Breaking Down Bitcoin - Sean Walsh - Los Angeles

Breaking Down BitcoinBubble Or Greatest Invention Since The Internet?

Los Angeles – November 2017

Sean M. Walsh - sean@redwoodcityventures.com - @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 M. Walsh

Background:

• Redwood City Ventures (Bitcoin/Blockchain Focus)

• Advisor, Science Inc. Blockchain in Los Angeles

• China/US Business & Investment Partnerships

• Previously VP at Bertram Capital ($1+B Silicon Valley

Private Equity firm)

• Created several $100 Millions in new Enterprise Value

• Online Product Development + Customer Acquisition

Contact Information:

• sean@RedwoodCityVentures.com

• Twitter: @SeanWalshBTC

• www.linkedin.com/in/SeanWalsh

• WeChat: BigWaveW

Notable Projects

• Advisor, Science Blockchain

• Blockchain Startup Incubator

• ICO Advisor

• Substantial available capital

• Science Inc - $1.4B in exits…

• Largest Blockchain Security Datacenter in North

America (aka mining farm)

• 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 Bitcoin investment

opportunities.

Objective 3: Describe a couple of specific investment

theses that we are actively pursuing.

sean@redwoodcityventures.com - @SeanWalshBTC - www.linkedin.com/in/SeanWalsh

Important Disclaimer

I’m not a registered investment

advisor, or tax advisor, or attorney.

Do not rely on anything I say as

professional advice.

It’s just my personal opinion.

The Basis Of Our Fascination

Ecommerce

MonetaryFactors

SocialNetworking

1. Ecommerce/Online User Acquisition

2. Social Networking / Viral Marketing

3. Monetary/Economic Factors1. 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. What is the scaling debate, and Bitcoin Cash?

9. What resources exist to learn more?

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

1. Scarcity: limited, predictable supply

2. Durability: won’t decay

3. Divisibility: easy to subdivide

4. Recognizability:difficult to counterfeit

5. Fungibility: units is exchangeable

6. Transportability:easy to move

They all boil down to trustworthiness of the money.

Principle #1 – “Moneyness”- 6 Characteristics of Money

Gold = 18

USD = 13

Arg Peso = 10

Frequent Flier Miles = 5

Starbucks Cards = 6

Cowrie Shells = 15

Scarcity

Durability

Divisibility

Recognizability

Fungibility

Transportability

Principle #1 – “Moneyness”

BitcoinSDDRFT Score = 22

(out of 24)

CowryShells

Gold USD Arg Peso FrequentFlier Miles

StarbucksCards

Bitcoin

“Moneyness”

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…

-0.144

-0.190

-1.000 -0.800 -0.600 -0.400 -0.200 0.000 0.200 0.400 0.600 0.800 1.000

BTC Price

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

-0.316

-0.357

-0.691

-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

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

100.00

110.00

120.00

130.00

Jan-2015 Feb-2015 Mar-2015 Apr-2015 May-2015 Jun-2015 Jul-2015 Aug-2015 Sep-2015 Oct-2015 Nov-2015 Dec-2015

Asset Prices #1, Last 12 Months

Arg Peso

USD DXY

10YrUSTr

Case-Shiller

WTI Oil

BTC Price

100.00

110.00

120.00

130.00

140.00

150.00

Jan-2015 Feb-2015 Mar-2015 Apr-2015 May-2015 Jun-2015 Jul-2015 Aug-2015 Sep-2015 Oct-2015 Nov-2015 Dec-2015

Asset Prices #2, Last 12 Months

S&P 500

NASDAQ

S&P 500 Corp

MSCI EM

BTC Price

Bitcoin Price - 2017

Graphics courtesy of http://www.visualcapitalist.com/33-signs-that-bitcoin-growth-isnt-slowing-in-2016/

Graphics courtesy of http://www.visualcapitalist.com/its-official-bitcoin-was-the-top-performing-currency-of-2015/

Bitcoin Price History

Approx Annual Change:

2010: 1,000%+

2011: 100%+

2012: 1,000$+

2013: 5,000%+

2014: -50%

2015: 35%

2016: 125%

2017: 600%+ YTD

Principle #2 – The Current Situation?

• About 650k people with 1+ BTC

To me, these are our “Customers”

• $7,000+ per BTC (and about 50k new BTC per month)

• 300k+ transactions per day

• 1+ Million BTC traded per month on Top 10 exchanges

• Developer turmoil

• Shutdown of Chinese exchanges

• Geopolitical risks increasing

Bitcoin Exchange Volume by Currency

https://www.cryptocompare.com/coins/btc/analysis/USD?type=Currencies

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%

$3,132

$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

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

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

More Bitcoin Network Resilience!

