Podcast Transcript: Nikhil Shamapant On Ethereum to $150,000, Triple Halving and NFTs

This is an edited transcript of our podcast episode with Nickhil Shamapant first published on 27 August 2021. Nikhil is an incoming medical resident and publisher of an influential investment report titled ‘Ethereum, The Triple Halving’. In this podcast we discuss key differences between Bitcoin and Ethereum, the triple halving for Ethereum, the growth of staking derivatives, and much more. While we have tried to make the transcript as accurate as possible, if you do notice any errors, let me know by email.

Introduction

Bilal Hafeez (00:00:01): 

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Now, on to this episode’s guest Nikhil Shamapant. Nikhil recently published a viral investment report called ‘Ethereum, the Triple Halving’ and has been researching cryptocurrencies and the Ethereum ecosystem since 2020. Outside the markets, Nikhil is an incoming medical resident at the University of Colorado Internal Medicine. He completed his undergrad at Rice University where he studied philosophy and cognitive science. He then completed his med school at the Icahn School of Medicine at Mount Sinai. Now, onto our conversation. 

So welcome Nikhil to our podcast show. I’ve been looking forward to speaking to you. 

Nikhil Shamapant (00:02:03): 

Thanks for having me. It’s great to be here. 

Bilal Hafeez (00:02:05): 

Yeah. I have to say, I wasn’t aware of you until very recently when I discovered your quite famous paper now on Ethereum’s Triple Halving which seemed to have gone viral and everyone’s talking about it. So then I discovered your talents and your analysis and your very deep analysis, especially in the crypto space where things tend to not be as rigorous as what you’ve been doing. So kudos to you for writing your reports over the course of this year. 

Nikhil Shamapant (00:02:32): 

Appreciate it. I think it got way bigger than I expected, but I’ve really enjoyed a lot of the discussion that’s come out of it. It’s just been a lot of fun. 

Who is Nikhil Shamapant? 

Bilal Hafeez (00:02:38): 

Great, good. Now, before we talk about your views on Ethereum and crypto more generally, it would be good to know a bit about your background because you have a slightly unusual background, especially for the types of guests that we have. And so perhaps it’ll be good to hear from your own words off something about your background, what you’re doing now and where your interest in crypto came from. 

Nikhil Shamapant (00:03:00): 

Sure. Yeah. And I’ve listened to your podcast a few times, so it’s a little intimidating because some of the guests are just so experienced and such amazing professionals. So I started getting into investing back in high school, mostly value investing at the time, reading a lot of Warren Buffet letters and just discounted cash flow models, things like that. I got interested in it mostly because it was like a treasure hunt, honestly, where I was trying to find something cool and undiscovered, and value investing, you can do that a lot where you can explore these microcaps and try to think for yourself and figure something out. And so that’s where I started, and I think that was great because value investing is very much about critical thinking, and to the extent that you’re successful, you have to really find a variant perspective and that’s hard to do. 

And I can’t really say that I was doing that a lot. A lot of the time early on, I was piggybacking off of other people’s work, trying to understand how people were thinking about it. It was a great way to learn. And I think from that high school experience, I really started to just pick up an interest in the space. I think one thing that holds a lot of people back is just the lingo, understanding concepts and just what are different margins and how to read financial statements and how to think about this whole space. There’s just a whole world people don’t know the terms. And so once I got over that in high school, it’s been very fun to just develop further and dig deeper and try to… It started as a hobby for me, but I’m just one of those people who I just to dive really deep. 

And so if you just continually try to learn new things for 10 years now it’s been something like that, you eventually get pretty into the weeds. So that’s how I’ve developed over time. And then more recently starting to apply that to crypto because if you’re interested in just doing some cool, critical thinking and analysis, crypto is a market that hasn’t yet been characterised and so it’s really just this free space for an investment analyst to really test, how well do I really understand this concept? Why does discount cash flow work? And is it applicable here? And why and why not? Where in equities it’s usually redundant because it’s been well-established. 

Bilal Hafeez (00:05:17): 

Okay, understood. And just in terms of your academic background, so your high school, you got into investing and then you went to university. What did you study or what are you studying I should also say? 

Nikhil Shamapant (00:05:29): 

Yeah. I went to Rice University and I studied philosophy and cognitive science there. And then I went to medical school at Mount Sinai in Manhattan and I studied medicine, and now I’m actually in Denver and I’m doing my internal medicine residency. 

Bilal Hafeez (00:05:44): 

Okay. So just to be clear, you’re on track to become a medic. You’re training in medicine right now, you’re studying and as an in parallel to that, or as a second job, so to speak, you’re heavily involved in the investment world? 

Nikhil Shamapant (00:06:00): 

Exactly. 

The key differences between Bitcoin and Ethereum 

Bilal Hafeez (00:06:00): 

Yeah. So I have to say that it’s quite an unusual background, which makes it all the more exciting to speak to you. Now you did mention that one of the challenges for people when they approach investing in financial markets is the lingo. But the same can also be said about the crypto world as well which has introduced a whole new set of jargon. And one of the things I found in the crypto space is that early on, it was computer scientists and you could say the nerds were driving everything and now you’ve had finance people enter into the mix. So you’re in this really interesting period now where finance and the computer scientists are trying to formulate the right way of talking about things. And so perhaps we can start with some of the basics, just so we have some context here. And the two most popular crypto markets have to be Bitcoin and Ethereum. And so how would you characterise the difference between the two. 

Nikhil Shamapant (00:06:55): 

Yeah. So I think Bitcoin was the first really robust attempt to create a form of sound of money. And so it’s like you said, I think a lot of the people, when you look at the history of this space who got into it, they were very technically proficient, but I think there’s always a really big emphasis on multidisciplinary thinking, because when you look at the people who were really involved in Bitcoin initially it was a very large discussion on what constitutes money and sound money and monetary policy and how the blockchain technology can facilitate this in a new way. And so while they were thinking about cryptography, I think there was also just a very big focus on that. 

And Bitcoin is ultimately set out to achieve that goal of creating sound money by facilitating transactions between a digital object that is scarce; there’s not infinite of it, where you can prove that certain transactions are valid and do that all in a decentralised way where you didn’t have to rely on a government to back the money or a service like a visa or anything like that to back the money. It could all be done from people’s computers. 

Bilal Hafeez (00:08:11): 

Yeah. And I guess it’s also quite telling when you talk about sound money, that the initiation of Bitcoin was after the global financial crisis. So the that there was a timing of this, which gets into a macro context. So it wasn’t just happening in a vacuum. 

