Babbitt Column | Cash Flow and Coin Flow
I. Cash flow
What's most important for investment? Different people have different answers to this question. For me, the most important thing in investing is to have a steady flow of cash.
To invest, you need to deal with volatility and uncertainty. To cope with volatility and uncertainty, you need to find ways to minimize this uncertainty and minimize the risk of volatility. The most direct understanding is that you need to fight uncertainty with certainty. When you provide deterministic performance that covers market uncertainty, your investment odds are high and you can start enjoying the benefits of volatility.
What is the certainty you can control? In addition to your cognition and your patience, what really matters is that you can generate a steady stream of cash flow, which is the most important certainty in investment.
Although the investment vision is important, it is not because you have a good vision that you do not have to bear these market fluctuations, and you do not need to bear systemic risks. For example, even if you buy bitcoin, you also need to bear the risk of a 50% drop in a single day. You also need to hold the currency for two years, three years or even longer, and you need to bear it by more than 90%. risks of.
As far as the bottom line is concerned, no matter how good you look at it, it will be difficult to get to the lowest point. So is there any way to copy to the lowest point? Have! As long as you have a steady flow of cash, you can buy a little for every 1% drop in the broad market, or buy a little more every 5%, and you can always buy the lowest point, even if it is not the lowest, it is worse than the nearest Not a few percentage points.
Therefore, it is not a question of whether you can get the bottom, but whether your cash flow is long enough. As long as your cash flow is long enough, then the bottom-sweep event will change from an original uncertain thing to a certain thing. This is the typical use of certainty to fight against uncertainty.
In the case of patience, it is often said that patience is important in investing, and that if you have enough patience, and if you can tolerate the 90% decline in bitcoin, then you can get enough profits. Patience is really important, but even if there is no patience, anyone who sees a 90% drop will always have an irresistible anxiety and always panic. This is the basic human nature.
Patience is not a natural thing. Patience is directly related to the amount of money you have. If you have only one or two hundred dollars in hand, then you can't sometimes be as long as 10 years of patience. What is patience? In my opinion, it's simple. Patience is a steady stream of cash flow . There is sufficient patience for continuous cash flow. Without continuous cash flow, it is difficult to have sufficient patience.
It is often said that Buffett's success is due to Buffett's patience, and that it is his vision that Buffett can copy in the end every time. In fact, his vision is only part of it. Of course, his investment vision is good, but what is really important is Buffett's continuous cash flow. The furniture store and candy store that he wholly acquired, his bank constantly provides him with a lot of cash every year. The insurance company he owns not only generates operating profit itself, but also a part of the premiums it collects can be used for free for decades, and it only needs to be returned after decades. So for him, his capital is not only zero cost, but even a negative cost. This continuous negative cost cash flow is the secret of his success. It is precisely because of this continuous cash flow, that he can always copy to the end, and that he can always buy high-quality assets at the most critical time.
Now we understand the importance of cash flow for investment, but it doesn't seem to be of much use, because there is no cash flow in the blockchain industry.
In the blockchain industry, whether you like it or not, this is a basic fact: At present, there is no cash flow in the entire blockchain industry.
Not only is there no cash flow, not even cash.
The blockchain industry is still in a fuzzy zone for the time being, and the fiat currency has not yet been involved. At present, many businesses in the blockchain industry are currency-based. Even contract transactions and options transactions are settled with a currency standard. All are currency. What can I do without cash?
Although there is no cash flow in the blockchain, there is one thing that is similar to cash flow. It is Staking. The hoarding of coins and the mortgage itself can generate interest. This interest is issued in the form of coins. As long as you keep the mortgage, then this coin The interest is also constantly flowing, we give it a foreign name, called: Coin flow.
Regarding Staking, I wrote an article before, saying that there are some problems with its design:
For example, the income of Staking comes from the issuance of coins. When the time span is large, the number of such issuances will increase in number and will seriously swallow the value of a single coin. That is to say, the Staking model guarantees most of the There is no long-term investment value for the project. Moreover, the lock-up mode of Staking is equivalent to distributing the proceeds of additional issuance to the lockers, thereby diluting the holding value of the unlocked ones, which is considered to be the loss of most people in exchange for the income of a small number of people. In short, there are some problems.
On the one hand, there are some problems with the Staking model, but on the other hand, it is an objective existence. It is the current model in the industry, and it is estimated that this model will be maintained for a long time to come. Therefore, at present we can only accept this status quo, and then carry out further thinking on this basis and construct our investment theory and strategy.
Conversion of cash flow and Coin flow
Since one needs a steady stream of cash and one can generate a steady stream of coins, what is the relationship between the two?
The relationship is actually very simple. Can't I sell the coin at the current price to become cash? Can't you buy cash at the time?
Therefore, Coin flow and cash flow can be converted in some cases. If you use a formula to express it:
Coin flow * liquidation price = cash flow
The constant flow of Coin, multiplied by a liquidation price, is equal to the continuous flow of cash.
Through this formula, it is equivalent to establish a channel between Coin flow and cash flow, so that the two can be transformed into each other.
In general, the total amount of your coins is limited, and the interest rate for generating new coins is also stable, so the amount of cash flow depends entirely on your liquidation price. If the realised price has remained the same, then Coin flow and cash flow are equivalent, but the key issue is that the price of the Coin in the blockchain industry is too volatile.
If the price of Coin rises all the way, then at this time Coin flow is obviously better than cash flow;
If the price of Coin drops all the way, then cash flow is significantly better than Coin flow at this time.
If anyone can accurately determine the selling point and buy high and sell low, it is naturally the best, but this is impossible, because it involves the judgment of the price, and the judgment of the short-term price is very, very Difficult things. So in reality, the two are quite different.
For example, in reality, miners face this problem: miners invest in cash and get a steady stream of coins, which is the Coin flow.
How to deal with these coins at this time is a test of the level of miners. At present, the processing method of most miners is to sell a portion of the coins immediately after mining, to balance the daily costs, retain the necessary cash reserves in the future, and then hoard the remaining coins to make good use of these coins. Financial instruments to hedge. In practice this is a good way to balance risk and return.
For the current blockchain industry, I don't think it's time to think completely with the currency standard or the Coin flow, because it is not enough to withstand the risk of high fluctuations in the currency circle, because it is equivalent to its own Leverage .
I think that there is still a need to focus on cash flow and treat Coin flow as an asset . Or walking on two legs, on the one hand, you have a steady stream of cash flow channels, on the other hand, a steady stream of Coin flow channels, and at the same time open up the two to achieve mutual conversion. In this way, no matter the price is high, you can handle it calmly. When you are low, you have enough money to copy the bottom, and you are not afraid of the plunge in prices. In this way, you have enough patience and enough time to accompany the entire industry to grow together. .
Fourth, USDT-based cash flow
Of course, in fact, it cannot be said that the blockchain industry has no cash and cash flow. For example, USDT can serve as a stable currency and cash function.
USDT itself is both cash and digital currency, with both characteristics. If there is a blockchain business based on USDT in the future, if its business dividends, interest payments or other derivative businesses are based on USDT or other stablecoins, then the blockchain industry can actually generate "cash Cash flow ", then the cash flow gap of the entire industry can be supplemented, and at that time there will be a chance for coexistence between Coin flow and cash flow.
However, there are few similar businesses at this stage, making the cash flow of the blockchain industry far from enough. I believe that there will be more and more similar businesses in the blockchain industry in the future, and there will be more choices for investors in the blockchain industry.