This is my last article on the intersection of artificial intelligence and encryption technology. On September 13, 2023, I gave a short speech titled “Double Happiness” at the Token2049 conference held in Singapore. Here is the video link to my keynote speech.
The feeling of happiness is, at its most basic level, having enough food, a place to sleep, and the opportunity to reproduce. We need energy, which is converted from the potential energy of the sun and the earth into edible food. We rearrange energy into forms of lower entropy. Will the universe be happy? I don’t know. Regardless, our happiness doesn’t appear out of thin air—it is related to our ability to change the nature of universal energy. Nothing is absolute, and we may find that even the speed of light is not a constant.
Similarly, market conditions are relative. There can’t be a bull market without a bear market. In this article, I will explore a very specific form of happiness: when this dull cryptocurrency bear market ends and we enter an exciting, unprecedented bull market, I hope that all of us can experience pure nirvana. That is, a bull market driven by an unprecedented increase in fiat liquidity and the excitement brought about by the commercialization of artificial intelligence (AI). So far, we have experienced cryptocurrency bull markets that are either due to an increase in fiat liquidity or the appreciation of certain aspects of blockchain technology, but not both. A bull market driven by fiat liquidity and technology will bring double happiness to faithful investors’ portfolios.
First, I will gradually introduce why the world’s major central banks—the Federal Reserve (Fed), the People’s Bank of China (PBOC), the Bank of Japan (BOJ), and the European Central Bank (ECB)—will collectively print the most fiat currency in the history of mankind within a 2-3 year time window to “save” their respective government bond markets. Then, I will describe the wave of new artificial intelligence technologies that I expect to see, which will be largely funded by “toilet paper money”. Finally, I will explain why I believe that a certain junk coin—Filecoin (FIL)—will regain its historical high of 2021 against the backdrop of these two trends.
- Analysis of Stablecoin Landscape What are the opportunities and challenges for decentralized stablecoins?
- After the JPEX fraud case involving over 1.5 billion Hong Kong dollars, how will the Hong Kong Securities and Futures Commission take proactive measures to optimize regulation?
- Reflections on the blockchain industry after ten years What is the root cause for the long-term failure to implement industry applications?
Formula
Cryptocurrency Price = Fiat Liquidity + Technology
Dirty Fiat
There is no happiness for the faithful if there is no sorrow for the sinners. In this case, central bank officials must suffer for us to be happy. They face a difficult choice: either protect the purchasing power of their domestic fiat currency in terms of energy due to inflationary pressures, or ensure that the federal government has the ability to repay its debts—but they cannot have both. As I have repeatedly pointed out, governments will never voluntarily go bankrupt, which makes heavily indebted governments around the world more likely to give their central banks the green light to sacrifice the purchasing power of their fiat currencies at all costs in order to maintain “affordable” bond yields.
Why does currency weaken relative to energy when the central bank manipulates bond yields? If the market is willing to lend at a rate of 10%, but the government cannot afford it, the central bank can purchase bonds and artificially lower the interest rate to a level that the government can afford (possibly around 5%). However, in order to purchase these bonds, the central bank must print money. Printing money expands the money supply, which means there is more fiat currency chasing a limited supply of energy. Therefore, the currency depreciates relative to the energy it is used to purchase. In our current civilization, the main form of energy is hydrocarbon, such as oil and gas.
To understand why governments are so willing to set aside their own currencies to fund their debt habits, it is necessary to first understand why they have become so reliant on debt to develop the economy. Raoul Pal has a simple formula for calculating economic growth drivers – Gross Domestic Product (GDP).
GDP Growth = Population Growth + Productivity Growth + Debt Growth
The establishment of a stable and liquid credit market suddenly gave governments the ability to traverse time. They began borrowing from the future to build things today. They believed that what they built today would make us more efficient in the future and that more people would use them. If our productivity and population growth rates are faster than the growth rate of debt interest that funds this productivity, societal wealth will increase.
Population Decline
Unfortunately, for politicians who hope to increase GDP, there is a major obstacle in the “population growth” part of Raoul’s formula: fucking rich people.
