What’s The Pitch To Own Bitcoin? 1. Most unique Store of Value ever created. Inconceivably scarce. 2. Non correlated asset (portfolio diversification, target 1%-4%) 3. Most asymmetric return profile in history 4. Mainstream adoption due to SDDRFT – best money ever 5. Value is up over 5,000% in 4 years – 1% allocation 3 years ago would have doubled entire portfolio 6. Strong evidence to suggest strong continued price appreciation Note: There are also over 250 Million people around the world who own Gold as a Store of Value. @SeanWalshBTC - www.linkedin.com/in/SeanWalsh
  21. 21. The Importance of Moneyness John Exter (NY Fed President) @SeanWalshBTC - www.linkedin.com/in/SeanWalsh
  22. 22. A Note On Recognizability… sean@redwoodcityventures.com - @SeanWalshBTC - www.linkedin.com/in/SeanWalsh
  23. 23. -0.144 0.063 0.319 0.877 0.588 0.066 0.487 -0.190 0.289 0.200 0.099 -1.000 -0.800 -0.600 -0.400 -0.200 0.000 0.200 0.400 0.600 0.800 1.000 BTC Price Gold S&P 500 Corp NASDAQ Shanghai Stock Exchange 10YrUSTr MSCI EM Case-Shiller WTI Oil USD DXY Arg Peso Asset Class Correlation – S&P 500 vs Others, 12-Month @SeanWalshBTC - www.linkedin.com/in/SeanWalsh
  24. 24. -0.144 -0.411 -0.330 0.001 -0.316 0.054 -0.357 0.154 -0.691 0.496 -0.651 -1.000 -0.800 -0.600 -0.400 -0.200 0.000 0.200 0.400 0.600 0.800 1.000 S&P 500 Gold S&P 500 Corp NASDAQ Shanghai Stock Exchange 10YrUSTr MSCI EM Case-Shiller WTI Oil USD DXY Arg Peso Asset Class Correlation – Bitcoin vs Others, 12-Month @SeanWalshBTC - www.linkedin.com/in/SeanWalsh
  25. 25. Bitcoin Price History Approx Annual: 2010: 1,000%+ 2011: 100%+ 2012: 1,000%+ 2013: 5,000%+ 2014: -50% 2015: 35% 2016: 125% 2017: 1,200%+ @SeanWalshBTC - www.linkedin.com/in/SeanWalsh
  26. 26. Principle #2 – The Current Situation? • TAM: 3B internet-connected adults, 1.5B with no banking • Customer Base: under 900k people with 1+ Bitcoin • BTC Network: 400k tx/day, completely full, $20/tx • BCH Network: 50k tx/day, rapid growth, 2.5M tx cap, $0.02/tx • New Bitcoins/Month: about 100k (BTC + BCH) • Global Regulations: mixed bag • Inflation and Geopolitical Risks: growing @SeanWalshBTC - www.linkedin.com/in/SeanWalsh
  27. 27. 390,290 624,489 - 100,000 200,000 300,000 400,000 500,000 600,000 700,000 July, 2015 September, 2017 1+ BTC Wallets Avg Monthly Growth Rate: 1.8% $277 $3,132 $- $500 $1,000 $1,500 $2,000 $2,500 $3,000 $3,500 July, 2015 September, 2017 BTC Price Avg Monthly Growth Rate: 9.8% Current Situation – Interesting Trend @SeanWalshBTC - www.linkedin.com/in/SeanWalsh
  28. 28. 30.9%(avg. monthly growth rate) Interesting Trend: Sep 2017 to Jan 2018 1+ BTC Wallets BTC Price 3.2%(avg. monthly growth rate) @SeanWalshBTC - www.linkedin.com/in/SeanWalsh
  29. 29. Avg. Monthly Growth – 3 Market Stages @diiorioanthony - @brockpierce - @SeanWalshBTC -30% -20% -10% 0% 10% 20% 30% Jul 2015 - Sep 2017 Sep 2017 - Jan 2018 Dec 2017 - Apr 2018 1+ BTC Wallet Growth Rate BTC Price Growth Rate
  30. 30. Bitcoin Exchange Volume by Currency https://www.cryptocompare.com/coins/btc/analysis/USD?type=Currencies
  31. 31. Bitcoin Network Resilience… 2011.11.23 $2.37 2012.12.24 $13.30 2013.08.08 $93.57 2013.11.06 $433.57 2014.12.16 $325.10 @SeanWalshBTC - www.linkedin.com/in/SeanWalsh
  32. 32. More Bitcoin Network Resilience… 2015.02.15 $217.87 2016.01.14 $429.73 2016.10.12 $635.43 2016.12.08 $771.23 2017.02.24 $1,184.47 @SeanWalshBTC - www.linkedin.com/in/SeanWalsh