Bitcoin Price = $4,200

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

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.

Consumerto

Business

Consumerto

Consumer

Businessto

Business

"Financial Transcations"

Principle #4 – Transaction Volume

Note: Legacy network is hitting limit of 3 tps.

Bitcoin Cash upgrade increased throughput by 8x

Principle #5 – What fundamentals drives value of Bitcoin?

1. Metcalfe’s Law

2. Transaction Volume / Means of Exchange Use

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

Principle #5 – Customer Base Growth

Note: 1+ BTC Wallets now 660k, from 619k on 09/12/2017 (25k monthly

growth, vs. 10k historically)

Principle #6 – Will Price Trend Continue?

1. Metcalfe’s Law

2. Bitcoin Customer Base Growth

3. Institutional Money Flow

4. Price Elasticity of Supply

5. Bitcoin Dilution Trend

6. 99.9% Of Capital Is Sitting On Sidelines

7. TAM Of Over 3Billion internet-connected

adults, but just 600k people own 1+ Bitcoins.

Principle #6 – Institutional Money Flow

Bitcoin Futures Markets - US Launch

Principle #6 – Institutional Money Flow

Economic Theory: Price Elasticity of Supply

Basic Concept:

As price increases

Additional Supply

enters market

Price Elasticity Of Supply - Bitcoin

New Minted Coins

(54k per month)

+Coins Sold

by Holders

Supply=

As price increases, supply

declines, leading to

acceleration.

Bottom

$8 Billion max on Exchanges

99.9% Of Capital Is On The Sidelines

http://money.visualcapitalist.com/worlds-money-markets-one-visualization-2017/

$70 Trillion – 8,750x $80.9 Trillion – 10,100x

Bitcoin

Principle #7 - Risks To Success

1. Regulatory Crackdown

2. Renewed attempts at regulatory circumvention (illegal activities)

1. It’s terrible publicity to our target Users

2. It intensifies regulatory scrutiny and crackdown risk

3. Developer infighting / transaction bottlenecks

4. Dramatic BTC price drop

Regulatory Crackdown, 1 of 3

Asset Class Bubbles…

Principle #8 – Scaling Debate and Bitcoin Cash?

1. Bitcoin Legacy network limit = 3 transactions per second

due to block size.

2. Blockstream has hired many of the “core developers” and

instructed them to prevent blocksize increase to establish

demand for their proprietary product, the Lighting Network.

3. Bitcoin believers launched an upgrade called Bitcoin Cash

on 8/1/2017, allowing 8x transaction volume.

4. Bitcoin Cash, now valued at $600, is more heavily traded in

Korea and other markets, due to belief in the “flippening”

(that it will overtake Bitcoin Legacy price).

Principle #8 – Scaling Debate and Bitcoin Cash?

Principle #8 – Where To Learn More?

Good Resources:

- CoinMarketCap.com

- Twitter: @dan_pantera,

@barrysilbert, @JihanWu,

@ViaBTC, @cnLedger,

@BitcoinCashFans, @jgarzik,

@el33th4xor

- Blockchain.info Charts

- SmartBit.com.au Charts

- CoinDesk.com

- Bitcoin.com News

- Reddit.com/r/BTC/

- BTC.com Stats and Mining Calc.

Dangerous Due To Extreme

Censorship:

- Reddit.com/r/Bitcoin/(See Reddit.com/r/noncensored_bitcoin/)

- BitcoinTalk.org

- Bitcoin.org

What Investments Are Popular, And Where Are We Focused?

1. [RWCV] Simple Bitcoin Purchase/Ownership

2. [RWCV] Bitcoin Mining (bare metal, or cloud)

3. [RWCV] Bitcoin Datacenter Construction, Operation

4. [RWCV] Datacenter Sale via Private and Public Markets

5. [RWCV] Federated Customer Acquisition Campaign

6. Grayscale Bitcoin Investment Trust

7. CME and CBOE Derivatives Markets

8. [RWCV] ICOs (Initial Coin Offerings)sean@redwoodcityventures.com - @SeanWalshBTC - www.linkedin.com/in/SeanWalsh

Blockchain Security (Self-Mining)

Unit Economics, Example:- Bitmain S9 Server:

- Hashrate: 14 Terrahashes/sec

- Power Consumption: 1,500 Watts

- Unit Cost Cost: $1,350

- Revenue, mo: 0.09867 BTC ($480 on

10/09/17)

- OpEx, mo: Under $50

BTC Mining Pool

Market Share

Bitcoin Mining Distribution

60%15%

• 75% of the Bitcoin network processing power is in China, Russia,

and Eastern Europe…

Sources: blockchain.info, CoinDesk, RWCV estimates

20 MW Datacenter Overview

20 MW Datacenter Overview cont…

Federated Customer Acquisition – Our Goal

Reach 1.2 million people who own 1+ BTC within 24

months.