Well, that’s not entirely true – things are actually happening, but they just aren’t leading to a lot of babies being born. In wealthy developed countries, women now have access to reproductive education and various contraceptive methods that enable them to decide when (if at all) to get pregnant. Prior to this, the preferred male contraceptive method – colloquially known as “pull and pray” – resulted in healthy population growth worldwide.
Since the late 1980s, developed countries have been heading towards extinction. The chart above clearly shows that by the 2010s, the working-age population in the entire world began to decline. This makes sense – urban populations who make a living in offices or factories do not need children. In fact, children are a net consumption of family resources. When the global economy was primarily agricultural, children represented free labor, making them a net positive economic factor for the household unit.
If the formula for GDP growth is GDP Growth = Population Growth + Productivity Growth + Debt Growth, and population growth becomes a negative value, then the government must work twice as hard to increase productivity.
Delayed Productivity
So far, most of our productivity growth has been driven by several major trends, and they are unlikely to be repeated. They are:
1. Women entering the workforce.
2. Outsourcing global manufacturing to China, because China pays its workers low wages and is willing to damage its own environment.
3. The widespread adoption of computers and the internet.
4. The expansion of hydrocarbon production due to the growth of US shale oil and gas drilling.
These are all one-time phenomena, and we have realized all the benefits that can be gained from each of them. Therefore, productivity is bound to stagnate until some new, unforeseen trend emerges. Artificial intelligence and robotics may be one of the trends that lead to a new wave of productivity growth, but even if this proves to be true, it will take decades for these achievements to be fully reflected in the global economy.
The Gospel of Growth
The entire world economy is built on the fallacy that growth must be infinite. For example, the method you usually use to estimate a company’s stock price, the discounted cash flow model, assumes a terminal growth rate. This valuation standard is flawed because it is obvious that no company exists forever – yet it is still the most widely used model for “evaluating” a company.
Applying this idea at the national level, politicians and their bankers like to promise more funding to build more garbage, on the premise that the global economy will always grow at such a rate that investments will be profitable in the long term. China embodies the flaw in this idea, as the number of infrastructure and housing they build can never grow (because by the end of this century, their population will be halved). The problem is that we have not recognized that the factors that have led to global economic prosperity in the past 100 years are one-time events that have long expired.
The ratio of global debt to GDP exceeded 100% in the 1970s, and as expected, the ratio of debt to GDP has grown exponentially over time as governments take on more and more debt to drive future growth.
In order to maintain the solvency of creditors (i.e. the dirty legal financial system), governments achieve GDP growth through deficits to repay the growing debt burden. This is a vicious cycle: in order to eventually repay existing debt, governments try to stimulate future economic activity by increasing debt and using the proceeds for investment. But as their debt burden increases, the GDP growth required to offset new debt also increases, so governments have to take on more debt to further boost the economy, and so on – there will be no once-in-a-lifetime events to help governments overcome the difficulties of GDP growth.
The prediction of increasing global debt burden is nothing new to me and others. However, in the beginning of this article, I made a very bold prediction that in the next 2-3 years, all major economic groups will print more money than at any time in history. This requires the United States, China, Japan, and Europe to do the same thing at the same time. I hope they all take concerted action because their economies are interconnected and their actions are constrained by the post-World War II order led by the United States.
But before I delve into the discussion, I need to first take you through the architecture of global trade after World War II and explain how the current trade/capital imbalances make it necessary to print more money to prevent a flawed arrangement from failing.
The end of an era
This chart is key to understanding the economic structure created by the United States after World War II. Japan, China, and Germany were allowed to achieve post-war recovery through exports. As long as these countries performed well, the United States agreed to absorb their goods – and subsequent surpluses – in the form of financial investments. By selling goods to the United States, savers (blue bars) accumulated wealth, but this wealth was paid for by the United States (red bars) with dollars borrowed from savers. As you can see, everything is balanced – the assets of savers match the liabilities of spenders.
This arrangement only works when the following conditions are met:
1. Wage growth in exporting countries must be lower than productivity growth, and the country must invoice goods in dollars. These dollar savings are caused by low wages calculated by productivity and must be invested in the US financial market.
