Bitcoin is a sentiment trade, not an inflation hedge

Thoughts about recent news

Inflation concerns ticked higher as 2021 shuffled from the second quarter to the third. And after rising to new highs in April, bitcoin has largely since shed value.

So much for bitcoin being an inflation hedge.

Then in recent days reports discussing Amazon’s potential acceptance of bitcoin and use of other cryptocurrencies cropped up. And up went the price of bitcoin.

The two episodes have helped me better understand precisely what bitcoin is. It’s simply a speculative asset that banks on future hype regarding acceptance, use, and favor for price gains.

Of course, that’s most speculative assets, right? Sure, but that’s the point. Bitcoin doesn’t seem to be incredibly different from other high-vol assets, except for having a history of even greater-than-average vol. It’s like an asset-ier asset. Or a more speculative speculative asset.

That means that bitcoin will always be fun to watch, and fun for other to trade with. But it doesn’t mean that bitcoin is going to be the Internet’s currency. I think that that place in the market will be reserved for some constellation of stabelcoins tied to fiat currencies, and a few major blockchains that prove themselves to be the best hosts for developer activity.

This makes me more bullish on the Solana and Ethereum chains to create something of more value than the simple asset-ness of bitcoin. They are platforms that, based on the data I can find thus far, developers are betting the future of the cryptoeconomy on. Cool.

I suppose I find the developers more interested in building newer, faster, better chains far more interesting than the bitcoin maximalists who think that every new crypto innovation can be shoved backwards into the OG coin’s chain. That’s just boomers wanting to preserve upside at the cost of innovation. Who needs it.

Birthdays, and other melancholia

I promised Natasha I'd write about turning 32, so let's do this!

This is my personal blog. There will be a typo or two below. If that bothers you, write your own damn blog. — Alex

I recall turning 28 being a bit shit. When you are 27 you can lie to yourself and claim that you are still in your mid-20s. Young. Full of potential. But 28 was different, it was a decidedly late 20s figure. I was getting old.

Imagine how lovely it was to turn 32 this week. It was somewhat awful. My body rebelled against me the day before my birthday, complaining that my recent diet of coffee, pizza, and small pastry-encrusted-hot dogs and donuts wasn’t really the jam. So, I spent much of early Wednesday morning downstairs on the couch with pain in my gut wondering if I was too young to get killer heartburn.

I am not, it turns out. All of that day was a blur thanks to a huge sleep deficit, so I got to Thursday, my birthday, pretty tired and with a full slate of work to do.

Not that I mind work. I don’t. I honestly fucking love being productive; my parentally-gifted Puritan work ethic fits neatly into my chosen career, and I’ve come to peace with that even if I am still more anti-theist today than anything else.

I digress.

My birthday was a bit of a suck, frankly. Not that people weren’t lovely. Natasha and Chris got me a custom tank top. Aash had an actor from a somewhat obscure Irish television show that I love record me a celebratory cameo. My wife made sure I got cake. My family called. Many people sent kind DMs.

But as I tried to explain to my dear friend David this morning over coffees, I feel a bit lost. I have mostly done the stuff I had in mind a few years ago. Liza and I are married. We got a third dog. I got back into reasonable shape. Several years of aggressive savings have paid off in the form of more financial security than I’ve ever had before. I made it through COVID sans illness and have been vaccinated. I got back into therapy. I started taking anti-anxiety meds. I’m flying my parents out to see us soon. I moved from SF to Providence, and got back to the job I should have kept all along.

And now, well, what.

In a sense children are the obvious answer. We’re working on that, even if I don’t have any news to report on the matter. But until we do have a kid — the first of several, per my partner’s planning — I am mostly just doing the same stuff on repeat. Which is good for me, as routine is my jam and doing the same stuff again and again keeps me sane and helps me stay sober. But all those nice words did not save me from ennui this birthday week.

(I am very aware of my enormous privilege, I want to add at this juncture. Everything in this post is what the AA kiddos might call problems of abundance. First world problems, in other words. But this is my personal blog and this is where I am at. So, here we are.)

It’s ironic that I feel a bit flat, as I positively crave time to obsess on things. You might think that the sort of person who will listen to the same song 1,000 times before they get tired of it would not mind a little repetition. But, but, but.

Anyway, a big thank you to everyone in my little world of friends, and my sober crew, for their presence in my life. And the biggest thanks of all to Liza, who loves me even when I inexplicably get bummed out for what appears to be no good reason other than I am not currently stressed to the marrow about something inconsequential.

Here’s to a good year.

Solving the Spotify Problem

Our dogs woke me up at 5:30 a.m. this morning. Again. So, over some early coffee here’s a thought I’ve had for a while. I am tired so expect a few typos. Hugs, hope you are well. — Alex

As a music fan I am stuck both loving Spotify and loathing it. I’ve been a Spotify user since before it was officially available in the United States, and have happily paid the company for longer than I can recall. The service is easily among the most high-value products that I buy each month, and it’s among the cheapest.

