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

Breaking Down Bitcoin
Bubble Or Greatest Invention Since The Internet?
Toronto – April 2018
@SeanWalshBTC - www.linkedin.com/in/SeanWalsh

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

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

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

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…

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)

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

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.

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?

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

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

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)
+

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

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

0
1
2
3
4
Scarcity
Durability
Divisibility
Recognizability
Fungibility
Transportability
Principle #1 – “Moneyness”
Bitcoin
SDDRFT Score = 22
(out of 24)

0
5
10
15
20
25
Cowry
Shells
Gold USD Arg Peso Frequent
Flier Miles
Starbucks
Cards
Bitcoin
“Moneyness”

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

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

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.

The Importance of Moneyness
John Exter
(NY Fed President)

A Note On Recognizability…
sean@redwoodcityventures.com - @SeanWalshBTC - www.linkedin.com/in/SeanWalsh

-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

-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

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%+

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

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

30.9%(avg. monthly growth rate)
Interesting Trend: Sep 2017 to Jan 2018
1+ BTC Wallets BTC Price
3.2%(avg. monthly growth rate)

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

Bitcoin Exchange Volume by Currency
https://www.cryptocompare.com/coins/btc/analysis/USD?type=Currencies

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

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

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

Bitcoin Price = $4,200

Bitcoin Price = $15,000

Bitcoin Is Resilient, But Volatile…

Why Is Bitcoin So Darn Volatile, Cont.
Dan Moorehead – Pantera Capital

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 >>

Principle #3 – Benefit of Peer-to-Peer Network

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"

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

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

Principle #5 – Robert Metcalfe’s Law (Network Effect)

Principle #5 – Metcalfe’s Law
Source: http://forum.bitcoin.com

Principle #5 – Customer Base Growth
Note: 1+ BTC Wallets now 697k, from 605k in Sept 2017 (23k monthly growth,
vs. 10k historically)

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.

Economic Theory: Price Elasticity of Supply
Basic Concept:
As price increases
Additional Supply
enters market

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:

Principle #6 – Institutional Money Flow

Bitcoin Futures Markets - US Launch

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

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

Regulatory Crackdown, 1 of 3

Asset Class Bubbles…

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

CryptoKitties To Explain Smart Contracts
Buyer Seller

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

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.

Money Transportability & Scarcity…

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

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