2. The United States must allow exporters to sell goods tax-free and invest in US financial assets without restrictions.
This system cannot operate in any other way. Asians and Germans must save, and Americans must consume. Do not explain this behavior in any moral way. No country is good or bad. The system is always balanced. It is your perspective that creates moral views.
The United States can only buy so much. China has become the second largest consumer of commodities and other goods after the United States, but even China’s market is already saturated. This is especially true when both countries’ populations are decreasing. Therefore, export-oriented countries that continue to invest in infrastructure to improve efficiency and maintain low prices are now facing completely saturated foreign markets, and their infrastructure investments cannot generate capital returns.
However, the governments of these countries have not allowed a large number of companies to go bankrupt, leading to soaring unemployment rates. Instead, they have intervened and will continue to intervene, providing cheap credit to industrial enterprises to continue building more production capacity. Whenever economic growth slows down, China always provides more loans to industrial enterprises because it allows comrades to stay in factories rather than in Tiananmen Square.
On the other hand, apart from large tech companies (such as Apple, Microsoft, Google, Facebook, Amazon), the US financial industry refuses to invest locally. Why invest in a manufacturer that has no chance of competing with lower-cost overseas companies? That’s why banks are allocating funds to companies and/or countries that are considered to have huge “growth” potential but also have higher default risks.
When these higher-risk foreign borrowers fail to repay their loans, triggering a financial crisis, it should not come as a surprise. If US banks acknowledge their losses, they will be insolvent – but the Federal Reserve and the US Treasury will inevitably intervene instead of letting them fail: 1) Changing capital adequacy rules to give banks more breathing space. 2) Printing money to ensure the banks’ ability to make payments. The financial sector must be rescued to avoid the collapse of the entire US financial system, otherwise financial investments from exporting countries will become worthless.
On the other hand, exporting countries can never truly spend their savings because any large-scale asset liquidation would cause the collapse of the US financial system. Exporters have nearly $10 trillion in trapped assets. Even Sam “Alabama Tabasco” Trabucco from Alameda Research cannot participate in bidding at such a scale. The US cannot shut out the capital of exporting countries to counter domestic asset price inflation because it would undermine the ability of exporting countries to suppress wages and commodity prices. The success of this arrangement in the past guarantees its future failure.
In both cases, the only means for exporting countries and the US to save the manufacturing and banking industries is to print money. It is important to remember that printing money is always the solution, always delaying any adjustments to the global trade and financial system architecture.
Fraudsters will never win
At least from the perspective of the wealthy elite, the real systemic problem is that the common people always want to improve their living standards. In Asia and Germany, workers want higher wages, greater purchasing power, and a bigger government safety net. If their countries are so “wealthy” on paper, why shouldn’t they have these things? In the US, the common people have enough trinkets and just want their jobs back. They rightly believe that they should produce the goods they consume instead of having foreign peasants replace them. Similarly, considering that the US middle class is the ultimate consumer of all these things, it is a reasonable demand. The Ricardian equivalence theory has no use in the Rust Belt.
Because the political and financial elites do not want large-scale reforms of either system, they start cheating on the margins. The breakdown of US-China relations – two countries with diametrically opposed economic and political systems but also deeply intertwined – illustrates this.
The Chinese proletariat has been promised a healthy economy, which requires sustained high growth. Therefore, after saturating the US market with its goods, China needs more places to sell its products in order to continue growing. China has stepped out of its borders and replaced the US as the largest trading partner for most regions in the world. Importantly, an increasing amount of such trade is denominated in RMB rather than US dollars. This is a major taboo. Muammar Gaddafi (former President of Libya) and Saddam Hussein (former President of Iraq) became victims of “regime change” when they attempted to break free from the US dollar.
The US response to China’s trade expansion has been more subtle, imposing semiconductor trade restrictions and sanctions aimed at impeding China’s technological progress. Huawei, China’s first major tech company, became a victim of this. When they were unable to access cutting-edge chips and US mobile operating systems, their domestic and international smartphone sales plummeted.
