Hi Investors! Do Nvidia Watch Parties Mark the Top? And my 'Dead Crypto' Theory

Welcome back to another week of Market Movers, where I summarise the top headlines that attracted my attention this week to keep you up to speed with the markets and give you some light reading for the weekend.

As usual, lets start with a look at the general markets, followed by the digital asset space.

Don't forget to check out the Risk On Investor resources page for access to the growing selection of calculators, tools and video guides to help you become a better investor. There is also more content posted frequently on the YouTube channel to keep you informed and entertained - you can also read back on previous newsletters if you're a new joiner to the investor club

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Have a great weekend

Chaz (RiskOnInvestor.com)

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Disclaimer - The opinions of the author in this newsletter should not be taken as financial advice. Any mention of investment products is not a recommendation to buy.

If you are looking for financial advice, please seek the services of an industry professional and do your own research.

Capital is at risk when investing

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£1m Portfolio update

Earlier in the month I wrote about an unfortunately timed holiday I took when market turmoil unfolded in the crypto space - It's been a pretty boring month since then with very little movement.

So a negative month for me, the crypto portion of my portfolio and ISA taking the majority of the hit, largely because there is a small amount of leverage in each of those so the sudden downturn hit them hardest

No buys/sells to report since the last update, however I am long overdue a crypto miner review so I need to get around to reading all the latest quarterly filings from the miners to look back at my projections and see if we're on track or not.

If we aren't I might have to cut back my miner positions and reallocate.

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Major Market Indices

Everyone's favourite leather jacket wearing CEO was back in town this week with another dose of AI optimism to keep the markets ticking over.

The numbers were pretty mild for Nvidia, only a 122% YoY growth, outstripping expectations by about 5% based on analyst numbers.

So the stock fell about 8% at the time of writing.

I don't think there are many companies that can post, frankly ridiculous, results like that and disappoint investors but Jensen has managed it.

Nvidia's margins are in excess of 50%, which again, is frankly ridiculous for a hardware company. But it does show how desperate the market is for AI infrastructure that Nvidia can charge these crazy prices.

One of the classic signs of a bubble market is the euphoria that accompanies it.

And one of my favourite news stories of the Nvidia earnings was that a bunch of people gathered in a pub in New York to have an earnings watch party - if that doesn't feel bubble like, I don't know what does!

Is Nvidia in a bubble?

This might surprise people, but I don't think it is.

Does that mean the price is going to skyrocket? I doubt it.

Nvidia is priced for high growth, that's why the share price has skyrocketed over the last few years, because suddenly we've realised that we might not have the infrastructure to build larger AI models.

I do wonder if the price of Nvidia has run away faster than it should have, because let's be honest, beyond some chat bot customer assistance we haven't seen any killer applications of AI yet beyond niche areas (that's not to say that AI isn't doing incredible things, especially in the medical fields) but until we start to get some more widespread AI products being developed this market run is always going to be built on shaky ground and many of the big tech giants are now being priced on perfect performance which they are always going to fall short of at some point.

So I do think prices have run away from reality at the moment, but that's because as investors we are trying to price things based on the future and Nvidia is being priced to continue breakneck growth because AI will find it's uses.

Could this be another dot com bubble where the underlying tech was incredible (internet and ecommerce) but the market got ahead of itself and it took longer to come to fruition - yes.

In fact I think that's quite likely but on a smaller scale.

I think there are still a lot of regulatory hurdles for tech companies to overcome before their models can be widely adopted beyond integration with their own products and all things regulatory take time.

But because this AI boom is only really linked to the big tech companies, and many of them have balance sheets which are the envy of countries, let alone other companies, they can withstand the hype in a way that small fledgling companies with .com in the branding couldn't in the early 000's.

So I don't think we'll see a sudden burst in the same way other bubbles can go, because I personally do think the tech is here to stay, but I do lean on the side of artificial general intelligence (AGI) being much further away than people think.

There is a big leap to go from generative AI models to an AGI.

If the AI tech can't live up to hype then I think we'll see a slow deflation of the bubble. That could take the form of stagnating prices until reality catches up or some short sharp small corrections which occur every now and then.

To top it all off and make you feel even more twitchy about share prices - did I mention that the 2-10 year US yield curve just uninverted this week?

