Good morning!☀
Here's your weekly roundup of the most interesting things I've read, learned, or listened to. I write about the people and funds that can create a better world for us.
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💲Why isn’t bitcoin my inflation hedge?
Inflation hit 6.8% last week. Super cool. While major companies try to justify any raise less than that, millions of people are looking at their crypto portfolio wondering why bitcoin has absolutely tanked in the last month. As of today, Bitcoin is trading around $46,700, off its November high of almost $69,000. One reason people have put their money into crypto is the idea that it’s particularly resistant to inflation. So what gives? Where’s my hedge?
Well it’s true that Bitcoin has gained significant value while the dollar has lost value. Bitcoin went from virtually worthless in 2010 to more than $20,000 in 2020 to $60,000 just a few weeks ago. Meanwhile, the dollar, by design, loses purchasing power over time. 2% per year if the Fed hits its goal. 6.8% per year if you live in a time when politicians cross breed a fire hose with a money printer.
One reason for the belief in Bitcoin has a hedge is the limited supply. The supply of USD has increased 37% since 2020 while the supply of Bitcoin has increased 4%. By design, there will only every be 21 million Bitcoin in existence, and every four years the amount of bitcoin that can be mined is reduced by half (known as halving, duh). To date, approximately 19 million Bitcoin (90% of the total) have already been mined. This scheduled tapering of new supply over time makes Bitcoin predictable in unique ways — unlike gold, no new bitcoin can ever be “discovered.”
So what’s happening now? All the above is true. Now is Bitcoin’s time. When comparing two assets, it’s easier to believe the price of the supply-constrained one will go up more than the one that’s constantly oversupplied all else being equal. All else being equal. That’s the part you won’t get from from Coinbase or Bitcoin maximalists.
Bitcoin as a hedge, asset, or any store of value only works if a critical mass of people decide it does. Why has gold historically been an inflation hedge? Because people decided it would. Common knowledge - everybody knows that everybody knows that gold is an inflation hedge. When you lose trust in the dollar, you put your money in gold. That may be the case with Bitcoin one day, but whether or not that day is today is still speculative. Now may still be a time to buy Bitcoin, but maybe not as an inflation hedge.
If you get updates from Coinbase and read their latest “Bytes” email, the hearty answer to the question of “why isn’t this acting like a proper hedge” is: “what? well look over here. other good stuff is happening!” Because, in the end, it only works as a hedge if everybody decides it does and common knowledge takes hold.
🧬Storing DNA in computers or storing computers in DNA?
Matrix Revolution is coming out soon, and I’m super pumped. It used to be ultra futuristic to imagine using humans as computers or storing DNA on computers. Taking the essence of ourselves and uploading it onto analog computers. But things have started to shift the other way. We’re not interested in storing DNA on computers, we’re interested in storing traditional data on DNA. 🤯
Today we spend 2% of our global energy on processing. To put that into context, when OpenAI created GPT-3, training the algorithm took 3 months and cost $10m for 20 megawatts. That’s equivalent to the power 13,000 homes consume in a year. Those chips, like the ones powering the screen you’re reading this on, are GPU chips likely from NVIDIA, Intel or TSMC (who is at the center of much of the China/Taiwan tension). GPUs, literally graphic processing units, are the most advanced chips in existence, but they were built for video game graphics, not massive AI training sets. So when teams need to handle large training sets, they have to use brute force to get their algorithms to run on an exorbitant amount of chips, thus the energy costs. When OpenAI trained GPT-3, the had to use 10,000 GPUs when the most advanced algorithms at the time only used two (2!).
Frontier companies are creating a new set of chips for the modern world by taking cues from biology.
On the processing side, the team at Rain Neuromorphics is creating new hardware to more efficiently process today’s AI algorithms. How? Basing the designs on the human brain.
Rain’s chips are laid out to mirror the brain with many highly paralleled channels of information. Unlike chips today, Rain’s nodes integrate both memory and processing. Because they can handle much more complexity with more elegance, Rain’s processing chips require 1/1,000 of the energy.
Then there’s storage. Companies like Iridia are creating new storage models by, again, taking their cues from biology. This time, it’s DNA.
Currently, more than 20 zettabytes of digital data are lost each year due to storage capacity limitations. Companies like Iridia are attacking this problem by solving the density problem. In other words, how much data can we pack into the smallest possible space. Currently 1GB of data per cm3. But one of the most dense forms of information capture in the universe is DNA.
Rather than storing information as 1 or 0, DNA storage technologies store digital information into sequences of nucleotides (ATCG - the building blocks of DNA). Our traditional 1s and 0s are converted into As, Ts, Cs & Gs and synthesized into DNA strands. The sequenced DNA can then eventually be read back much like DNA is today. Companies like Iridia are going a step further to ensure these sequences can be easily read directly by current systems. This takes us from about 1GB of storage per cm3 to 1PB (1,048,576 GBs) per cm3.
In today’s world of microchip shortages, there’s no lack of demand for any chips, even lowly GPUs from NVIDIA. But as more of these companies commercialize new products, not only will they unlock new software opportunities, but they’ll also cause a step change in cost-sensitive data centers. Even if these chips are significantly more expensive, which they should be, 1,000x less energy use or 1,000,000x more storage capacity is not a tough ROI to justify. Look out Intel.
✒I'm currently working on:
Finalizing my dirt-y thoughts (agriculture investment thesis) over the holidays. Shoot me a note if you’re interested in adding to it or critiquing it.
What stuck with me this week:
Nancy Pelosi is the greatest trader of all time:
And a few related ones:
And my favorite:
We can still have nice things:
Party on, Wayne
— Nico