Being good is ok, being too good is treasonous.
Like the US, China wants to ensure the military security of its trade routes. The Chinese have strengthened their military forces to secure trade through the Silk Road (land) and the Pearl Chain (maritime channel). Historically, the military safeguarding of trade has been the responsibility of the US, and it is angry at China’s “aggressiveness” in its rise. (Regardless, China will not describe its efforts to protect its trade routes as “aggressive”. Opinions determine everything.) The US response has been to increase arms sales to Taiwan and encourage military buildup in Japan.
Now, world trade with China exceeds trade with the US.
China ensures that it is able to protect its coastal areas.
To appease the proletariat who only want high-paying manufacturing jobs back, former US President Trump launched a trade war with China. Current US President Biden continues the assault by signing the CHIPS Act and the Inflation Reduction Act. These acts provide generous government subsidies and direct payments for companies to build domestic semiconductor facilities and clean energy infrastructure. These expenditures will be paid for by issuing more debt in the form of bonds, which will be purchased by the US’s trading partners.
The US is using savings from China, Japan, and Germany to rebuild domestic industry so that US companies can manufacture goods for the US, which is deceptive. Obviously, this reduces the market for Chinese, Japanese, and German goods. Not surprisingly, many export-oriented countries are crying out for “protectionism” (as if US politicians only care about it when faced with election failures).
It can be foreseen that as the amount of debt in circulation grows exponentially, US Treasury bonds have lost their value in terms of energy. If I were a major holder of this garbage, I would be very angry. China, Japan, and Germany obviously see ominous signs, which is why they have stopped reinvesting their export earnings in these bonds. This is also deception.
As of January 4, 2021, the Bloomberg US Treasury Long-Term Total Return Index/WTI spot oil price index is 100.
Since the outbreak of the COVID-19 pandemic, the total return rate of long-term government bonds has been more than 50% lower than that of oil.
With the surge in US outstanding debt, the two major trading partners, China and Japan, have started a buyer’s strike. As the last buyers, US banks (who have to buy this shit) and the Federal Reserve (who will soon have to buy this shit too) have intervened.
Everyone is deceiving, and there is a legitimate reason. Clearly, whether the elites like it or not, a new global economic system will eventually be created. Imbalances cannot continue. But as long as those in power refuse to acknowledge reality, money will be printed, and the hope of “growth” will be right in front of us, so we can make America, China, Japan, and Germany great again!
I don’t know what the new global economic arrangement will look like, but I can be sure that this is the last credit cycle the current system will experience. This will be the last time because no one is willing to voluntarily hold any government bonds. The private sector doesn’t need them because they have to hoard capital due to inflation, and if they are businesses, they have to buy increasingly expensive inputs. If they are individuals, they have to buy food/fuel. The banking sector doesn’t want them because they have already been overburdened with buying government bonds during the post-COVID-19 prosperity. The central banks don’t need them because they have to shrink their balance sheets to fight inflation.
Governments around the world will try – to varying degrees of success – to force central banks, the banking industry, and subsequently the private sector to purchase bonds with printed money, depositors’ money, or savings to make up for the deficits from 2023 to 2026.
Bond Bubble
Below is my estimate of the total government debt that the United States, China, Japan, and the European Union must roll over and issue to cover the deficits from 2023 to 2026. I chose 2026 as the end date because the United States, as the largest debtor nation and dominator of this economic system, has an average term of about 3 years. All other countries/economic blocs have interdependencies with the United States, so they will rise and fall together. For an overview of the debt maturities for all other countries, I used Bloomberg’s DDIS function.
United States
For the estimated budget deficit, I used data from the Congressional Budget Office.
Japan
For the estimated budget deficit, I took the average of the data published by the Ministry of Finance of China over the past six quarters, converted that data to an annual rate, and then multiplied it by three.
European Union
For the estimated budget deficit, I multiplied the five-year average budget deficit of the euro area by three.
