The Big Crypto Short, Part I:

Betting Against the Tower Records & Blockbusters of the Pre-Blockchain World

At the dawn of this new millennium — it’s easy to forget we’re still in the early days of 2k — we have witnessed a great exodus. Thousands of terabytes of information have migrated from the physical world into the digital.

These courageous data left their old lives behind sailing forth into the new land of the Internet for one simple reason: freedom. Information is more free in the land of bits than in the land of atoms. It can do more, it can spread more easily, and it is unbound by the arbitrary restraints of the physical world. In short, the Internet is a better home for most information.

Today, we see the dawn of the next great exodus. Just as information has fled en masse to a new frontier where it is more free and more powerful, value is now setting sail for a new frontier where it too will be more free and powerful: blockchains and crypto economies.

Value wants to live in crypto, because in this new land it is free. It is free from censorship, dilution, confiscation and top-down control. And it can do more in this new land: it is programmable, trustless (requires no faith in middlemen) and permissionless i.e., anyone can access and transact value, not just the small slice of humanity who has traditional banking access.

I recently proposed that in the long run of this great exodus, it may be easier to predict where value will leave than where it will arrive, i.e., it is easier to predict who will lose (value) than who will win. And just as we seek to buy things that will gain value with the rise of crypto we can bet against those things that will become antiquated. The march forward of human ingenuity is a merciless process and those who fail to adapt will die.

In the crypto realm, it’s hard to predict what will capture value both inter-asset e.g., Bitcoin vs. Monero and intra-asset e.g., developers, miners/stakers etc. But if crypto takes off, we can be sure that the Tower Records and Blockbusters of the pre-crypto world will adapt…or die. If crypto takes off, what current industries, companies or assets will die? Put differently, where is the cost of not decentralizing the greatest and the friction to decentralize the least? What exists in today’s world only because we can’t do trustless economy? What industries and companies are over reliant on middlemen? What assets lose relevance with the advent of digital scarcity? In the same way that you might short the auto insurance industry if you think that driverless cars will make it obsolete, you may short companies or assets that will likely be antiquated by the rise of crypto.

Uncovering potential shorts is a project far too demanding and dangerous for a clueless amateur like myself. But I’d never let that stop me.

In each post in this series, I’ll look at a different industry or asset and why it might decline with the rise of crypto.

Let me be crystal clear that what follows is a fun thought exercise, nothing more. It is not investment advice, and I mean this. Shorting is a high-risk pursuit and demands rigorous research. These are just some potential starting points and only those with expertise should consider researching and pursuing specific opportunities.

In each post, I’ll lay out a thesis about some industry or asset that I think will be antiquated or outcompeted by crypto. I’ll end with a counter thesis about why I might be wrong.

Some things I plan to look at in upcoming posts: the centralized sharing economy i.e., Uber and Airbnb, centralized gaming, the physical casino industry and precious metals as a store of value.

Stay tuned.

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