Nikhil Shamapant (00:08:25): 

Yeah. I think 2009 or something like that. So exactly, it’s right after the financial crisis. Exactly. And it was a time where there’s was a lot of stimulus, so that’s definitely… And I think there was a huge impetus for the space taking off was that initial… Bitcoin’s often talked about as digital gold, and I think that they haven’t really had to rebrand at all because that’s what it was built for, it’s how it functions and it hasn’t changed. And there’ve been forks, which means basically if someone tries to change the rules of the chain and they split into two chains where one has the original rules and the new chain has different rules. But for Bitcoin, the original rules have pretty much stuck around and that’s been the winner and that’s that digital gold limited supply chain. 

Bilal Hafeez (00:09:19): 

And then how would you contrast that with Ethereum then? 

Nikhil Shamapant (00:09:22): 

Yeah. And so the vision around Ethereum was very different. It was thinking, okay, we have this decentralised network. We don’t necessarily need to say this is just… We don’t even necessarily need to say this is money. We can just say this is a decentralised network with scarce asset. And then we can say, what can we do with this? So the key thing that Ethereum did that was unique was that they made it programmable. And so they said, “We’re going to introduce what are called smart contracts.” But essentially it allows programmers to come up with functions that can be run on the blockchain and unleash their creativity, in the same way that the software revolution changed the world as we know it. The idea was that if crypto was building something really profound, that that potential would need to be unlocked by giving it the same programmability that we see in other applications, but putting it on this decentralised platform. 

And so when you hear about things like decentralised finance, there are fringe attempts to try to build it on Bitcoin. And that’s a little bit of complicated area. But what I’ll say is really that all started on Ethereum, because Ethereum was the first programmable option. And so when you want to build a way to automatically loan someone funds or automatically transmit funds if a certain condition has been met, those are all things that need to be programmed into a contract. And so that’s what Ethereum really did is it allowed programmers to have the freedom to build things. 

Consensus algorithmics: proof-of-work vs proof-of-stake 

Bilal Hafeez (00:10:58): 

And then with all of this, there’s a real elegance about the idea of having a decentralised platform or entities or protocols which don’t rely on trust. So there’s a verification process and the popular one that’s well known is a proof of work, which is used for Bitcoin is, was used for Ethereum. We’re in a transition phase. I mean, perhaps you could define proof of work. It’s probably better to hear it from you. So if you could define proof of work and then we can talk a bit more about it. 

Nikhil Shamapant (00:11:30): 

Sure. So these are what are known as consensus algorithms. So the idea is, if you have a centralised system, you just have one entity, whether it’s the government or someone else who just decides which transactions are valid, what counts, what’s right and wrong. In a decentralised system, you need some way of creating a single decision that everyone follows from a number of different actors, because it needs to be decentralised amongst the whole system rather than having anyone in charge who makes the decisions. And so for a decentralised system, you need to come to consensus. And proof of work, the way that they come to consensus is they say, “Okay, you can run what’s called a validator on your computer. And that means if you run a validator, you can cast your vote so to speak.” You can say, “Okay, I think this transaction is a valid transaction. And if the remainder of the validators agree with me, then this transaction it will be put onto the blockchain. It will be cast as a block, and it will be enshrined in the ledger of the blockchain.” 

And the problem with this is you can imagine let’s say there’s 10 validators, and I am a nefarious actor who wants to steal the money. I could just buy 11 computers, run 11 validators and suddenly I have more than 50% of the network. And so if the barriers are non-existent to being a validator, then your decentralised system can just be incredibly fragile. And so proof of work says, “Okay, not everyone can be a validator. In order to be a validator, you have to provide proof that you’ve done a certain kind of work.” And that work is called the hashing algorithm. And that’s the algorithm that you’re running to solve a computational problem, where once your computer has solved it, you can show proof that you’ve solved it to the chain and that lets you validate transactions. 

The hashing algorithm is pretty computationally intensive. So it’s not a like trivial thing. And because it’s so difficult to do, it puts a limit on my ability to just buy more computers and run the hashing algorithm because it’ll just become more expensive. And the more people who are involved in this, the more expensive it gets, and that’s seen as good because the expense involved in buying 50% validators is seen as a proxy for how secure the network is. 

Bilal Hafeez (00:14:06): 

Yeah. But the downside of course with this… I mean, the beauty or the elegance of it is that it allows you not to have a centralised authority. So you don’t need a bank or some committee somewhere saying this is true and this is not true. But the problem is, it’s very computationally intensive and very energy expensive as well. And so one issue is that as time goes on, the energy consumption is very high, which is a problem just from a sustainability perspective. But the other issue is the speed of how fast you can create and verify and validate transactions. And that’s perhaps one of the biggest impediments to broader adoption, I imagine. So how do you see some of those pitfalls of proof of work? 

Nikhil Shamapant (00:14:51): 

Yeah. And I would say, I don’t think that the consensus mechanism is the way that Ethereum or other blockchains are typically solving the scalability problem. So it is involved in how fast transactions can be verified on chain, but it’s crucial to distinguish between the security of the chain, which is to say how easily the chain can be attacked by a nefarious actor and the scalability, which is say, how many transactions can be verified per minute or per second. And so I think as far as the downsides of proof of work, I think exactly. So one is that the system is just… the hashing algorithm isn’t very productive. I think Bitcoin proponents would argue it is productive because the value it offers is security for the network. And so that its value is proportional to the value of Bitcoin itself. 

But I think the counterargument to that is sure, but if there were a way to secure the chain that were more efficient, that didn’t require this significant amount of costs, that it would just be preferable or else equal. And so that’s why. And you’re absolutely right, it requires… it’s so computationally intensive that it requires a lot of electricity. A lot of these mining systems are run trying to achieve economies of scale for that reason, just because it’s so difficult. And so they’ll have just mountains of computing power and then they’ll have to pay for cooling systems because their computers get hot. I mean, it’s pretty intense. And so I think there are a lot of arguments around whether or not that’s glitter bad for the climate. I think the most superficial view is at least right now, it’s using a lot of electricity and that electricity is largely not green energy today. 

Bitcoin proponents often will talk about whether this creates incentives for clean energy, because if you can power these rigs at a lower cost with solar power, for instance, then maybe naturally you create demand for solar. There’s this reflexive cycle where the cost of green energy goes down as it’s adopted in these mining rigs. But I don’t know. I find these arguments tough to evaluate right now. I think a lot of it’s going to be following empirically; are miners actually investing in lower cost, more sustainable forms of energy or are they not? And we know right now they’re not. And so that’s a big question mark there. 

Bilal Hafeez (00:17:30): 

And then how does proof of stake come into the mix here? So proof of work is one way computationally, very intensive, it has some of these issues. But from a security perspective, it’s very secure. Then how does proof of stake contrast with that? 

