A Product Person’s Take On Bitcoin (with a little of background up front).

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I put this presentation together for my friends, many of whom don’t understand what Bitcoin is useful for. Importantly, they just could not understand who someone could be buying Bitcoin while the price was tanking throughout 2018.

The truth is that I am not much of an investor. In fact, I have never bought anything other than baskets of stocks through trusted money managers or index funds.

My story is one of luck…and the study of market growth and product usage. Venture Capitalists have one word to describe this. The word they use is “traction” as in “does your product have traction?”

I have got lucky by trying to find long-term secular trends in product and market shifts. When I was working in Venezuela in the late 80s and early 90s it struck me that it made almost no difference how smart you were or how good your product was if your market was not growing. In Venezuela’s case, super smart entrepreneurs could not figure out how one year they had made great investments and the following year everything they touched would lose value. It didn’t take a genius to figure that if oil prices went up, the Venezuelan economy every would make money and when oil dropped even the “smart” money failed. Venezuela ended up with a revolution and a dictatorship.

When I arrived at business school in 1993, I fell in love with the Internet. In fact, I’ll never forget my first experience online. I managed to get an ISP account to the Internet. Not much on the Internet at that time. Just a little text and blinking cursors. So I surfed to where I knew there would be content. I went to Harvard’s Widener library via my student email account. A few clicks in, and I landed on a page that line by line, started painting down. And my word, right there, I had my revelation…a wag had posted the image of a lovely Asian lady in full birthday suit on Harvard’s library server. She was fabulous. I had lost my Internet virginity. I was hooked.

So needless to say, I went into tech. Out of Harvard’s graduating class in 1995, I think 20 of us went into tech. The rest of the ~800 went into Finance, Consulting and General Management. For me it felt better to enter a business that paid poorly in the short term, but that had long-term double digit growth. In contrast, my peers opted for high salaries and single digit growth.

I also had a non-monetary bonus. My industry was FUN and it was where all the creative refugees were! Where else could you trip up on crazy images and in the middle of an academic site? Where else were people fooling around with music, games, images and lots of other cool stuff? Where else, could you go work with people who would spout rubbish like “we are going to change the world” and really believe it. Needless to say, looney tunes was fun…and believe me founder looney tunes are a different world.

Ever since then, it has been wash, rinse, repeat. Find a fast growing nook (that was going to continue growing fast AND that you can relate to) and wiggle on board. Inevitably, you would run into crazy, creative people along the way. And so, I got lucky joining Google in the early aughts, then Zynga (working closely with my Google refugee friends who had migrated to Facebook) and then joining the fabulous Daniel Ek as CRO +CMO of Spotify in 2011. Bringing Spotify to the USA and taking on Apple (and a skeptical market- who would pay for music?) was one of the highlights of my career. Each of these deserves its own story. But I digress. We are here to talk Bitcoin.

Sometime in 2009 I met an Argentine fellow called Wences Casares. My son and his son were best buds at pre-k. You may want to learn more about Wences. He’s special guy. You can find out about him here https://en.wikipedia.org/wiki/Wences_Casares and here https://www.youtube.com/watch?v=IAFKJVLNVQA and here is a book that really gives you the deets https://www.amazon.com/Digital-Gold-Bitcoin-Millionaires-Reinvent/dp/B00UVY508W/ref=dp_kinw_strp_adbl_v2.

With our Latin American experiences we became fast friends. I have many Wences stories I could share, but the point here is that he told me to buy Bitcoin at $70 back in 2013. At the time, I did not buy it. None of his justifications for Bitcoin’s value could get me to buy. Easy to move, native to the Internet, perfect for developing countries where citizens suffer by inflation, digital gold, yada yada. Wences’ ideas resonated intellectually, but I couldn’t buy. Why? Because I could not see steady usage growth. I was looking for that magic word “traction”. I did not care for the increase in price. Like any start-up, I know that price valuations would always be too high or too low. What interested me was if ordinary users were regularly using the product and were steadily growing its demand. And in 2013 they weren’t.

If you look at this graph you will note that 2013 was an interesting year for Bitcoin. It kinda hovered at 40,000 transactions/day for the whole year. The following year it kinda doubled to ~80,000 transactions a day. Not exactly eye popping, considering I came from businesses that were doubling in size a quarter.

And meanwhile the price seemed out of whack by growing 4x during that time period:

To me it felt like speculation central.

Fast forward a few years.

2017 and I have busted out on my own start-up. I had gotten cocky and broken a bunch of my own rules and had had my ass handed to me. Humble pie is a good thing, though it tastes like shit.

Wences had been one of my investors. When I called him to tell him that I had lost his investment, he started laughing and said “about time you junked that start-up…I have been waiting for you” and with that he said I should join his team at Xapo.

And so my involvement with Bitcoin started in earnest. But it was still hard to BUY Bitcoin as prices just soared while transaction count lagged in my view (see same graphs above). I now could see users using the product, but there was so much speculator noise that I could not gauge the real, day-to-day usage growth of the protocol.

So 2018, was the year of walking through the desert, though now as an employee of Xapo, I could monitor Bitcoin closely. And yes, things started to look interesting…transaction count (this for sure is not a perfect number, but good enough) kept going up, as Bitcoin price kept dropping and as speculators got washed out. Sooner or later we would only be left with real usage data and this seemed to emerge in 2018.

Here is an image of Bitcoin’s price drop.

I started buying. All I had, was convincing data that the protocol was growing consistently and steadily though I could not value it and its price kept dropping. I remember buying heavily (for my account and for my kids) at~$6,400, after Bitcoin had hovered (or I thought it had stabilized) for 3 months at about $6,500. The next day it fell off a cliff, eventually resting in the mid $3,000s. It sucked. My overall net holding stood at 20% of what I had bought it for.

Here is an image of transaction count growth.

Sooner or later the price would have to catch up with the intrinsic demand.

In December, I threw in all that I had left. That chunk would have to make all the difference.

And it did.

I am here in Ibiza writing this by a pool with my ever-so-patient girlfriend Anne hanging out next to me. Bitcoin is at 11,753, July 4, 2019, 6:52pm local time.

So that is my story. I created a deck (below) that pulls my observations together as of June 2019. I wanted to put something together for my friends in an attempt to answer their questions about Bitcoin. Is anyone using it? What’s it useful for? What about Facebook’s Libra?

I was inspired by John Pfeffer. He wrote a seminal blog post called “An (Institutional) Investor’s Take On Crypto Assets” https://medium.com/john-pfeffer/an-institutional-investors-take-on-cryptoassets-690421158904.

He writes from the financier’s perspective. I wanted to write from the product manager’s perspective. Have fun reading it. Comments are most welcome.

Here it is:



Postscript: friends kept asking me about other cryptos. Why not Ethereum and why not Ripple?

The bottom-line is that that they imploded in 2018. Not only did their prices tank, but so did their transaction count. There was no verifiable pulse as far as I could ascertain.

Here are graphs of Ethereum and Ripple’s transaction count, overlaid on Bitcoin. Note the precipitous drop through 2018 and into spring 2019. Totally different from Bitcoin’s steady-eddy growth through this period. No inversion here.

Note also the steep increase in transaction count, as of Spring 2019. I would be extremely cautious about getting excited about these, as they correlate exactly to the increased speculative activity that resumed at that time. No steady-eddy intrinsic usage or growth that I could see.

Note also that Ripple (XRP) in late 2018 dipped BELOW Bitcoin. This is quite an indictment considering both Ethereum’s and Ripple generate more transactions than Bitcoin on a mechanical level.

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