China
Unlike other countries or groups mentioned above, the central government of China authorizes provinces to issue debt under the implicit guarantee of the central government. Since the tax reform in 1994, Beijing has taken control of most of the tax revenue from local governments. In order to make up the shortfall, the central government allows local governments to issue bonds guaranteed by the central government. The reason for not making a clear statement is that the Chinese government does not want the credit of the central government to be questioned as the debt of local governments spreads.
Every year, local governments are allocated a loan quota. These debts are collectively referred to as local government financing platforms (LGFV). As you can see, the debt burden of local government financing platforms is almost equivalent to that of the central government. This is a major political issue because the central government does not want to formally guarantee the debt of local government financing platforms, which would damage its own financial situation, but it also cannot allow these debts to default, as it would destroy the entire Chinese financial system.
For the estimated budget deficit, I multiplied the five-year average budget deficit of the central government of China by three. I do not have the exact figure for the budget deficit of local governments, so I underestimated the amount of debt China will issue.
Total
Just because the government borrows does not mean that the money supply will increase, leading to inflation. If there are no natural buyers, the debt burden will only increase the money supply. At a high enough interest rate, the government can easily squeeze out other financial assets and absorb all private sector capital. Obviously, this is not an ideal outcome because the stock market will collapse and no company will receive any funding. Imagine if you could get a 20% return from a one-year government bond. You would find it hard to argue that it is reasonable to invest in anything else.
In theory, there is a “win-win” method, where the government provides funding for itself without excluding the private sector. However, with the global debt-to-GDP ratio reaching 360%, the amount of debt that needs to be extended and issued to compensate for future deficits will certainly squeeze the private sector out of the market. The central bank must be required to print money and directly finance the government by purchasing bonds that the private sector avoids.
We cannot know in advance what proportion of the issued bonds will be purchased by the central bank. However, we can do some thought experiments to evaluate how different scenarios might unfold.
First, let’s look at some precedents. When COVID struck, the world decided to lock everyone at home to protect the baby boomer generation from this virus that primarily kills the elderly and obese. In their “generosity,” governments led by the baby boomer generation provided funds to individuals and businesses in an attempt to mitigate the economic losses caused by the lockdown. The amount of debt issued to fund these stimulus checks was so large that the central bank had to print money and buy bonds to maintain low yields.
Let’s reconsider the amount of debt issued by large central banks during the period from 2023 to 2026 and subsequently purchased, and consider it as a multiple of the total increase in the balance sheet of large central banks during the COVID pandemic.
Due to the forced purchase of government bonds at the lowest yields in 5,000 years by the private sector during the COVID pandemic, their investment portfolios have realized unrealized losses worth trillions of dollars. In this round of bond issuance, the private sector will not be able to participate in as much debt issuance. Therefore, my basic assumption is that the central bank will purchase at least 50% of the issued bonds. The result is that from now until 2026, the growth of the global money supply will exceed that during the COVID period.
During the COVID pandemic, the debt-to-GDP ratio increased by over 100% – what will be the ratio during this period?
Where the money goes
Now that we have some understanding of the growth of the global money supply from now until 2026, the next question is, where will this money flow?
The massive government borrowing will squeeze out any businesses that need credit. Even if the nominal interest rates are low, credit will be scarce. Companies that manufacture products and rely on debt to provide working capital will find themselves unable to expand. Some companies will find it impossible to extend their maturing debt and will go bankrupt.
Instead, the printed money will flow to emerging tech companies that promise crazy returns once they mature. Every fiat liquidity bubble has a new form of technology that attracts investors and attracts a large amount of capital. When major central banks printed money to “solve” the 2008 global financial crisis, this free money flowed into Web 2.0 advertising, social media, and sharing economy startups. In the 2020s, it was the commercialization of technologies developed during World War I, such as radios. This time, I believe it will be technology related to artificial intelligence.
Artificial intelligence technology companies do not need a well-functioning banking system. Once they obtain funding, if their products or services find appeal, the profit margin at the unit level can approach 100%. Therefore, a few successful artificial intelligence companies will not need banks to provide funding. That’s why everyone wants to find the artificial intelligence version of Google, Facebook, Amazon, Microsoft, and ByteDance, which were built on Web 2.0 in the 2010s.
