Our First Memo

Subject: Our First Memo

To: Limited Partners of Grasshopper Capital Fund I LP
From: Ari Lewis and Sagar Rambhia
Date: 9/30/17

Dear Investors,

We are loyal fans of Howard Marks and think his memos are the industry standard for communication with investors. We hope our letters rise to the level of brilliance that he achieves with each of his memos.

China

Much of the volatility and downside is attributed to China. China announced on September 4th that they were banning token sales. One week later, China announced a ban on all cryptocurrency exchanges. The Chinese Yuan has made up the majority of Bitcoin volume. According to Bitcoinity, the Chinese Yuan represented 93% of total Bitcoin trades over the past two years; however, over the past six months, the Chinese Yuan decreased to 18.2%, with 54% of Bitcoin trades being conducted in USD. This reduction in dependency on Chinese traders has lessened the blow of Chinese regulations. Previous attempts at Chinese regulation show that it is extremely difficult for China to enforce restrictions of Bitcoin trading and usage. The Chinese government can make it difficult for the Chinese Yuan to be converted into Bitcoin, but we expect underground trading operations to pop up that will circumvent Chinese regulations. Otherwise, people can take a quick trip to Hong Kong. China has not indicated whether they will be regulating or shutting down OTC operations. OTC operations will most likely be regulated, but not shut down. Chinese miners are not affected by these regulations. China wants to prevent the flow of the Chinese Yuan leaving Mainland China. Miners are just selling BTC for another fiat currency and are happy to continue to see their operations thrive as they produce tax revenue and are a source of pride in terms of technological innovation.

Jamie Dimon

Jamie Dimon spoke at the Delivering Alpha Conference on September 12th. One of the topics he discussed was Bitcoin. Jamie called Bitcoin “a fraud”, “not a real thing”, and said, “someone is going to get killed”. These comments are without justification, and we are disappointed to see a leader in the banking industry making such a polarized statement about Bitcoin. While Jamie Dimon was making his comments, Michael Vaknin, Chief Economist of JP Morgan’s Asset Management firm was conducting a panel for their clients introducing them to cryptocurrency and cryptofunds. JP Morgan also has 40+ people working on a blockchain called Quorum. My favorite quote from their site is, “Wall Street Journal: JPMorgan Chase, led by CEO Jamie Dimon, is building a new system based on the Ethereum platform”. JP Morgan is literally advertising that Jamie Dimon is supporting this project. Some people will tell us that a private blockchain is different from a public blockchain and can exist without a token. We do not believe that private blockchains will succeed in the long run and that tokens (also known as cryptocurrencies are a critical part of blockchain). William Moyagar writes about the different utilities of a token — and the inherent value of tokenomics.[1]

From a PR standpoint, Jamie Dimon’s comments are very smart. They distract from the fact that JP Morgan’s trading revenue will drop 20%. Ultimately, Bitcoin and other cryptocurrencies are a threat to the current banking system, and it is natural for Jamie Dimon to speak against disruptive technology that poses a threat to his core business.

Celebrity Token Sales

What do Paris Hilton, Floyd Mayweather, and Luis Suarez all have in common? They are all promoting their own tokens. Paris Hilton is backing “LydianCoin” along with Gubaksh Chahal, a convicted felon. The token is being described as “a platform that wants to combine the blockchain with targeted, AI driven digital marketing and advertising services.” We are not sure if they used enough buzzwords. This trend is where our bullishness of cryptocurrency diverges. We are optimistic about traditional blockchain tokens such as Bitcoin, Ethereum, and Litecoin, but are extremely skeptical of most ERC-20 tokens, a token built on top of the Ethereum blockchain. We think there are some promising ERC-20 tokens such as Brave Attention Token, Funfair, and Filecoin, but most token sales will end up losing people money.

Thanks,

Ari and Sagar

[1] https://medium.com/@wmougayar/tokenomics-a-business-guide-to-token-usage-utility-and-value-b19242053416