Nikhil Shamapant (00:17:47): 

Yeah. So all of these are consensus mechanisms where in order to be a part of providing this consensus, you have to provide a proof. The proof of work it’s proof that you did the hashing algorithm. That’s the work. With proof of stake, they introduced a new idea that you have to put up financial stake in order to validate transactions. So what that means concretely is, in order to be a validator, you have to have 32 ether and you have to stake that into your validator, which just means putting it up at risk. If you can provide proof to the system that you’ve put the 32 ether up at risk, you can validate transactions and you get the rewards of that. So in Bitcoin, this happened as well, where if you provide proof of work, you get new issuance, which is called the block reward. And proof of stake, the same way where rather than that block reward going to miners, it goes to stakers. And so if you provide 32 ether, you would get dividend a yield so to speak for providing that capital. 

And the reason this works is, it’s similar to the other consensus in the way that it’s an obstacle. If you want to accumulate 52% of the validators, now you have to accumulate a significant amount of ether and there’s just a cost to that. The second thing I would say is that they’ve introduced this idea of capital at risk, where now not only is there a cost to accumulating the ether and the risk that that price falls, but also there’s a risk which is called the slashing penalty, which is essentially that if you validate a transaction that you shouldn’t have, so you are a nefarious actor because a significant pool of the validators say that you’re trying to do something that is not a real transaction, then you will lose a proportion of your ether, and it makes it less sustainable to keep attacking. 

Bilal Hafeez (00:19:48): 

Yeah. But presumably proof of stake, would you say it’s easier to control 51% or not? 

Nikhil Shamapant (00:19:57): 

I think it’s much harder. So just to give you some context. For Bitcoin, I think there’s a researcher. His name is Justin Drake. And he was estimating the cost of hardware it would require two to attack the Bitcoin network. So it was something five or 6 billion, I think a few months ago. And at the time Bitcoin’s market cap was a trillion dollars. So that’s a 20:1 ratio. And so we can see that ratio of the cost to attack the network against the market cap as a proxy for security. So for Ethereum though, it’s interesting because for Ethereum you have a much more efficient process, because you’re not looking at a cost of hardware, you’re looking at the cost to buy the ether itself. 

So there’s a much more direct value transfer, where I guess a couple of things, one is just buying a large fraction of the ether is just going to be incredibly expensive. So if Ethereum has a $300 billion market cap right now, what you would need to get the same level of security is you’d have to have half of the validators equal about 0.3% of the ether. Half of the validators is what you need to attack. And if that were to be 5 billion and the market cap is 300 billion, I might be doing my math wrong, but I think it’s something like that. It’s a very, very small fraction of the ether. And I think already today we have 6% of the ether has been put into validators. So it’s just this efficient value transfer. But the other thing is just, this attack, the slashing penalties make it very different. Because if you accumulate $4.9 billion of hardware and you attack Bitcoin and it doesn’t work, well, it just really depends where you got your funding from. Because what you could do is your next move could just be to purchase another billion dollars of hardware and keep attacking. But with ether, you can’t do that because you would have lost a significant amount of your funds. And so now to come back and get more money, it’s going to cost you a lot more. 

Bilal Hafeez (00:22:01): 

Yeah, understood. And I guess from a evolution perspective then, the reason why proof of work was initially used rather than proof of stake was because there wasn’t a market in crypto to start with. Proof of stake sounds quite compelling, so why wasn’t that done initially rather than proof of work? 

Nikhil Shamapant (00:22:22): 

Yeah. I think there’s a few reasons. The first reason I think is just historically proof of work was the original consensus mechanism which was just developed, and so it got initial adoption. I think the idea of proof of stake… the idea came out a long time ago, but it’s always been tough to figure out how to do proof of stake in a very decentralised way, because you can imagine if you launched a proof of stake system, a lot of the initial stakers would be the… it would just be the centralised group. And so it’s tough. And this is a concern with a lot of newer proof of stake systems. So you look at something Solana and it’s often been criticised for just a lot of the venture investors hold a significant amount of the capital, and a lot of that is staked. 

Can this be surmounted? I think absolutely. It takes the initial investors selling their stake and distributing it. And I think it’s an advantage that’s been pointed out to proof of work that a lot of the capital goes to these miners who… miners have a lot of high fixed costs and so they have to sell. And so if they’re reaping the rewards of the system and then selling it, it just really distributes the currency quite widely. For proof of stake, it’s interesting. I think a lot of people have commented that for Ethereum, it works out quite well, that it started as a proof of work system distributed widely, and then is moving to proof of stake. 

The selling pressure of miners on Bitcoin 

Bilal Hafeez (00:23:52): 

Yeah, understood. And so with Ethereum, it would be perhaps useful to get a sense of some of the history. So it’s proof of work, but we’re in the midst of it transitioning to proof of stake, Ethereum 2.0, I guess. Can you talk a bit more on this and how it’s evolving, and you wrote a whole paper on the Triple Halving, so I guess that’s also part of the story. 

Nikhil Shamapant (00:24:15): 

Exactly. I mean, it’s been in the works for a long time where I think Ethereum has been working towards switching to it from a proof of work to a proof of stake system. For the reasons I mentioned, it’s more secure for a lower issuance. So you need less incentive to get the same amount of security. It’s just seen as a more elegant and efficient solution to this problem. My report was looking at the supply and demand effects of this transition. Because I think what I realised was that a lot of the transitions that the Ethereum network is going through are going to have dramatic effects on the overall supply and demand. And that’s in the context of an asset which has already gotten quite a bit of adoption. So Ethereum is the number two chain in market cap, but it’s clearly the number one chain already in usage, and it’s got 90% of the developers in this space. It’s not a supply and demand shift and an asset that no one uses. So it’s something that I thought would be really interesting. 

And so my thesis revolved around two shifts. One is EIP1559, which was a shift… It did a few things, but I think the most important thing is that it said that each transaction no longer… the fees from that transaction will no longer go to the miners, instead 30% of the fees will be burned. And that just means deleted from circulation. And then the second shift is a shift from proof of work to proof of stake. So as I mentioned earlier, proof of work and proof of stake in order to incentivise validators, they have to issue new currency. But I think proof of work is much more efficient at achieving the same level of security. And so what they’re able to do is, they’re able to issue less currency than they have to on a proof of work system. 

And so what the Triple Halving was looking at was this… what I projected is the significant decline in the amount of selling pressure from this new issuance. I guess I should just pause and give some context here around the first halving event. So the idea of a halving event, I took that from Bitcoin. So Bitcoin provides new issuance to its miners called the block reward. And every four years in the Bitcoin system, the algorithm cuts the amount of new issuance down by 50%. What has happened to the last three times, including in May 2020, is that in the three months after this occurred, the price of Bitcoin has gone up by a factor of 10. So the question was always why, and was that a narrative thing where people discovered Bitcoin and got excited about the halving event and piled in, or is there an actual market explanation for it? 

