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with cryptos making headlines every single day by now you are all probably very well aware of the FDX debacle which sent shockwaves through the crypto sector and FDX customers might actually never see their money again now interestingly during all this turmoil a famous superstar investor Bill Ekman actually jumped in and defended sandbankment breed the former CEO of FTX only to delete that tweet a few minutes later Hackman then took a brief pause from Twitter after this embarrassing moment for him as the Liquidators of FDX have now confirmed that there are signs of serious fraud and mismanagement but only around 10 days later billionaire investor Eggman was back with a 20-page Twitter thread stating that crypto is here to stay and highlighting that he is a small direct investor in crypto projects and an investor in seven crypto PC hunts so why exactly is Bill Eggman who's known to follow a Warren Buffett style of investing publicly sharing his bullishness on crypto we'll examine exactly this question in this video and so without further Ado let's get started so let's start by explaining who Bill Eggman actually is well Ackman is an American billionaire a hedge fund manager and the founder and CEO of Pershing Square Capital he's known to run a fairly concentrated portfolio of very dominant businesses that to a large extent are based in the United States as of November 2022 for example his portfolio consists of just seven stocks and holdings such as Chipotle Mexican grills Universal Music Hilton worldwide Holdings and restaurant Brands his hedge fund has a very strong and consistent record of generating substantial returns over many years for its shareholders and so Eggman certainly knows what he's talking about nonetheless I think it is quite surprising that Ackman who truly follows a similar approach to Warren Buffett who is extremely focused on the cash flow a company provides it's now investing in crypto projects that do not have any underlying cash flow so let me just show you a short clip of Eggman during which he outlines his investment philosophy in basically under a minute so we look for very high quality businesses what we describe as simple predictable free cash flow generative dominant businesses a business that Warren Buffett would describe as having a mode around it right if you if you believe that the value of anything Financial is the present value of the cash you can take out of it over its life or you need to know how much cash is going to generate over its life so it's a business quality to us is the single most important Criterion for determining what's interesting because if we can't predict the cash flows we don't know it's worth we don't know what it's worth we can't invest we figure out what it's worth figure out how good the business is how predictable will this cash flows be from a railroad or a Spirits company or a real estate company a shopping mall business uh and then we say okay well where's the trading um and if there's a wide gap between price and value you can buy for 50 cents it's worth a dollar twenty and then we're going to take a hard look and try to understand why it trades at a deep discount so that's ekman's investment philosophy in a nutshell to me this doesn't exactly sound like someone who'd publicly turn from a crypto skeptic to a crypto investor now before we take a closer look at what Bill Eggman has actually tweeted and what I think about this I'll say that with Ekman you never truly know what his motives are and I'd love to know what you think why did Eggman yeah make such a U-turn when it comes to crypto does it mean that Eggman believes in the long term future of cryptocurrencies or is he just currently long in crypto projects for yeah let's say a rather short-term trade now to truly understand why it is so odd that Ekman now publicly endorses crypto projects let's take a brief look at what exactly he has between after studying some of the more interesting crypto projects I have come to believe that crypto can enable the formation of useful businesses and technologies that her24 could not be created the ability to issue a token to incentivize participants in a venture as a powerful level in accessing a global Workforce to advance a project the problem with crypto is that unethical promoters can create tokens simply to facilitate pump and dump schemes it may in fact be that the vast majority of crypto coins are used for fraudulent purposes rather than for building legitimate businesses okay let's stop here for a second and look at the number of crypto tokens that have emerged over the last decade ever since the launch of Bitcoin in 2009 the cryptocurrency market exploded and back in 2021 there were already more than 9 000 different tradable coins and that total number of cryptocurrencies has basically doubled again over the last 12 months to more than 20 000 cryptos that were in circulation as of September 2022.