It’s not hard to see why consumers are flocking to streaming. It works everywhere. The price point is attractive. And the fear that many music fans had about streaming music instead of owning it have mostly gone away thanks to playlists. If Spotify eventually dies, so long as I can export my playlists, my music collection will live on.

Streaming is not going away. The economics are too good for major labels for it to die. Variety reports that RIAA data — an odd thing to trust, but here we are — indicates that some 83% of American music revenue in 2020 came from streaming. Here’s the chart:

Powering that huge slice of the American musical revenue pie is a steadily-growing number of subscribers to streaming audio:

The streaming economy has meant a growing domestic music industry (9.2% growth in 2020, per the RIAA), a business that for some time looked bleak. Spotify’s model effectively solved piracy, and remade the musical world in its own image in a single move. There’s no going back.

But while streaming can prove attractive for major acts and labels, it doesn’t work quite as well for smaller labels. That’s a problem as I listen to quite a lot of modestly obscure stuff.

Let’s say that I discover a new band that I quite like. For example, I’ve recently become enamored with a group called Lorna Shore. Their music makes my soul happy and my heart full. Here’s a sample. When I was a kid, I would have gone to Borders or the local campus bookstore, or similar to buy a CD of their tunes. I turn 32 this week, in case you were trying to guess my age.

I would have paid something like $13 or $16 for that record. And I would have played it quite a few times. I know this because this was my life. I bought Less Than Jake records at the campus bookstore. I bought Christian rock CDs earlier in my youth at the Christian bookstore. I saw my first Metallica promotional material at a Borders, back when St. Anger came out. I remember scanning CDs at a little in-store kiosk, just so that I could pay a sample from the disc to get an idea what I was listening to.

I love music precisely as much as I did then. But when I consume roughly the same amount of Lorna Shore today, the band doesn’t do as well. It’s unlikely that I will stream their music enough times on Spotify to generate the same amount of revenue as my buying a CD would have, back in the day.

Here lies the conundrum in the streaming world: For major acts, often consumed via the radio in prior eras, streaming can be a great way to monetize listeners, including individuals who might not have purchased the music in question in the past. For big bands and famous singers, the growth of streaming revenues indicates a future when they might have some of the best economics in the history of music, provided that their contracts treat them fairly. They probably don’t.

But for smaller bands, less-known rappers and the like, the model can be a bit shit. Streaming incomes haven’t replaced physical music sales to the same degree as with larger artists, and so I am stuck paying what feels like too little to Spotify, contributing less than I should to the bands that I adore. Sure, I listen to lots of mainstream stuff. But I doubt that the fine lads at Lorna Shore are ever going to strike a true geyser of Spotify money.

Partially this is my own fault. I could buy a vinyl of their tunes. And I do that sometimes. I bought the last Fit for an Autopsy record on Vinyl simply because after seeing them play live once, I was utterly hooked on their music.

But I don’t always do that. And in the last year it’s been nearly impossible to support bands via concert attendance. I did pay to attend a number of virtual concerts, but I was still taking more than I was paying back. I also buy some band merch. But, again, I still spend less than I probably once did, or would have.

One way to solve this issue would be to have Spotify raise its prices. If it did, it could boost its per-stream rates, and then smaller bands might find thesmelves in better shape.

Sadly, Spotify can’t charge me more. It would like to, I reckon. But Apple can afford to subsidize its competing music service, so Spotify has to compete on price or risk its entire business. This means that Spotify cannot pay out more per stream that it currently does. (Don’t get too mad at Spotify, it’s gross margins hover at around the 25% mark, a slightly high but not egregious figure for what it provides. It’s hardly taking half, and is accruing to itself less than Apple takes from its application marketplace.)

The streaming company is trying to solve its inability to raise prices by offering originals and exclusives. It’s a bit of the Netflix model, but inside of Spotify. However, as Spotify can’t attack its supply in the same way that Netflix has — can you imagine the row if Spotify signed acts to exclusive deals? do we even want our music platform companies taking certain musical groups, in effect, private? — I doubt that it will enjoy similar success in the effort.

The only way that I can think to solve the problem that we’ve outlined — streaming is great, streaming has taken over, the model doesn’t work incredibly well for smaller musical groups and more obscure genres, and that Spotify lacks the pricing power required to make its per-stream revenues more attractive — is to let me choose to pay more, and to groups that I choose.

Micro fan subscriptions, in effect. Spotify should build the ability for its users to choose to support a particular group, individual artist, podcast, or label, with a regular payment. A sort of Patreon inside of Spotify itself.