And so my theory around the Bitcoin halving is that this new issuance is a constant form of selling pressure from the miners. Miners have fixed costs in electricity and air conditioning. And when you look at their financial statements, which are often publicly available, it’s very clear they’re not cash flow machines, they have incredibly high expenses and it’s just a very competitive industry. And so a lot of the new issuance they have, they’re selling and that’s just providing new supply on the market and depressing the price. Whenever every four years that new issuance gets cut in half my theory is that you’re seeing some amount of that, you’re seeing 50% decline in the amount of selling pressure from the miners. On a daily basis this is not going to be a substantial portion of the supply. The miners are probably a small fraction of the overall selling pressure on a day-to-day basis, but this is persistent. 

So where you or I might go to the market idiosyncratically with our buy and sell orders, miners are very consistently not buying and selling. Because they’re selling new issuance rather than selling something that they bought earlier. And so my theory is when Bitcoin’s price is going up, it’s in the context of dilution, which shows that the price going up is actually understating the underlying demand. And when you have this halving event, it decreases the amount of new issuance. So that demand has nowhere to go and it typically drives the price up in order to create new supply at higher prices. There’s some context for this, which is that Bitcoin supply, unlike a lot of other assets is very concentrated because there’s a culture of just buying and accumulating it for the long-term. So it’s called HODLing and essentially there’s a significant culture of just dollar cost averaging and never selling your Bitcoin no matter what, which you have some of that in the stock market, but it’s usually in indexes rather than in individual securities. 

So Bitcoin is unique in that it’s just an individual security where a huge part of supply is just locked away and never to be sold. And so when you have this halving event and you drive the price up until new supply emerges, it often takes longer for new supply to emerge. The price has to go up significantly more. And so that’s my view of the mechanism by which the Bitcoin halving event drives up price, which is that at least the first part of the move is actually a supply demand dislocation, where in order to re-equiliberate, it has to move up. And then I think of course it’s reasonable to think that some later stage of the move is just the prices moved up right after a potential catalyst. People view this as confirmation of the narrative, which is that the halving event makes Bitcoin more scarce. And when the price is going up after Bitcoin has become more scarce people see, okay, this currency is being adopted, this is a true thesis. And they buy into it. And that probably extends the bull run and you get some kind of speculative peak that is much higher than maybe the initial halving event could have achieved on its own. 

The triple halving for Ethereum 

Bilal Hafeez (00:30:44): 

Yeah. Understood. And so you analogise then to Ethereum, that if Ethereum has something similar, some kind of halving event, then you should see a similar dynamic unfold. And so what are the… is there an inbuilt halving event within Ethereum, such as within the protocol? 

Nikhil Shamapant (00:31:00): 

Exactly. So the interesting thing is when you look at it, Ethereum has never had a halving event. There have been smaller monetary policy shifts in the past, but it’s not on a schedule and it’s never been the magnitude of the 50% decline that Bitcoin has had. The other thing that’s interesting is Ethereum has outperformed Bitcoin since it’s issued. It’s much smaller and it came about years after Bitcoin came online. But if you look at it time of IPO, it’s actually outperformed in the context of this dilution. And so again, you can speculate as to why this is. But my theory around why it is, is that it shows that demand for ether is high enough to actually outpace this dilution. And that means that when you get a similar kind of reduction in new selling, you get some kind of halving event, you should see a even more magnified rise in price. 

And then going back to what you were asking, which is what is this halving event going to be? And my argument is you can view these new developments EIP1559, and the shift to proof of stake as a halving event where you’re having this really significant reduction in the new issuance. And the reason I called my piece of the Triple Halving is because the reduction in new issuance is going to be a 90% reduction after proof of stake. And this is to be expected. Proof of stake is really intended to be a more efficient mechanism, so you need less issuance. And so it makes sense that there’s a 90% reduction overall. 

Impact of EIP1559 and halving 

Bilal Hafeez (00:32:43): 

And you say triple, so there’s three halvings actually. And there’s EIP1559 is one, or is it all spaced out? 

Nikhil Shamapant (00:32:54): 

Where I get to the Triple Halving from is actually just looking at, if you get a 50% reduction in supply, and then you get another 50% reduction in supply, and then you get another 50% reduction in supply, you’ve reduced supply by 87.5%, something like 90%. And the Triple Halving is a 90% reduction. And so what I would argue is we’re getting an equivalent reduction to the last three Bitcoin halving events in one event. 

Bilal Hafeez (00:33:25): 

Oh, I see what you mean. Okay. So it’s not three discrete events happening. This is actually one event, which is the equivalent of the triple halving. 

Nikhil Shamapant (00:33:32): 

Exactly. And so it’s significant because you look at the effect that the initial Bitcoin halving has had on price each of the last three times and you say, okay, if the cumulative reduction in issuance of all three of those is the same reduction that we’re about to see in the Ethereum system, and so if my theory is correct, and that this is not just a market idiosyncrasy, and this is not something that can be priced in because it has to do with actual supply and demand dynamics after the event that can’t be prevented ahead of time, you can’t price it in a way that changes the issuance before it happens, then you should see a similarly dramatic effect on price afterwards. 

Bilal Hafeez (00:34:20): 

And EIP1559, who is EIP, what is EIP? 

Nikhil Shamapant (00:34:26): 

The name for an Ethereum network upgrade. And so really it’s an upgrade to the underlying code, which is why it’s this technical sounding name. It’s not great branding for sure. 

Bilal Hafeez (00:34:37): 

Yeah. So it’s like Windows 10 or 12 or something akin. It’s the next version. 

Nikhil Shamapant (00:34:41): 

Yeah. I guess that’s a great way to thinking about it. And there’s all sorts of EIPs. Even the shift to proof of stake, it will be an EIP. I forget the number, but exactly. And so the significance is 1559 burns a portion of the transaction fees, which normally those fees are just sold onto the market by miners. So when they’re being burned, one is, they’re not entering circulating supply. And so that’s not a dilution. And then two, if issuance is low enough, you can actually get a net share repurchase because you can have more fees burned than Ethereum issued and that actually decreases the supply. And so that’s where I think in proof of stake reduces the amount of issuance. So put them together and you get the triple halving event. 

Bilal Hafeez (00:35:34): 

And EIP1559 has already happened, or it’s been initiated already. So it’s in process. 

Nikhil Shamapant (00:35:41): 

It has. It’s already happened. And it’s actually pretty great. There are websites… I’m just pulling up a website called watchtheburn.com. And you can see the total amount of ether that’s been burned. So it shows you that since it started it’s burned over a hundred thousand ether, and you can see that it compares it to the issuance and you can see so far the net reduction in issuance has been about 35%, which is roughly where I was telling you, it would be around 30% reduction of supply just with EIP1559 alone. 