Capital inflows into artificial intelligence have already begun, and this situation will only intensify as global currency supply grows exponentially.
Don’t be foolish
The influx of capital into artificial intelligence companies does not mean that investors will easily make money. In fact, quite the opposite, the majority of this money will be wasted on companies that cannot create products that customers are willing to pay for. The problem with artificial intelligence is that there are few business models that can provide protection in the current imagination.
During the Korean blockchain cycle, I rode in a car with a technical brother who worked at a famous Silicon Valley venture capital firm. He talked about how difficult it is to make money in the field of artificial intelligence. He shared an interesting incident that happened in a recent class at Y Combinator (YC). The entire class consisted of startups building plugins using OpenAI’s large language models (LLMs). Then, overnight, OpenAI decided to launch its own plugin suite, and the valuation of the entire YC class immediately dropped to zero.
The majority of the companies that venture capitalists invest in are just providing software support services on top of projects like OpenAI. Software is easier to replicate than ever before. Try writing some code with ChatGPT – it’s so damn easy. Most of these “artificial intelligence” technology companies have a foundation of zero. If your business is based on OpenAI or similar companies that allow you to access their models, why wouldn’t OpenAI perfectly replicate your plugin or tool and prohibit you from using their platform?
I believe that venture capital managers are not that foolish (limited partners are the foolish ones), so they will try to invest in companies that have defensible businesses built around different types of artificial intelligence models. This is good in theory, but where exactly is this startup spending its money? Let’s go back to the artificial intelligence food group I mentioned in the article “Massa”.
Artificial intelligence “eats up” computing power and data storage. This means that startups will raise funds, immediately purchase computing time driven by GPUs (computer processing chips), and pay for cloud data storage. Most startups will run out of funds before they develop something truly unique because the computing power and data storage required for creating truly novel artificial intelligence are staggering. I guess that by 2030, less than 1% of the currently funded startups will survive. According to the law of averages, as an investor, you will almost certainly lose all your money during the process of investing in artificial intelligence.
Instead of searching for a needle in a haystack, it is better to directly acquire NVIDIA (a leading global GPU chip manufacturer) and Amazon (the parent company of Amazon Web Services, the largest cloud data provider in the world). Both companies are publicly traded with strong stock liquidity.
Venture capitalists will never be able to charge management fees and performance fees by investing your money in just two stocks. Unfortunately, for investment capital, they try to appear “smart” and shoot at the less than 1% of startups that actually survive (and may still not perform as well as a simple weighted basket of NVIDIA and Amazon stocks). Let’s reevaluate this prediction in 2030 and see if venture capital funds from 2022-2024 perform well. I predict total failure!
This concept is very similar to the process of startups raising funds in Web 2.0 and giving it to Google and Facebook in the form of advertising revenue. I ask readers to compare the average performance of venture capital funds from 2010 to 2015, after deducting fees, with the compounded internal rate of return of purchasing an equal-weighted basket of Google and Facebook stocks. I bet that only the top 5% of venture capital funds (or fewer) can outperform this simple stock investment portfolio.
For example, investing in NVIDIA is good because it is liquid. You can enter and exit at any time. However, it comes with valuation risk. NVIDIA’s price-to-earnings ratio (P/E) is an outrageous 101 times.
The problem is that NVIDIA may struggle to achieve profit growth fast enough to justify such a high P/E ratio. If investors perceive NVIDIA’s P/E ratio to be low, even if the company’s profit growth is excellent, its stock price can plummet.
Let’s illustrate this problem with a simple mathematical example.
The best-operating and most advanced semiconductor company in the world is TSMC (Taiwan Semiconductor Manufacturing Company, stock code: 2330tt). TSMC has a P/E ratio of 14 times. Let’s assume that the market is open and believes that NVIDIA is mature and should have a similar P/E ratio as TSMC.
For those who are watching TikTok instead of listening to math professors, let me teach you how to calculate.
With a P/E ratio of 101 times, $1 of earnings is equivalent to a stock price of $101.
With a P/E ratio of 14 times, $1 of earnings is equivalent to a stock price of $14.
