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Compound Collaboration, Month #12
Every month I put aside some money into a portfolio aimed at long-term bets over the next 20 years. I will be gifting this portfolio to my future kids someday- in the hopes of using it as an educational tool alongside the memos I write to teach them about the world and to have a shared activity to work on together as they grow up.
It is one of the main reasons why I invest.
Performance from the first 11 months:
Month #1 August 2020: $ARKK +43%
Addition for this month:
Going back for a second helping of Ethereum.
Why?
In the next year Ethereum will be getting upgrades to its protocol that will transform it from a speculative asset to a cash flow producing asset.
This will fundamentally change the type of investor that is drawn to Ethereum which will result in $ETH.X's price becoming more inelastic.
Elasticity refers to the amount that supply and demand change in response to a shift in price. If investors of a particular asset have a "buy and hold forever" mentality, then an increase in demand won't automatically produce an increase in supply. Price will have to go up a lot before these 'hold forever' investors are willing to sell.
When Ethereum changes to a Proof of Stake consensus mechanism, investors will be able to earn yield by 'staking' their ETH. This comes at a time when there has never been more passive investors who would love a 'set-it-and-forget-it' asset with a high yield and uncorrelated risk exposure.
I believe these passive investors will embrace convenient staking services with open arms, treating it like the Vanguard funds they refuse to sell for decades. This will make ETH's supply more inelastic to price changes.
The switch to Proof of Stake is slated to occur sometime in the first half of 2022.
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