Base case price target for Ethereum of $30,000-$50,000 

Bilal Hafeez (00:36:17): 

And the price implication of this, you’ve done a lot of work in trying to work out what is the fair value of Ethereum using a discounted cash flow, DCF approach. This is going back to your conventional financial approach here. And you have that, and then you have some more aggressive targets. I mean, can you talk a bit more about where you think we could eventually settle? 

Nikhil Shamapant (00:36:41): 

Yeah. So valuing this is incredibly difficult. Even in the four months since I published my piece, we’ve seen such a shift in the landscape of what people are focusing on in this area and how much demand there is for ether. What I did in my report was I said, “I’m not sure which valuation approach is best.” So I’ll use an ensemble of a number of different approaches to see what is a reasonable take. So I think the simplest way would be a more quant approach, which is just to say, we can look at Bitcoin valuation models, which Bitcoin has been around for longer, it has a much more extensive user base, institutions have had more adoption and valuation models are more extensive. And we can take Bitcoin valuation models and just see that there’s been a very high degree of correlation between Ethereum and Bitcoin in the past. 

So, we can see where Ethereum’s valuation would stand if we just valued it based on Bitcoin. And that you can apply a simple ratio. I think I was looking at it and that led to price targets of around 28,000 Ethereum at the peak of the cycle, looking at projections for Bitcoin. And that’s assuming that the relationship between Ethereum and Bitcoin that was there in the past continues to hold. 

Bilal Hafeez (00:38:07): 

Now, we’re currently trading at around 3000, aren’t we? I think. 

Nikhil Shamapant (00:38:10): 

You’re right. So it projects a very significant increase in price. It’s an interesting and contentious approach because of course it implies a very big increase in Bitcoin as well, because that approach is just modeling off the price of Bitcoin. And so where do you get that from? And it’s a whole area of debate. Another approach would be to look at it by looking at the value of the network. So there’s been some researchers who have looked at valuing both Bitcoin and Ethereum via Metcalfe’s law. And if you do that based on the current addresses, I think in January of 2021, you got to around 20,000 for Ethereum. I don’t remember the exact numbers, but it went much higher because since then we’ve gotten so much more adoption. And the rate of user growth in the Ethereum network has been higher than that of the Bitcoin network. 

Bilal Hafeez (00:39:06): 

Yeah. So Metcalfe’s law is simply you square the size of the network. So there’s this more interconnections between everything. So there’s a exponential dynamic the larger your network becomes. 

Nikhil Shamapant (00:39:17): 

Exactly. And I think the idea there was to do a regression on the relationship between the active addresses on the Bitcoin network and the Bitcoin price, and then overlay that on the active addresses on the Ethereum network and see how well that matched up to the Ethereum price. It seems to do a decent job. And then think, okay, well, looking at forward growth in the Ethereum’s users, where will the price be? It’s an ensemble of the approaches. I got to… roughly it was 30,000 to 50,000 seemed like the place that a lot of these valuation models would converge upon. And then I think the big thing though is that a lot of my analysis is looking at really supply and demand. And so my thought was looking at these theoretical models, do we have… These prices are so far away. 

So it’s like you have a theoretical model that’s saying that it’s going to go up by 10X. That’s great, but what actually drives price to get to your model? And so that’s where I look at the Triple Halving and I say, “Well, I think actually I have a mechanism by which price could get this high.” I think to the extent that Bitcoin has been correlated with Ethereum in the past, we now have a catalyst that will affect Ethereum but not Bitcoin. So I think that correlation should break in Ethereum’s favour, which also makes me optimistic. We should see more rapid user growth. So that’s where I got to the 30,000 to 50,000 base case. And then I expanded on that and said, we could go even higher. We could go into outlandish sounding targets 150,000. 

And the way I got to that is not by saying that that could be a sustainable long-term price for Ethereum, but really just looking at supply squeezes that we’ve seen in the markets recently, but also just in the past where prices have gotten to ridiculous places in the short term. So particularly thinking about the dynamics around GameStop recently, AMC, but we’ve also seen these dynamics in other areas. And so theory is if we have this concrete event to increase the price of Ethereum, we have this strong fundamentals narrative around Ethereum being the future of finance, the future of decentralised technology and then we have a supply squeeze around it, the price could get to outlandish levels before it settles down. Not because trillions of dollars actually would be realised from that price. In the same way that with GameStop, it’s not that the market cap at the peak was actually realised by all the investors who sold at the peak, it’s just price got there for a little bit. And I think we could see that kind of a squeeze later on. 

Dynamics of an overshoot to $150,000 

Bilal Hafeez (00:42:09): 

And so your base case based on your ensemble approach is say 30,000 to $50,000 for Ethereum. But with events like Triple Halving and looking at overshoots in other markets, you think there could be an overshoot towards $150,000, which may not be sustainable at that level, but that’s not… It doesn’t mean that it can’t be reached and then come up from there. 

Nikhil Shamapant (00:42:33): 

Right. So the overshoot, first of all, we can talk about that, I guess, next, which is, it doesn’t just come from hype, but it also requires you to have a really low liquidity environment, just a very small amount of supply, a lot of buyers who are both coming in, excited to buy at almost any price, but also buyers who are forced to buy. And that’s the kind of thing that really pushes up the price to those extremes. The other thing I would say is for context, so Bitcoin’s market cap right now is about a trillion… I think it’s nearly a trillion dollars. If Bitcoin’s at 1 trillion right now, and Bitcoin goes up by 5X, the thesis for 30 to 50 K basically says that Ethereum can achieve Bitcoin’s future market cap, that it can achieve parity with that. 

And then to think that 150K, then you have to say, not only will it achieve Bitcoin’s future 5X from now market cap, but actually that it’ll squeeze to three to five times that. So it’s an ambitious target, but I think the key question for people who are sceptical about it is, how do you model what has happened in Bitcoin so far already? Because I think a lot of people use the same arguments that they use to explain why it can’t happen now when applied to Bitcoin five years ago, shouldn’t have worked. They would have not predicted that Bitcoin could get to the price that it is today. And the question for you is, is this just a fluke, so a historical incident where Bitcoin just coincidentally, got to this price, and it’s just a weird thing. Or is there something structural around it that’s allowing Bitcoin to get to these market caps without getting the same amount of financial flows. 

Bilal Hafeez (00:44:19): 

Yeah. And I guess one interesting difference between Ethereum and Bitcoin is Ethereum has more of a use case behind it. It’s a platform in essence. And so you can imagine there’s lots of use cases where Ethereum adds real value to the structural financial markets, to economies and so on that it adds to all of that. Whereas Bitcoin, it’s less clear what it’s additional use cases are. 