(double today’s total)

Using a traditional online affiliate marketing program.

Campaign Details, 1 of 4

1. Tokyo

2. California

3. Florida

4. New York

5. Seoul

6. Delhi

7. Texas

Where:

Who:1. Investor ($40k+)

2. Online Brokerage

3. Specific Locations

4. Age < 50

Note – the target is ~2.5k customers per region per month

What’s the Outreach Strategy?

1. Affiliate Marketing Campaign in each target market.

2. Affiliate Success = New Customer purchases 1+ BTC on a

participating local exchange.

3. We pay affiliate $50 per new customer.

4. Recruit 500 Affiliates in each market (in partnership with

Exchanges).

5. Affiliates will inspire their respective follower-bases to become

customers (offline activity, online events, etc.)

6. New Customers = 600,000 (avg. 60 per affiliate)

What’s the Budget? Schedule?

1. Affiliate Commission = $50 per new Customer (paid in BTC)

2. Budget = $500k per month

3. New Customers Per Day Per Market = 80

4. % of New Bitcoin Supply Absorbed = Over 20%

5. Campaign Duration = 24 months

This brings us to the Virtuous Cycle…

Consortium Funding Status:

• Funding members include several of the largest

companies in the Bitcoin ecosystem.

Monthly Commitments:

$0 $500k per

Image courtesy of https://cointelegraph.com/images/

$300k per

$0.5M$12M

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

ACQUISITION CAMPAIGN RETURN PROFILETotal Expense Total Investment Value

TVPI %: 813%Initial Capital ROI %: 731%Expenditure ROI %: 1982%

$33M $33M$79M

$1000M

0.5% 2% 5% 10%

MOM Growth

Investment Return: Four Scenarios Starting Investment Value Investment Value in 24 Months

TVPI: 2x

Expenditure

ROI = 7,000%

Conclusion

1. Bitcoin is wildly attractive to 300+ Million people.

2. Yet, only 600,000 people own one

3. Bitcoin is a profoundly novel invention deserving much attention

and respect.

4. Bitcoin is almost inconceivably scarce.

5. Evidence seems to exist supporting strong long-term growth of

Bitcoin and many crypto-assets.

6. Always start new investments slowly, and develop expertise.

7. Bitcoin, crypto-assets, and ICOs are risky and volatile.

Sean M. Walsh

Background:

• Redwood City Ventures (Bitcoin/Blockchain Focus)

• Advisor, Science Inc. Blockchain in Los Angeles

• China/US Business & Investment Partnerships

• Previously VP at Bertram Capital ($1+B Silicon Valley

Private Equity firm)

• Created several $100 Millions in new Enterprise Value

• Online Product Development + Customer Acquisition

Contact Information:

• sean@RedwoodCityVentures.com

• Twitter: @SeanWalshBTC

• www.linkedin.com/in/SeanWalsh

• WeChat: BigWaveW

Money Transportability & Scarcity…

Appendix & Old Slides

3600 BTC

1800 BTC

July 2016

The “Halving”

Current Situation – Interesting Trend, Cont.

Principle #5 – What Transactions Can Bitcoin Improve?

For now…

– forget about scalability

concerns

– focus on Go-To-Market

– focus on financial services

What are the use cases?

1. Non-correlated asset class

for storing value

2. Digital money for retail

discounts

3. Global P2P Money

Transmission

How To Spread Messages?

STEPPS:1. Social Currency

Koreatown bar’s nightly code word

2. Trigger Moments

Budweiser “wazzap?” campaign

3. Emotional Stimulation Level

Emotion’s polarity is secondary

4. Public Displays

Apple’s white headphones

5. Practical Value

How-to Youtube videos

6. Stories

Fundamental to humanity

We May Achieve Viral Growth

We need to think like so-called “Growth Hackers”

We need K > 1.0

Measure & Optimize GTM Success

1. Create a Closed Feedback Loop

Build >> Measure >> Learn

2. Achieve Validated Learning to

test campaign assumptions

3. Avoid Headline Metrics

Measuring Our GTM Success

Key Monthly Metrics:

1. Affiliate referral volume

2. Growth of 1+ BTC wallets

3. New Customer Acquisition Cost (Campaign Expenditures / New

Customers)

4. BTC price change

5. Transactions per day growth (excluding popular addresses)

Notable Moments in Bitcoin

1983-1998: David Chaum, Cryptographic “blinding formula”, DigiCash

1999-2005: Flooz, Beenz, e-Gold, regulatory crack-down and dot-com bust

1999: X.com becomes PayPal and abandons virtual currency aspirations .