Yep - everyone's favourite recession indicator started flashing this week, effectively putting the economy on notice.

Last week I noted that the annual central banker shin-dig was under way, I've popped a couple of holiday snaps below

The main announcement to come out was affirmation from Jerome Powell that the US is now on course to lower rates, this has started suppressing the short term treasuries which has finally pushed the 2-10 yield curve over the line., if you want to get involved in bonds, now is probably a great time to start investing in short dated bonds if we do see rates drop fairly quickly.

Now, I feel a bit like a broken clock (right twice?) but why would a central bank cut interest rates?

In monetary policy it's to try and stimulate the economy because it's slowing.

But is that the situation we have here?

Some would argue yes because we're starting to see some soft jobs data coming out which is usually a precursor to an economic downturn, whereas others would argue no, and just that we've got overly restrictive policy because of the inflation fight, so it was always going to need to come down at some point.

Realistically both camps can be right and we get a recession in the US.

Will it actually unfold or will the US limp through?

No idea, but it could have a big impact on your investments if the market suddenly decides that the soft landing isn't coming.

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Digital Assets

Base tops 1m Daily Active Users - Is Crypto Dead?

You may be familiar with the metric of 'daily active users' in crypto.

It's one of my least favourite metrics because it's like comparing apples to oranges and obscures a lot of underlying data.

This week Base network hit the headlines for hitting 1 million daily users - impressive right?

It is until you actually look at the reality on the ground.

Base, as with many other blockchains is suffering from what I call the 'dead crypto theory'.

If you aren't familiar, there is a theory going around that the internet is mostly bots now and the genuine content by other humans is being forced out - this wikipedia article summarises​

So what is dead crypto theory?

I haven't fully fleshed out the details but it's similar to the dead internet theory.

It's really easy to code up a bot on a crypto network to do actions for you.

Those actions could be automatically trading on a decentralised exchange, destroying unsuspecting memecoin traders by front running them, or making copy bots that simply copy the actions of other users.

In short, there are lots of duplicate actions which are automated rather than real humans interacting with blockchains.

My evidence for this is mostly situational at the moment.

For example, let's take Base, head to the Base blockchain explorer and randomly take a look at some transactions.

You'll find a lot of transactions where the transfer value is <$0.01 and it isn't a smart contract execution, a simple swap and these swaps are being done by wallets which hold very little value.

I don't know if this is being done purely to try and boost a chain's stats but it's very misleading.

Worryingly it seems to be becoming more widespread, especially now Ethereum layer 2's can directly compete with the more traditionally cheap blockchains such as Solana.

In the past I've been concerned over misleading stats such as the Solana vote vs real transactions where 'vote' transactions regularly outnumber 'real' transaction 3:1 and the fact that failed transactions (trackable ones which account for ~50% of all transactions and this doesn't include dropped transactions so the actual number is likely higher) are also really high.

I think what has really sparked this latest round of spoofing is the Ethereum ecosystem scaling.

It's is now effectively free to transact on Ethereum layer 2's and so there is no longer any consequence to running lots of bots and plenty of upside in the form of front running user transactions to try and extract value.

This is in sharp contrast to Bitcoin and Ethereum which create artificial blockspace scarcity in the name of decentralisation (smaller blocks mean that nodes can be run on lighter devices e.g. phones in the future whereas many other blockchains require heft machinery to partake in validation), but an unintended side effect of this is that it makes it harder to run lots of bots on the network because fees have to be higher.

This means we're very quickly seeing a two tier crypto landscape appearing, those who concentrate on decentralisation and are therefore likely to be more akin to infrastructure investing play, and those that demand fast and cheap blockspace above all costs, akin to the tech giants of today.

Will they both (or either?) work out long term - I couldn't tell you, but I personally favour the slow and steady, if you can call anything in crypto that(!).

[DISCLOSURE - Chaz holds $MSTR, $RIOT, in an ISA and $wStETH and $GALA in unsheltered positions]

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Latest from the YouTube Channel

Social media has given rise to influencers, the loose term we use to describe people who provide commentary, thoughts or other forms of entertainment online.

The finance space is no different.

But is the advice they give good? Watch my take here​

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Have a great weekend!

Chaz

P.S - Want to work with me? Reach out by replying to this email and lets chat