Nikhil Shamapant (00:44:45): 

Yeah. I mean, I think that for Ethereum, that’s the key thing is that as we go along, it becomes more and more useful. And so we should see demand forward increase from… not even from investors but from users. And that’s what’s so interesting on the longer term perspective is that right now we see most of the use being the speculation and from investors in the space. But the long-term question for Ethereum is, can it convert that to users who need to buy ether to use it as a service. That’s going to be a really interesting thing to see how that plays out. 

The growth of staking derivatives 

Bilal Hafeez (00:45:25): 

If we go back to more of those of the market side or the micro of this, you’ve also written quite extensively on staking derivatives as well and the importance of that. So perhaps we can talk a bit about that because that’s quite an interesting maturation or evolution of the market. So first of all what is staking and then we can talk about the derivatives around this all. 

Nikhil Shamapant (00:45:47): 

Sure. So staking is, in a proof of stake system, every validator, you need to stake 32 ether, as we discussed earlier, in order to provide proof that you’ve staked, that allows you to validate transactions and be a part of the consensus mechanism. And so in return for staking, you get two things. One is, you get the transaction fees for the blocks that you validate. And the second thing is, you get issuance, which is called block reward from the algorithm, it’s like a share offering, I guess, would be the analogy to equities, just new supply. And what the effect of this is… what happens is people will stake in order to provide security, but they’re not just volunteering. They have an economic incentive to buy ether and stake it because they get a dividend yield for this. And so if you believe that Ethereum will go up in the long-term, because you believe maybe in the long-term thesis around crypto and what’s being built, you have a pretty strong financial incentive to buy ether and stake it because if you’re not going to sell it anyways, you might as well collect a nice juicy dividend yield and compound your returns over time. And so that’s kind of what staking is. 

And so before I go further, I’ll just say, when I talk about those price targets 150,000 and all this, it was always because of the supply squeeze and arguing that the price going that high will really reflect the small pool of Ethereum that is liquid. And when I talk about the illiquid supply, people might be wondering what’s the illiquid supply. In Bitcoin’s case, it’s Bitcoin that people just chose to hold. But in Ethereum it’s largely going to be ether that’s been staked or whatever reason can’t be sold. 

Bilal Hafeez (00:47:45): 

Okay. If Bitcoin is the so called hotlist, you just buy and hold and forget. Whereas this is actually part of the system almost that you have to stake because the validators have to stake. 

Nikhil Shamapant (00:47:57): 

Exactly. So we’ve already seen I think 6% of total supply of Ethereum has already been staked. If people use DeFi protocols with these decentralised finance to say, make a loan of Ethereum, that Ethereum is locked up and it can’t be sold on the market and people can’t just take profits because it’s been loaned out for instance, and people are doing things with it. And so that’s where that illiquidity comes from. So to go back to just focusing on the staking portion, the reason that’s so illiquid is because if it’s staked, you need the 32 ETH to be there in the validator in order to validate transactions. So if the price goes up and you sell, you can no longer be a validator. You can no longer collect that yield. 

And so there’s this design issue where people would stake more if they were able to take profits when the price went up, but they can’t because it’s locked up in a validator. And that’s where this new technology called staking derivatives was developed. And a staking derivative is essentially creating a synthetic asset that represents the value of staked ether. So what that means is if I take my 32 ether… And I should clarify, you don’t need one person to have all 32, you can have a pool of multiple people. So if I take one ether and I put it into a validator pool and I stake it, it used to be that it was just locked up, but now I can stake it and in return I can get a staked ether token, stETH. And that staked ether token in the algorithm, it could be backed one-to-one by one ether that I actually staked. 

It’s like a bank. If I ever want to redeem it, I can bring my staked ETH to the service, whether that’s a Coinbase. Lido Finance is another service that’s doing this. And there’s even a decentralised version called Rocket Pool that’s being developed. But whatever service I’m using, I can take my staking derivative, bring it to them and redeem it for one ETH where they actually ‘unstake’ it and give it back to me. And so, because it’s been backed one-to-one, in theory, it should always reflect the value of one ether. And that is great because then if I stake my ether, instead of ‘unstaking’ it, I know that if the price goes up and I start to feel concerned, I can always sell the stETH to take profits. 

Bilal Hafeez (00:50:26): 

Yeah. Okay. Understood. And how big is this market or it’s just very new? 

Nikhil Shamapant (00:50:30): 

It’s very new. So it’s hard to say, but you can definitely say it’s going to track the amount of staked ether. So we know that 6% of ether has been staked, and we know that not all of that has been put into a staking derivatives contract yet. So it’s some fraction of that. So very small portion of total supply. But the key is… I guess, it’s two things. One is, staked ether, it reflects one-to-one the value of ether, but it’s not ether. And the reason that’s important is because ether, like you said, is useful. It’s actually used as fees on the network. And in every transaction, you need to burn some ether in your transaction fees in order to use the network. 

You can’t do that with staked ether. It’s a different token. And so when I talk about a supply squeeze, I’m kind of arguing that ultimately even though you can take profits in stETH, this small supply of ‘unstaked’ ether is really going to dictate the price of the entire asset, because that’s… The supply of unstacked ether is going to be what’s dwindling. And that’s the asset that is the useful scarce commodity. And so as you stake more and more ether, the supply of unstaked ether will dwindle. And if you want to make a loan on the Ethereum network, for instance, you have to have unstaked ether. So there’s a supply shock there. 

Can Cardano and Solana dislodge Ethereum 

Bilal Hafeez (00:51:56): 

Yeah. Understood. And earlier you mentioned some of the competitors to Ethereum. So one is, and one that’s been talked about a lot at the moment is Solana and the other is Cardano. What are your thoughts on those? Because they all claim to be super-fast and robust in different ways. How do you view these competitors, Ethereum killers as people call them? 

Nikhil Shamapant (00:52:25): 

Sure. Yeah. And first I’ll just say, I didn’t really mention the Ethereum killers much in my report, mostly because I think it’s a good question, but it’s a question that is really going to apply on a longer time horizon. So my report was looking at these discreet catalysts in late 2021 and early 2022. And my price target really applies to maybe January 2023 is when I put in my report as the target. So by that point, I expect that even if we live in a timeline where Solana is the winner take all layer one, we won’t know that by that point. It’s too quick for that to have occurred. So I didn’t really go into it in my report. But I would say kind of bigger picture, I do think about it because my margin of safety on this investment is definitely that if my catalysts don’t play out, what is this thing worth? What it’s worth depends on the longer term view. If I just hold this for five years, because my thesis didn’t work out, will I fail because Solana takes over it’s something that I think about. I think it’s tough. 