now why are there so many cryptocurrencies over twenty thousand well if you would ask a Bitcoin believer he would say that the blockchain technology created opportunities opportunities for developers to create new applications services and alternative cryptocurrencies so-called L coins that make use of the blockchain technology but try to build on the strength and solve the weaknesses of the Bitcoin protocol now while this sounds good in theory as Ekman rightly pointed out the vast majority of crypto coins are used for fraudulent purposes as highlighted by example such as FDX the lunar token the Celsius debacle or the squid token scan in 2021 for instance scammers were able to steal a total of more than 14 billion dollars worth of crypto and according to Bloomberg around 12 000 coins have effectively seized trading in 2022 leading to a decline of around 2 trillion dollars in cryptocurrencies but as Ekman later points out not all projects are of fraudulent age and I'd like to share a rather long quote from him here so please bear with me to find out what I think about eggman's thoughts despite crypto's ability to facilitate fraud with the benefit of sensible regulation and oversight crypto Technology's potential for beneficient societal impact may eventually compare with the impact of the telephone and the internet initially I assumed that there is no intrinsic value to any of the tokens and therefore or they simply represent a modern day version of tulip Mania but after examining a number of interesting crypto projects I began to understand how a token could build intrinsic value over time two examples may help to explicate my view helium created a global Wi-Fi network used by limebike and others to direct devices globally as well as or other uses which benefit by access to global Wi-Fi networks helium's Global Network of 974 000 hotspots was crowd created by individuals who purchased and deployed helium hotspots to mine hnt its native token customers who wish to use the network must purchase hnt and burn it I.E remove the consumed hnt from its supply of tokens as a result over time a two-sided market for hnt develops in which miners buy hotspots deploy them around the globe to earn tokens users in turn purchase hnt tokens in order to use the network the more demand for the network the more demand for hnt now I get eggman's Point here helium is building the world's first decentralized wireless network to simplify connecting devices to the Internet by rewarding anyone to become a network operator and the network is certainly creating the right incentives for the growth of the network as those who set up the hotspots will be rewarded with nhds and by the way I'm not going to explain helium's business model and value proposition in detail here announced that I recommend you check out the following video which nicely summarizes helium's idea and yeah basically under four minutes and Eggman himself actually also adds more depth to his helium thesis but I'll bear you the details here but I will leave a link to ekman's Twitter thread and the three minute video down below so what's my problem with this take by Ekman first Eggman shows a terrible example as just a quick 10 second Google research could have shown Ekman that helium lied about their corporate Partnerships and its partnership with lime in particular the partnership that Ekman referenced in his Twitter thread a line executive is quoted saying Beyond an initial test of its products in 2019 lime has not had and does not currently have a relationship with helium and also there's practically no end user demand for the network as of now as outlined by coffee sealer in this beautiful video right here secondly I just showed you a clip of eggman's investment philosophy and ekman's seemingly obsessive focus on cash flow if you believe that the value of anything Financial is the present value of the cash you can take out of it over its life we need to know how much cash is going to generate over its life which is exactly the approach that the best investor of all time Warren Buffett also follows the problem with a token like hnt is that the token itself doesn't produce use any cash flow and the business helium itself also generated only around 6 000 US dollars of revenue from its wireless network data in June 2022 so the revenue generated by actual demand for the network but differently there's basically no revenue from end user demand and thus at least in my view agency the token doesn't have any intrinsic value and the intrinsic value of helium the business is arguably also fairly small and I think that is actually not really what Ekman is talking about anyway so if hmp doesn't have any intrinsic value this in turn means that you cannot invest in it because if you define investing as the art of paying a lot less on asset than it is worth then it is impossible to invest in something that has no intrinsic worth sure it's a two-sided Marketplace there's supply and demand and thus there is a market price for the tokens but as Eggman himself acknowledges this doesn't make hnt a cash generative asset it's basically a commodity that to quote Blackman here becomes a valued commodity whose price is determined by supply and demand it's no different from betting on the development of the price of gold paintings nfts or oil you're basically betting on demand Rising tremendously but you're not betting on the increase of underlying cash flow so to me at least this kind of investing approach doesn't have anything to do with eggman's actual investment philosophy which he outlined in the video clip that I shared with you at the beginning of this video this doesn't mean that such an approach cannot work but I can guarantee you that over the very long term Commodities will basically only generate returns that are at best on par with inflation I absolutely agree with Ekman that to quote him here with proper oversight and regulation hits meaning crypto has the potential to greatly benefit society and grow the global economy I think the blockchain technology offers tremendous benefits and the helium Network gives you an idea of cryptos practical use cases but I've already stated in the video that I released during the crypto peak in 2021 that we have to distinguish between the blockchain technology on the one hand and cryptocurrencies as an investment so crypto assets on the other hand the two are two completely different pairs of shoes and I think any conversation about Bitcoin always gets lost when you don't make that distinction now if you want to learn more about this distinction and what a fairly unknown investing genius Jesse Livermore thinks about Bitcoin I suggest you watch the following video next take care
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