I would pay a few dollars each month to a number of groups that I could not live without. Doing so would shake up the streaming model. Lorna Shore would attract a good number of subscribers, myself included, driving a regular stream of income apart from what it currently generates from mere listens. And Spotify could take a nice 10% cut of the money for its troubles. The payment economics would be fine, as Spotify already makes a single charge to my card, and already distributes the money in pieces to different groups.

There are problems, of course. Record contracts are longitudinal. Most likely would not be re-written to account for this feature. But smaller labels and smaller acts likely would be able to move more quickly. And it’s those groups that would find the most marginal benefit from the concept, regardless.

Other issues exist. But streaming was impossible before it was experimental, and it was experimental before it began to grow, and it slowly grew before it took over. Streaming was a revolution. How about another?

I want to be a good citizen of music, and I want to keep using streaming platforms. And I am tired of hating a service that I love.

A few more thoughts on funding rounds

Hey! I used to just blog on the ol’ substack, but a friend told me to stop being a fucking coward and send my notes via email. Since people subscribed to get them. So, here you go! — Alex

A few months ago, I was on the phone with a Prominent Venture Capitalist who remarked off-hand that the media no longer cared about, or covered startup funding rounds. This isn’t true — I compile the Daily Crunch email every afternoon; we’re covering a lot of deals — but the comment stuck with me.

Why did this investor think that deal coverage was dying, or dead? I’ve figured it out.

This morning I got to do a little writing with my colleague and comrade Anna, digging into Q2 2021 venture capital activity. The resulting piece was essentially a highlight reel, a list of superlatives, a digest of investing decadence. There’s so much money bashing around the startup world today that records are being set in nearly every region and country.

Just for flavor:

$156 billion is what CB Insights has on the books for global venture capital activity in the second quarter, up from $60.7 billion in Q2 2020. That’s a gain of 156% on a year-over-year basis. A FactSet chart indicates around $150 billion was raised in the second quarter, up a similar percentage from its year-ago result as what CB Insights counted.

The same source recorded a record number of deals in the quarter — 7,751 — along with a record number of new unicorns born in the period, some 136.

That is why folks in venture capital are struggling to get writing folks like myself to notice any particular round or another, and may think that the media is no longer is interested in the regular flow of startup investments. There are simply so many that it’s all but impossible to cover more than a small fraction of them, so it feels to the less-discerning that interest has dried up.

Which is wrong. Instead, the media is simply covering a smaller percentage of total deal volume over time, as the number of reporters on this particular beat is flat at best, and venture activity has gone through the fucking roof.

My solution to the situation has been to get even worse at email, and demand more from the rounds that I cover. Others reporters will handle the deluge in their own manner. But the sheer fucking scale of venture capital activity around the world is such that simply raising money today is a little bit whatever.

We can draw an analogy. Venture capital used to be scarce. Thus, VCs had leverage, and could underpay for startup equity while demanding all sorts of onerous terms from founders as there weren’t many other ports for entrepreneurs to call. Then more money flowed into venture capital thanks to yield-starved LPs, changing the game. Suddenly, simply having cash wasn’t enough to land a deal. VCs responded by layering on services, paying higher prices, and generally treating founders better.

You can see where I’m taking this. The venture capital reporting game used to have fewer deals and players, which meant that any single round carried more weight. Now there are infinite deals to cover, so the supply/demand curve has shifted. (In this loose comparison, I’m the startup and startups are the venture capitalists, but you follow me.)

Anyway, all this is to say that it’s super noisy in the startup market today. Standing out isn’t going to be easy, but it’s probably the only way to get noticed.

A few thoughts on funding rounds

I am more behind on email than usual, which I didn’t know was possible. But with my new newsletter role at TechCrunch time is limited, and I am having to triage more than I once had to.

That in mind, I am sharpening my filters for deciding which funding rounds to cover.

First, some context:

  • The pace at which startups are raising money is accelerating, and there is more money in venture capital than ever. This means that there are more rounds hunting for coverage than in previous years/cycles.

  • The number of reporters covering venture capital rounds — especially early-stage deals — is not keeping anything close to pace, and may in fact be shrinking.

I am struggling a bit with whom to cover. I don’t always make the best choices, at times missing rounds that I should have prioritized, for example.

To that end, I’m instituting some rules for myself to ensure that I am winnowing the inbound flow of deals to the most interesting, and to the rounds that will best help me explain what is going on in the startup market for TechCrunch readers.

Here’s what I am looking for, at a minimum:

  • Round Information: Deal size, deal close date, new pre+post-money valuations (or cap in the case of a SAFE, etc), and full details on the makeup of the investment (cash, debt, a blend).

  • Startup Information: Pertinent, useful growth metrics with a sharp bias towards hard numbers, details concerning economics (gross margin, CAC trends, etc), and burn timeline.

Some folks are going to complain that private companies don’t have to share that information, as they are not yet public firms. Correct! But there are a zillion venture rounds every week, and I can only get to three. I want to use those rounds to help explain the world. And data helps with that. — Alex

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