So first of all with Cardano, I don’t have a lot to say because it’s still so early. I guess it depends on your approach to invest. I think people who invest in Cardano, it’s largely built on an academic research base basically, where they’ve designed this “perfect blockchain” through peer reviewed research and are trying to slowly build that out. But largely it hasn’t been built out yet. They actually don’t even have smart contracts on their system yet. And so if you invest in Cardano, you’re making, I guess something like an angel investment where the product doesn’t exist. No one’s using Cardano to do things yet because it doesn’t have smart contracts on it. But you’re betting that when it comes out, it’ll be better than everyone and accumulate share. So for me, it makes it uninvestible because it feels to me like investing in a pharmaceutical company that is telling you about a drug that it’s going to invent in the future. 

And I think for that kind of a company, maybe if you’re a biotech expert and you know how the drug works and you can read the academic papers, you might have an edge. But for me, I can’t read the technical papers behind Cardano and actually say that this is really going to work and here’s why. And so if it does, then I guess I’ll find out, but it’s just not how I’m going to make a backed investment. So I think that’s my concern with Cardano, is I think it has a lot to prove. And the market cap of Cardano is so high that it has a lot to prove. It doesn’t have to just prove it to… smart contracts has to prove that it can really take market share. I think I see Solana as a much more viable competitor. You can actually do things on it. There are developers on it, still in the early phases. 

I think the big thing with Solana that’s always critiqued for is level of decentralisation because in order to be a validator for Solana, it’s proof of stake, but the requirements for running a validator, the computational requirements are much higher. So you need a full data center to do it. Which means that just me in my house, I can’t be a Solana validator, but I could be an Ethereum validator, which I think has important implications, especially longterm when you think about what kinds of applications that you could have and how big the impact of the blockchain could be. If you want to have almost geopolitical scale applications on a blockchain, you need it to be very decentralised. 

So there was a press release about a European bank listing bonds on the Ethereum blockchain. You can’t have that if you think that you’re listing this asset on a chain that’s controlled by a single entity that you don’t know or trust. So I’m not saying this is the case on Solana. It’s not that they’re completely centralised. They’re somewhat decentralised. It’s a spectrum, but they’re definitely less decentralised than Ethereum, both because a significant amount of supplies is held by early investors. But also because the validator system, they just have fewer validators because it takes a lot more to be a validator. I think I’ve heard something like Solana has 600 validators. It’s not that many. And so the reason I think is just because if I wanted to go do it… I don’t think I have the financial means to be a Solana validator right now. 

I mean, I could have been an Ethereum validator when I was 12 with the crappy laptop that I had because the requirements to be an Ethereum validator are so low. So that’s really important when you’re thinking about these geopolitical scale applications, because it becomes this question of like, if you’re listing major assets, if you’re trying to get to this point where maybe the dream is that all real estate is listed and tokenized on chain, but this chain is secured by 600 validators. That’s not viable. 

Bilal Hafeez (00:57:38): 

You might as well just stick to the conventional financial system where you have the banks, lawyers and that’s… 

Nikhil Shamapant (00:57:44): 

That’s the retort that I always have. And I’ll say this is a debate and I think a really healthy one. I like talking to the Solana investors because I really think it’s a healthy and well thought out system. But the question I always have for people who prioritize scalability over decentralisation, which is the trade-off that Solana is making, is that just in the short term, there’s a lot of hype and a lot of money going into crypto, but long-term, this will all depend on the fundamentals. And the question is, what distinguishes this product from a product that was done… the exact same product, but not on the blockchain at all. And it’s going to be that it’s decentralised. 

Doing it for low cost is not the differentiator because often you can get a highly scalable, centralized business, it’s going to be that it’s decentralised in my opinion, of course. And that’s why I think I see Ethereum as the front runner, but also even just base rates. 90% of the developers are in Ethereum, nearly all the activity is there. And so I look at it and it just feels like there’s a lot there. I can see that it’s real, activity is actually happening. I can verify that it’s happening. And then I see these reasons that it will maintain its lead. So that’s where my bet is, not even speak of the catalysts that I see coming. 

Future of NFT and the metaverse 

Bilal Hafeez (00:59:06): 

Okay. Yeah. Understood. And then what about NFTs? Obviously, NFTs had their moment in the sun and it still seems to be settling down and becoming a real area of focus. Do you have any thoughts on NFT? 

Nikhil Shamapant (00:59:18): 

Yeah. And I would actually say, not even settling down, if you’re actually paying attention to the changing dynamics of the space, we’re probably in a second NFT mania right now. So it’s interesting when I first published the report, I don’t know the exact timeline, but we were in the midst of probably a first NFT bubble, where you were seeing a lot of NFT sold as art and famously Beeple who is an artist sold an NFT for $16 million. And that was seen as the peak of the bubble. And after that NFT values started cratering, we saw a lot of these transactions happening at significantly lower prices and overall transaction volumes declined a lot. But I think after that happens, there’s always a big question, was this a fad or is this going to be a longer-term thing? Where is it going to settle at? And what we’ve seen in the past, I would say month maybe, is this just absolute revolution again in the NFT space, where now we have NFT collections that are expanding. And so rather than a single NFT, a single piece of Beeple artwork, we’re seeing larger collections like the CryptoPunks, the famous ones, or Autoglyphs which are different kinds of art and they’re starting to explode in value. 

So I think these collections are really interesting because often these collections have some kind of differentiated factor. So we see things like generative art, where the NFT changes in some way based like an algorithmic approach. So you can see the art, you own it, and it’s changing over time and it can be really interesting. But the other thing that’s been happening is, there’s a game called Axie Infinity and it exploded to… I think it was getting a billion dollars in revenue recently, which is pretty remarkable. And the thing that distinguishes Axie Infinity as a game, gameplay is actually very simple, but it’s a play to earn game. So you buy the game and that involves buying these Axie. And as you play the game, what you earn in the in-game token, it’s actually an on chain asset that you can then sell for actual currency, like US dollars. And so the in-game economy actually starts to merge with the real economy. 

This is a dynamic that has actually existed before. So there are these really interesting case studies of games in the past, like Second Life and RuneScape, and World of Warcraft and all sorts of games where in-game assets kind of spilled out where you could sell your characters, your assets in the game for real money. But these economies were always governed by the centralised gaming system who often had an asset that was 100% dilutive because the whole point of the game was to accumulate them and there was an infinite supply. So the economy never really worked and it was always just something reserved for games that had such an intense viral adoption that the economic value spilled over. 

And so I think for the first time we’re seeing this situation where now games are being built to have that kind of combination where they’re actually built into the real economy. And because you can literally just use Ethereum market maker, you can just go to an app like Uniswap and you can swap an in-game asset for US dollar stablecoins, that kind of joining of the game economy and the real world economy is much more close than it’s ever been before. 