  33. 33. More Bitcoin Network Resilience… 2017.06.06 $2,741.29 2017.07.12 $2,410.55 2017.08.17 $4,179.97 2017.09.11 $4,450.15 2017.09.12 $4,367.12 @SeanWalshBTC - www.linkedin.com/in/SeanWalsh
  34. 34. More Bitcoin Network Resilience… Bitcoin Price = $4,200 @SeanWalshBTC - www.linkedin.com/in/SeanWalsh
  35. 35. Bitcoin Price = $15,000 More Bitcoin Network Resilience… @SeanWalshBTC - www.linkedin.com/in/SeanWalsh
  36. 36. Bitcoin Is Resilient, But Volatile… @SeanWalshBTC - www.linkedin.com/in/SeanWalsh
  37. 37. Why Is Bitcoin So Darn Volatile, Cont. Dan Moorehead – Pantera Capital
  38. 38. Principle #3 – How Does Bitcoin Work? 1. The Blockchain (the database) 2. Bitcoin Network Nodes: 1. Transaction Propagation 2. Propagation + Blockchain Construction 3. Blockchain Security Servers (Bitcoin Miners) -They get the votes to control network 4. Bitcoin Wallets: many kinds… 1. Hardware 2. Software (local PC) 3. Online/Mobile Service 4. Paper 5. Virtual Unit of Money, a “Bitcoin” 6. Bitcoin Exchanges Six Primary Elements >> @SeanWalshBTC - www.linkedin.com/in/SeanWalsh
  39. 39. Principle #3 – Benefit of Peer-to-Peer Network @SeanWalshBTC - www.linkedin.com/in/SeanWalsh
  40. 40. Principle #4 – What Transactions Can Bitcoin Improve? Note: there are thousands of use-case archetypes across these Categories. Consumer to Business Consumer to Consumer Business to Business "Financial Transcations" @SeanWalshBTC - www.linkedin.com/in/SeanWalsh
  41. 41. Principle #4 – Transaction Volume Note: Legacy network is hitting limit of 3 tps. Bitcoin Cash upgrade increased throughput by 8x Source: www.bitinfocharts.com BTC Network Headroom: Very little to 0.4 Million tx/day BCH Network Headroom: 60x growth to 2.5 Million tx/day BTC, 400k tx/day cap here @SeanWalshBTC - www.linkedin.com/in/SeanWalsh
  42. 42. Principle #5 – What Fundamentals Drive Bitcoin Value? 1. Transaction Volume / Means of Exchange Use 2. Metcalfe’s Law 3. Bitcoin Customer Base Growth 4. Increasing faith in the “moneyness” of Bitcoin 5. P/E Ratio vs. Metcalfe’s Law vs. Price Elasticity @SeanWalshBTC - www.linkedin.com/in/SeanWalsh
  43. 43. Principle #5 – Robert Metcalfe’s Law (Network Effect) @SeanWalshBTC - www.linkedin.com/in/SeanWalsh
  44. 44. Principle #5 – Metcalfe’s Law Source: http://forum.bitcoin.com @SeanWalshBTC - www.linkedin.com/in/SeanWalsh
  45. 45. Principle #5 – Customer Base Growth Note: 1+ BTC Wallets now 697k, from 605k in Sept 2017 (23k monthly growth, vs. 10k historically) @SeanWalshBTC - www.linkedin.com/in/SeanWalsh
  46. 46. Principle #6 – Evidence of Continued Value Growth? 1. Metcalfe’s Law 2. Bitcoin Customer Base Growth 3. Price Elasticity of Supply 4. Bitcoin Dilution Trend 5. Institutional Money Flow 6. 99.9% Of Capital Is Sitting On Sidelines 7. TAM Of Over 3 Billion internet-connected adults, but under 1 Million people own 1+ Bitcoins. @SeanWalshBTC - www.linkedin.com/in/SeanWalsh
  47. 47. Economic Theory: Price Elasticity of Supply Basic Concept: As price increases Additional Supply enters market @SeanWalshBTC - www.linkedin.com/in/SeanWalsh
  48. 48. Price Elasticity Of Supply - Bitcoin New Minted Coins (100k per month) + Coins Sold by Holders Bitcoin Supply = As price increases, supply declines, leading to acceleration. Bottom Line: @SeanWalshBTC - www.linkedin.com/in/SeanWalsh