2006: Anshe Chung becomes first millionaire from virtual property on Second Life.

2009: Mysterious figure “Satoshi Nakamoto” launches Bitcoin network, first transaction to Hal Finney.

2010: May 22 – Bitcoin Pizza Day, 10k paid for 2 Pizzas in Florida

2013: December - 5th Bitcoin price peak ($0.08, $1, $32, $266, $1,100)

2013: October – FBI seizes Silk Road

2014: February - Mt. Gox goes out of business

2015: Wall Street embraces Bitcoin/Blockchain

Breaking Down Bitcoin - Sean Walsh - Los Angeles

Internet

Transcript of Breaking Down Bitcoin - Sean Walsh - Los Angeles

Predicativity, the Russell-Myhill Paradox, and Church’s ... · FPMW7, Paris, November 7 2015 Predicativity, the Russell-Myhill Paradox, and Church’s Intensional Logic Sean Walsh

Bitcoin canada price | Vancouver Bitcoin

Bitcoin Live: Scalable system for detecting bitcoin ...snap.stanford.edu/class/cs224w-2015/projects_2015/Bitcoin_Live... · Bitcoin Live: Scalable system for detecting bitcoin network

14 - 2 Bitcoin More on bitcoin Ted Talk 14 - 3 Bitcoin Ted Talk.

Sean Walsh, Asset Manager - National Infrastructure Planning · Communications via the GSi may be automatically logged, monitored and/or recorded for legal purposes.

PUBLICATION PLANNING IN PRACTICE: … Uddin, PhD & Sean Walsh, PAREXEL Access Consulting Industry-agency relationships (Introductory) Tom Grant, PhD, Complete …

Final Judgment Of Walsh v Walsh Divorce

Bitcoin, Banking and the Blockchain - SFMW.pdf · Bitcoin, Banking and the Blockchain SFMW Sean Carmody March 2015 . Virtual currencies are needed for a virtual world 2 Appeal of

Bitcoin Trading: Should You Invest in Bitcoin?

Bitcoin: An Innovative Alternative Digital Currencybitcoinaffiliatelist.com/wp-content/uploads/bitcoin-by-reubengrin... · WINTER 2012] BITCOIN: ALTERNATIVE DIGITAL CURRENCY 161 Bitcoin

Bitcoin 101 - Bitcoin For Beginners by World Bitcoin Network

DNX GLOBAL Workshop ★ Diego Araos & Sean Casey - Beginner's bitcoin and ethereum for nomads!

Fragments of Frege’s Grundgesetze and G odel’s Constructible … · 2018-10-03 · Fragments of Frege’s Grundgesetze and G odel’s Constructible Universe Sean Walsh October

Dr Sean Walsh: 'Compliance mechanisms in global climate ... · Sean Walsh (University of Western Ontario) & John Whalley (University of Western Ontario & CIGI) March 13, 2012

Bitcoin and its o spring: a volatility risk approach · (Litecoin, Bitcoin Cash, Bitcoin Gold, Bitcoin Diamond, and Bitcoin Private). Forks often create price volatility and instability,

exponencial Blockchain: Una tecnología...Crypto-Tech Platforms, Programs and Protocols Non-Bitcoin Blockchain Bitcoin Currency Blockstream Truthcoin Bitcoin Blockchain Bitcoin Currency

Dorset County Hospital Orthopaedic Surgeon Sean Walsh · Sean Walsh Orthopaedic Surgeon Dorset County Hospital Southampton Hand Course 28th June 2013 ... But not every alteration

Bitcoin. Bitcoin Wallet Bitcoin Wallet - receive.

COACH SEAN WALSH Pride News/44-45 Girls... · COACH SEAN WALSH Schedule VARSITY TEAM Front Row: Second Row: Back Row: 2010 Girls Cross Country 44

Tipperary G.A.A. Information Booklet · SEAN WALSH Liatroim Thoir, Maigh Mhean, ... Slievenamon Rd, Thurles e-mail: secretary.tipperary@gaa.ie Eamon Buckley 086 3838767 Viewmount,