Crypto Investing – Bullish Exchange

Bad habits are hard to break. I gave myself three rules: 1. stop investing in new SPAC, 2. don’t get caught up in the crypto hype, and 3. hold every investment for at least one full year. Today, in a snap decision, I broke all 3 rules.

I liquidated my positions in Wells Fargo and Vulcan Materials at a small loss and invested the entire proceeds in a SPAC that signed a definitive agreement with merge with a crypto exchange that is not yet operational. What!? I must have done substantial research to gain comfort over it. Actually, I heard about this merger today, watched a 3 minute MNBC interview clip on Youtube, and decided to press the buy button 5 minutes later. I didn’t get a chance to watch the full video and investor presentation until later tonight, well after I brought.

So why was I so cavalier about my hard-earned money?

  1. I was very concerned about the news that Wells Fargo decided to get rid all its personal line of credit. Combined this with the fact that Warren Buffet got rid of its Wells Fargo holding was enough to get me to sell. This got me wanting to make another play.
  2. My familiarity with SPAC has gotten me very trading SPAC that is around the redemption amount. The stock was around $10.15 per share when I got it. So my back of the napkin calculation says my downside was $0.15/share. I only got 340 shares so in theory my loss is capped at $51 until the closing date. In effect, this is a free call option until the closing date in Q4.
  3. I heard of Block.one before. I am a huge fan of Peter Thiel and have been listening to a bunch of his podcast lately. One interesting thing he said was that: just like how the FANG stocks were to obvious/mainstream/overvalued for most fund managers back in 2017; he sees bitcoin as the obvious/mainstream/overvalued investment that most fund managers won’t touch but should provide substantial returns in the future. Now I have too much reservations about bitcoin to invest in it directly. So I thought this is a great way for me to gain the upside to crypto. I actually googled what’s the latest thing Peter Thiel invested in a while back and Block.one was a name that came up. I thought what it was trying to accomplish was very cool and lamented that it was a private company.
  4. The SPAC sponsor was the former president of New York Stock Exchange so I would assume that he was competent when he was doing the due diligence of another exchange. The fact that he’s decided to become the CEO of the Bullish Exchange seemed like a bullish sign to me, pun intended.
  5. If I were to lose money on this, then it would mean that bitcoin would be in serious decline, and that would make me happy as I share Charlie Munger’s view on bitcoin.

Now that I got a chance to read through the investor materials, what are the main concerns I have:

  1. The regulatory concern is always top of mind that it comes to crypto. However, comparatively, I think this Bullish Exchange is best equipped to deal with the regulatory concerns given its sheer size and scope. It is capitalized with billions and billions of crypto and cash assets. I don’t think any other exchange can compare. I don’t know the size of the shareholdings of the respective shareholders, but its backed by from prominent investors so I would think that it knows how to navigate through the politics.
  2. The exchange is not yet operational. This fact actually gave me some pause. Am I really paying at a billlions dollar valuation for just an idea? After reading the materials, it would appear that the underlying platform is already programmed and that they are launching the exchange at the same time the exchange is going public. The reason is that they want to underlying user to be able to benefit from the increase in economics of the exchange. This concept really resonated with me. Although I am still a little be sketched by the fact that its not live yet.

So what’s my plan going forward with this investment:

  1. Bitcoin has really polarized the investment community. On one hand, you have people like Warren Buffet and Jamie Dimon saying it has no value. One the other hand, you have people like Ray Dalio and Paul Tutor Jones saying it has value as its a social construe and therefore deserves some portfolio allocation. So you know, I decided to allocate 5% of my portfolio to a crypto exchange.
  2. I have not decided on if I want to be a long-term holder of this (leaning towards no at this point). I know that the $10/share floor will be removed when the investment is de-spac-ed so I need to monitor it closely comes the 4th quarter and make a decision. I am low-key hoping for a 20% pop in the interim. I have the feeling that ask the exchange becomes “live” so to speak, the stock price should take off. But lately, the SPAC have been performing very badly and there’s a bunch of crypto exchanges/ETFs coming online so the market is very crowded. I am prepared to just sell it during the SPAC’s tender stage.

(This investment is extremely risky. Not financial advice and I’m not your advisor. Please see disclaimer on homepage.)

UPDATE as of August 29, 2021 – so this investment has been a flop. I’ve sold it at a small loss. I will not be investing in any more SPACs anymore. All the SPACs with no revenue is straight-up BS in my opinion. Like how are you allowed to list in the public markets with no revenue.

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