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“When you can measure what you are speaking about, and express it in numbers, you know something about it, when you cannot express it in numbers, your knowledge is of a meager and unsatisfactory kind.”

— Lord Kelvin

Thursday measurable mailbag

Q: Does it make sense to buy bitcoin because the Fed cut rates?

Maybe.

Bitcoin is best understood (in my opinion) as insurance against hyperinflation. So it might make sense that a 50bps rate cut, being a little more aggressive than expected, would make hyperinflation insurance a little more valuable.

 Not a lot more, though. 

The 50bps cut only takes fed funds down to 4.75%, which is still more than two full percentage points above the rate of inflation. 

Dollars held in money-market funds therefore remain appreciating assets (your purchasing power is rising) — and it will presumably stay that way right up until the next big financial crisis. 

Bitcoin is your insurance against the crisis.

Q: What about the dollars in my checking account?

Those do lose purchasing power, true. But you should only have your working capital in there, which shouldn’t be much.

The purchasing power of your dollar savings will continue to appreciate, and more importantly, the purchasing power of your dollar wages should too, as it has done for decades.

The “time price” of food, for example, has fallen relentlessly, according to Human Progress. One hour of blue-collar labor now buys the same amount of food that six hours of labor bought a century ago.

Q: Does it make sense to buy altcoins because the Fed cut rates?

Some people seem to think so because altcoins appear to be back from the dead this week: TAO, TIA, FTM and SUI are all up 30%+ and it’s been a while since we’ve seen moves like that..

But I can’t quite see the logic there — a 50bps cut shouldn’t push investors that far out on the risk curve.

Who ever thinks, “I’m only getting 4.75% in my money-market fund now, I guess I’ll buy some Fantom instead”???

Weird.

Q: Should I buy altcoins if I think Trump will win?

That makes a lot more sense, yes.

The real news for altcoins this week is not the rate cut but that a former and possibly future US president launched a DeFi project, World Liberty Financial. 

The launch itself was widely panned (lots of rambling) and the project itself has mixed reviews (it’s unoriginal, but maybe it’ll bring new people into crypto?).

But the launch of World Liberty Financial means that there’s now a 50%-ish chance (according to Nate Silver’s model) that a sitting president will be the de facto founder of an active DeFi project — and that is kind of mind-boggling.

It’s meaningful, too.

Safe to say, whomever a newly-elected Trump might appoint to run the SEC, they will not be suing any projects that look even remotely like the one their boss has a large financial interest in — and that is pretty much all of them!

To appreciate how big a change that would be, consider yesterday’s announcement from the SEC that they had extracted a legal settlement from the founders of Rari Capital, a well-meaning DeFi protocol run by teenagers that effectively closed shop two years ago.

The stark contrast between the World Liberty Financial launch and the Rari Capital news is how wide the delta is between the two possible outcomes for the US crypto industry in November.

(Outcomes could be equally dramatic in other areas, many of which you probably care more about!)

Q: Could ETH sentiment get any worse?

Ryan Adams doesn’t think so, noting this morning that even long-standing ETH bears are now wondering if their pessimism has gotten too consensus. 

But, I don’t know.

ETH still has a $300 billion market capitalization, which hardly screams excessive bearishness to me — not relative to current earnings, at least. 

The Ethereum dashboard produced by Blockworks Research estimates the “value flow” to ETH stakers (fees + MEV) at $262 million for Q3.

On the one hand, that’s a lot — from the sentiment on X, you might get the idea that people are not using Ethereum at all, which is clearly not true.

On the other hand, is it enough to support a $300 billion valuation?

Annualizing that Q3 estimate, we can estimate that Ethereum is trading on about 300x “TEV” or “total economic value” (the crypto version of earnings).

I’m not sure how you square a 300x earnings multiple with the idea that people are excessively bearish on ETH.

If a $300 billion stock was trading on 300x P/E, everyone would be asking, “Why are people so bullish on it?”

Q: Why does it have to be about earnings?

Because I’m from TradFi and I don’t know how else to do it. 

Crypto natives see it differently, of course.

@gametheorizing argues that “Eth is community money, and its value is purely derived from the bonding strength of its community.”

Even more poetically, @llamaonthebrink says the value of ETH should be “the value of humanity when you give people maximum expressive freedom.”

They might be right — that could well be the value of ETH.

But ETH also has a price and if you want to argue that the price is too low, you need a way to measure it.

I don’t see anything measurable that suggests ETH’s price is obviously too low. 

Q: Could you put that idea into song for me? 

No, but Vitalik can — and just did, with this little ditty about “a new form of wealth” that he performed on stage in Singapore yesterday.

And if that can’t put in the low for ETH, I’m not sure anything can.

(No, I can’t measure that.)

— Byron Gilliam

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Avantgarde Finance dives into the DEX aggregator landscape in their latest report. Key takeaways include:

• 1inch has seen market share decline on metrics such as volume

• ParaSwap and CoW look relatively undervalued on market cap to fundamental ratios

• Token utility varies significantly, such as with PSP offering notable staking benefits yielding up to 31%

• New features set to differentiate protocols further and may serve as catalysts to narrow existing valuation gaps

Download our report today to find out more!

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