This means that the stock would immediately drop by 86%, which is [$14 / $101–1].
“Arthur, that’s all well and good, but NVIDIA is a beast. Their revenue will skyrocket in the future. I’m not worried,” you might argue.
Let’s calculate how much profit growth is needed for the stock price to regain $101, using a P/E ratio of 14 times.
Target stock price / P/E ratio = Total earnings
$101 / 14x = $7.21 earnings
To recover to $101, profits must grow by 621% or [$7.21/$1-$1].
For an ambitious tech company, achieving a 621% profit growth is not difficult. The question is, how long does it take? More importantly, what can your capital earn while you wait for the balance to be restored?
Using the same two stocks, NVIDIA and TSMC, let’s change your investment timing. What if instead of investing during the frenzy, you bought NVIDIA when its P/E ratio dropped from 101 times to 14 times?
Now, the company’s profits have grown by 621% in one year. Obviously, considering that NVIDIA needs to increase its profits by over $37 billion, this is highly unlikely. Let’s pretend for a moment.
Due to the strong profit growth, NVIDIA’s stock price rises from $14 to $101, with a P/E ratio of 14 times. This transaction is profitable, and your capital appreciates by 621%. Investing during the frenzy period would result in a loss of 86%, as emotions quickly shift from joy to sadness. NVIDIA has always been a super company, but the market is starting to believe that NVIDIA, like other major semiconductor companies, should have a corresponding valuation.
Price is the most important variable. Speaking of my portfolio, I want to participate in the AI frenzy bubble, but I have some rules.
1. I can only buy things that are highly liquid and can be traded on exchanges. This allows me to trade at any time. If my investment is composed of funds held by venture capital funds invested in pre-IPO or pre-token companies or projects, this is impossible. Venture capital funds typically recover their capital after 7 years.
2. I can only buy stocks that have fallen significantly from their all-time high (ATH). I hope that the multiple I pay for the return of another key indicator is much lower than the trading price when the stock or project becomes “The It Thang”.
3. I am very familiar with the crypto capital market. Therefore, I want to invest in something that connects cryptography and artificial intelligence.
No Ozempic for AI
Because I don’t know which AI business model will succeed, I want to invest in something that I know AI will depend on – its food group. Either I need to invest in computing power in some way, or I need to invest in cloud data storage. For both food groups, AI is eager for decentralization. If centrally controlled companies by humans decide to restrict access to their services (e.g., due to government coercion), AI will face survival risks.
Cryptocurrency-driven blockchain enables people to gather together and share excess computing power, which would be interesting, but I have not yet found a coin or token with a strong enough network to indicate that it will survive and thrive in the next two to three years. So, as far as I know, I don’t have a decentralized way to invest in computing power.
This has led me to invest in data storage. In terms of storage capacity and total number of stored data bytes, the largest decentralized data storage project is Filecoin (FIL). Filecoin is particularly attractive because it has been around for several years and has already stored a large amount of data.
Without data, artificial intelligence cannot learn. If data is compromised due to a single point of failure or if a central data storage entity changes access permissions or its pricing, AI dependent on that storage entity will cease to exist. This is a risk that exists, which is why I believe that artificial intelligence must use decentralized storage solutions.
This is why I do not want to own stocks of large cloud data service providers like Amazon. I fundamentally believe that Amazon is a large centralized company governed by human laws, which is incompatible with the demands of artificial intelligence on its data hosting providers. Amazon can unilaterally shut down access to data at the request of the government. This is not possible in a decentralized network that resists censorship. I know that due to the consensus mechanism and economic incentives of blockchain, it can help create coordinated “sharing.” That is why a decentralized data storage network powered by FIL is an essential component of the thriving artificial intelligence economy.
To delve deeper into my logical arguments on why AI needs decentralized funding, services, and networks, please read “Massa” and “Moai.”
Let’s take a look at my checklist to see if FIL is suitable.
Can it be traded on exchanges?
Yes. FIL began trading in 2020 and is available on all major exchanges worldwide.
Is its trading price much lower than ATH?