Bilal Hafeez (01:02:57): 

I guess this goes on to the Metaverse idea, I suppose. 

Nikhil Shamapant (01:03:00): 

Exactly. So at some point it becomes really hard to avoid. It’s become cliché at this point. But obviously this idea that you’re taking the real world and blending the edges with the digital world, that is the Metaverse thesis and that’s why people think that crypto and specifically the Ethereum network is such a great expression of that bet. 

Bilal Hafeez (01:03:22): 

Yeah. You sound like you’re constructive on NFT. You think there’s something real there and it’s sustainable in some ways. 

Nikhil Shamapant (01:03:30): 

Honestly, when I talk to a lot of people around the world about, not even crypto, just about art markets, people don’t model it very well. So for instance, if I were to just take the average person to a postmodern art museum, show them a Jackson Pollock and say, “What is this worth?” A lot of people would say, “That’s just a splatter of paint. It should be worthless.” But then that’s just not a great economic model for how art works. To actually value it, you have to see what art is worth and why it’s worth that amount differently. And so initially NFTs were thinking about art and why it’s worth what it is and why a digital scarce asset could be worth the same amount that a physical scarce asset could be. Because ultimately the value of a splatter of paint is the idea rather than the paint itself and that idea can be contained digitally. 

But this emergence that we’re seeing now is something much different than that. We’re seeing NFTs become useful. So now you can use an NFT to play a game. You can use an NFT to participate in a social discussion as well. So you could have NFT that unlocks membership into a society. You could have an NFT that represents a subscription to something. And then the reason that that’s important rather than just having a membership or having a subscription is that then the NFT can be used in multiple domains. So I can take my subscription to a soccer league season tickets, and I can very easily and quickly add the infrastructure to say, anyone who has this subscription also gets this in-game quest or something, or some other feature can be unlocked. 

And it just makes this all very easily programmable in a way that before you’d have to get it all permission, you’d have to go and ask the soccer league, hey, can I integrate your service with mine? And it would be this whole ordeal. Now the soccer league sells it as a token and I can just build an app that just accepts that without permissioning it at all. And that’s crypto. It’s permissionless. That’s the idea. And that’s why the innovation is so significant and everyone will ask, why can’t you just do this without crypto? And it’s like, sure, you can if you want to go through billions of dollars of red tape. I don’t know how to say it differently. It’s never going to happen. And what crypto does is makes it decentralised so that no single person has control, which allows you to build it differently, the economics works differently. But then also the innovation is really open for the taking because you can interact with other people that are building, you can build things yourself. There’s no permissioning in the same way, which has really been great for this space. 

Bilal Hafeez (01:06:21): 

Yeah. Now, we could carry on talking about all of these topics. So I do want to kind of round this off, and what I always ask my guests are a certain set of questions. One is, what’s been the best piece of investment advice you’ve ever received? 

Nikhil Shamapant (01:06:35): 

I think the best, it was an article by a value investor named Geoff Gannon. And he wrote a piece called Invest with Style. And it talked about how different investors have… They work in different genres. So you have your fiction writers, maybe growth investors, and you have your non-fiction writers, maybe your value investors. But within each genre, not all non-fiction is the same. Writers tend to differentiate themselves. And so similarly, if you tell me you’re a value investor, you actually haven’t told me very much about yourself. Every value investor does a different thing and distinguishes themselves in a different way. And so his advice was, you have to find your own style, not just your own genre, but really your own flair. You can’t just say, “I’m a value investor,” but you have to find what about the way that I value invest distinguishes what I want to invest. 

And he says, what you’ll find is that if you put a lot of practice into this, you just do a lot of hard work, you get obsessive about your approach, your style will tend to mimic the things that you’re best at researching, the best at executing on. And so he says that as a goal, which is that we should as investors be trying to find our own particular style. This is Macro Hive, but the same applies. You shouldn’t be looking to be a macro investor, you should be looking to develop your own style within macro and figure out what that means. And I thought that was just really great advice. And so it’s something I’m trying to do every day, which is to just ask myself, what’s my kind of investment style, not really just my edge, but really what is the thing that makes me different because I’m good at it, because I have affinity for it. 

Bilal Hafeez (01:08:15): 

Okay. That sounds good. That’s a nice one. And then the other question was, how do you manage your information research overflow, I should say? 

Nikhil Shamapant (01:08:25): 

Yeah. Largely I’m like an information hoarder. So I do a lot of bookmarking and I try to organize things by topics. But I guess as an example, I’ll come up with questions from things I’m reading. So as I have more questions, I’ll add them to a table of contents, and under each chapter heading, so to speak, I’ll just throw in links to reports and tweets and videos that I see that are interesting. And then you end up with information overload. But in trying to call that down and delete the articles that I don’t need and start reading through things, I usually end up synthesizing it and finding the threads that carry things together. And so my information overflow management process and my writing process blur together because the process of trying to call down all my information, it forces me to figure out what’s important and what information seems to hold everything together, boil it down for an audience, which tends to be a great way to come up with an investment thesis. 

A book that influenced Nikhil: Doing Good Better (MacAskill) 

(Doing Good Better by Effective Altruism and a Radical New Way to Make a Difference by Dr William MacAskill)

Bilal Hafeez (01:09:28): 

No, sounds great. And then final question, what books have influenced you the most, either personally or in a markets or work context? 

Nikhil Shamapant (01:09:37): 

Yeah. I’ve been very influenced by the effective altruism movement in philosophy. So I recommend the book Doing Good Better by McCaskill. I think it’s William McCaskill. And so Doing Good Better it’s a book about how to do more effective good in the world. And so it starts talking about philanthropy and how we can keep ourselves more accountable in the philanthropy world. And just thinking about how much effort we put into measuring and tracking returns on investing and how little we do that in base of trying to make the world a better place and how maybe we can get more empirical about it and try to be more rigorous and hold things more accountable. And I thought that was really great. 

Bilal Hafeez (01:10:18): 

Right. Okay. And that’s excellent. And if people wanted to follow your thinking, what’s the best way for people to follow you? 

Nikhil Shamapant (01:10:27): 

Yeah. I think @SquishChaos Twitter. And then I think the other thing would be my Substack. It’s squish.substack.com. 

Bilal Hafeez (01:10:33): 

Okay. Yeah. I’ll add this all to the show notes, all the links and everything. So that’d be great. So with that, thanks a lot. It’s been a super informative discussion. I’ve learned a lot and hopefully we can stay in touch and it’s going to be really interesting to see how this whole space unfolds in the coming few years. 

Nikhil Shamapant (01:10:51): 

Yeah. Thanks so much for having me. This was a great discussion. I just really enjoyed being a part of it. 

Bilal Hafeez (01:10:55): 

Great. Thanks. 

Bilal Hafeez (01:10:56): 

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