Financial Technologies: look but don't touch

November 05, 2021

It's way more fun to pretend you know something about computer science by talking about Ethereum and byzantine fault tolerance and chaincode than it is to actually debug a compiler. There's a lot of that going around, and now it seems computer science got mixed with money. Let's look at a couple of things.

Let's start with Squid, a cryptocurrency that trades on Pancakeswap. I want to be nice, because it's never fun when an investment goes to zero (unless you're short I guess), but the digital token Squid went from $2,856.65 a token to $0.0007 five minutes later. Days later, not content with that collapse, it added five more zeros to the right of the decimal point. At least the names are creative. I mean "Pancakeswap" - come on, that deserves some credit.

Turns out Squid was a scam, but who knew? Maybe some of these things aren't scams, and they'll have great returns as legitimate players pile in. Some of them may be foundational technologies as opposed to a proxy for people's worries about inflation. For example, if you click through to this page and scroll midway down, you will see a column on the table on the right that says "Blockchain." This is one of the better layouts I have seen describing the evolution of the ecosystem.

There are other financial technologies that are interesting. Buy Now Pay Later is one of them, as it may disrupt the duopolistic credit card issuing banks. Instead of a credit card, a manufacturer can issue the credit directly to the consumer, and make money on the financial trade. Maybe the margin in manufacturing creeps toward zero, and the firms make their profits by becoming financial lending companies. There are lots of tech firms getting into this space, and their shares don't trade on Pancakeswap.

Remember, as we've discussed here previously, when industries form, in the early days they always look weird.

Investing isn't baseball. You don't have to swing at these things, even if you think they might be good. In baseball you can't forever ignore pitches that you don't like, at some point you have to swing if it's in the strike zone. In investing, you can just wait.

When you're an investor, it's critical to have enough confidence in the asset that if the price drops a lot, you will buy more of it, and certainly not sell it. If the asset doesn't garner this confidence, let it pass.

Dan Cunningham