Yes. FIL has dropped by nearly 99% from its ATH in April 2021. But more importantly, the price/storage capacity and price/storage utilization have both contracted by 99%.
Historical Index
FIL ATH: $237.24
Filecoin Storage Capacity (2021): ~4 EiB
Storage Utilization (2021): ~0.2%
Current data as of Q2 2023 (Messari report)
FIL Price: $3.31
Filecoin Storage Capacity: 12.2 EiB (exbibyte)
Storage Utilization: 7.6%
Ratios
April 2021 ATH Price/Capacity = $19.45/EiB
April 2021 ATH Price/Storage Utilization = $1186.7/percentage
Current Price/Capacity = $0.27/EiB
Current Price/Storage Utilization = $0.44/percentage
Investing after a decline in the price-to-earnings ratio is always the best practice. Imagine if the price/capacity ratio only rebounded to 25% of its April 2021 level, reaching $4.86 per EiB, then the price would rise to $59.29, nearly 17 times higher than the current level.
Is it a cryptocurrency that can help the development of artificial intelligence?
Yes. FIL is a blockchain based on the proof of space-time. FIL is the native cryptocurrency of the Filecoin network.
Let’s make a trade
Many readers commented on social media that since the last bull market ended, I have been saying the same thing and I was completely wrong. That’s true, but I don’t do short-term trading for one minute or even one hour. I trade in cycles and I focus on the period from 2023 to 2026. So as long as I am right in the future, it doesn’t matter if I am wrong now.
Today, I was able to buy something I think will make a big profit at a “cheap” price. FIL to MOON! The market may not react. In fact, its trading price may even be lower than my average entry price, but math tells me that I’m on the right side of the probability distribution.
My portfolio is about to have double happiness.
Whether it is now or in ancient times, governments of various countries have only known one way to solve the thorny problem of excessive debt and insufficient productivity: printing money. The downfall of every major empire or civilization can be partly attributed to the depreciation of its currency. Our current “modern” situation is no exception.
I have a sense about these numbers, but even I am surprised by their magnitude. I am pleased that other people I respect, such as Felix Zulauf, Jim Bianco, the Gavekals, Raoul LianGuail, Luke Gromen, David Dredge, are all emphasizing that it is impossible to get rid of the massive accumulated debt in the world. The question is, when will the public holding bonds made up of banks, corporations, and individuals refuse to invest excess cash in government bonds with negative yields? I don’t know when this will happen, but the world is entering a “hockey stick moment” where the speed of debt accumulation exceeds the understanding capacity of our lizard brains. Faced with these disastrous charts, the speed at which debt balances rise and turn to the right is faster than Michael Lewis mocking Sam Bankman-Fried’s tongue, and the public will flee, and the central banks must step forward with their trusted, absolutely non-rusty printing presses.
The prosperity of fiat currency liquidity is coming, and I can wait patiently.
Artificial intelligence is experiencing its hockey stick moment of adoption. People have been discussing and researching artificial intelligence since the invention of computers in the mid-20th century. It is only now, nearly 70 years later, that artificial intelligence applications are starting to be useful to hundreds of millions of people. The things that thinking machines will do will change our lives, and the growth and speed will be astonishing.
With trillions of dollars of free money, from politicians to hedge fund masters, to venture capital technologists, everyone will do their best to invest in anything related to artificial intelligence. Some commentators mock that Nvidia’s ATH has corrected nearly 10%. They say “I told you it’s a bubble.” But their unimaginative minds have not read enough history or studied the evolution of bubbles. The prosperity of artificial intelligence has not even begun. Just wait, wait for the major central banks to make a big change and start printing money to save their governments from bankruptcy. The amount of money and attention devoted to this “new” technological development will be unprecedented in human history.
A massive financial bubble in history is forming as a result of extensive currency printing and the rapid adoption of artificial intelligence!
Although the current market bores me, I will tirelessly collect the bulbs that will grow into powerful tulips as their quantity decreases. But make no mistake—I’m not foolish enough to believe in all the hype. I respect gravity. Therefore, when I buy, I look to the future and know when I must sell.
But to hell with it—let’s party like it’s 2019!
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