  49. 49. Principle #6 – Institutional Money Flow @SeanWalshBTC - www.linkedin.com/in/SeanWalsh
  50. 50. Bitcoin Futures Markets - US Launch
  51. 51. Principle #6 – Institutional Money Flow @SeanWalshBTC - www.linkedin.com/in/SeanWalsh
  52. 52. Max $10 Billion of Fiat Into Exchanges 99.9% Of Capital Is Still On The Sidelines http://money.visualcapitalist.com/worlds-money-markets-one-visualization-2017/ $70 Trillion – 7,000x $80.9 Trillion –8,090x Bitcoin @SeanWalshBTC - www.linkedin.com/in/SeanWalsh
  53. 53. Principle #7 - Risks Moving Forward 1. Price volatility 2. Regulatory crackdown 3. Renewed attempts at regulatory circumvention (illegal activities) 1. It’s terrible publicity to our target Users 2. It intensifies regulatory scrutiny and crackdown risk @SeanWalshBTC - www.linkedin.com/in/SeanWalsh
  54. 54. Regulatory Crackdown, 1 of 3 @SeanWalshBTC - www.linkedin.com/in/SeanWalsh
  55. 55. Regulatory Crackdown, 2 of 3 @SeanWalshBTC - www.linkedin.com/in/SeanWalsh
  56. 56. Regulatory Crackdown, 3 of 3 @SeanWalshBTC - www.linkedin.com/in/SeanWalsh
  57. 57. Asset Class Bubbles… @SeanWalshBTC - www.linkedin.com/in/SeanWalsh
  58. 58. How To Compare Bitcoin and Ethereum Bitcoin 1. Considered more like digital gold 2. First major cryptocurrency, launched 2009 3. About 250k transactions per day 4. 34 Million BTC/BCH outstanding (8+ Million lost) 5. Recent Price: $5000-$19,500 6. New Coins: 108k per month Ethereum 1. Considered more like a cloud computing platform with it’s own form of money. 2. Launched as crowdsale in 2015 3. About 600k transactions per day 4. 98 Million ETH outstanding 5. Recent Price: $300-$1,300 6. New Coins: 1,270k per month @SeanWalshBTC - www.linkedin.com/in/SeanWalsh
  59. 59. CryptoKitties To Explain Smart Contracts Buyer Seller @SeanWalshBTC - www.linkedin.com/in/SeanWalsh
  60. 60. Principle #8 - Resources For Further Study? 1. Email newsletters: - InsideBitcoins.com - MackieResearch.com - Chainalysis - Grit Capital 2. Twitter accounts: - @cryptomanran , @RonnieMoas , @bitcoin - @dan_pantera , @barrysilbert , @wences, @rogerkver - @ErikVoorhees , @el33th4xor @SeanWalshBTC - www.linkedin.com/in/SeanWalsh
  61. 61. Conclusion 1. Bitcoin is wildly attractive to 500+ Million people. 2. Yet… only 700,000 people own one. 3. TAM penetration is downright tiny. 4. Bitcoin production is almost inconceivably small. 5. Non correlated asset (portfolio diversification, target 1%-4%) 6. Most asymmetric return profile in history? 7. Mainstream adoption due to SDDRFT – best money ever (but not a replacement for fiat currency). 8. Evidence appears to support strong long-term growth of Bitcoin and many crypto-asset networks. @SeanWalshBTC - www.linkedin.com/in/SeanWalsh
  62. 62. Sean Walsh • CEO, Hyperblock Technologies • $106M acquisition of CPTO (TSXv) on 4/3/2018 • Redwood City Ventures (Bitcoin/Crypto Focus) • Advisor, Science Inc. Blockchain, Los Angeles • Advisor, GlobalLive Technology Partners, Toronto • Previously VP at Bertram Capital ($1+B Silicon Valley Private Equity firm) • Online and Mobile Product Strategy + Customer Acquisition Contact Information: • Twitter: @SeanWalshBTC • www.linkedin.com/in/SeanWalsh
  63. 63. Money Transportability & Scarcity… @SeanWalshBTC - www.linkedin.com/in/SeanWalsh

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