Want to Become a Billionaire? Take a Tip from Binance's CZ Zhao

Dr. Parik unpacks the success behind Binance, and offers a lesson in economics 101 to explain the recent stock market dip.

Hi, I’m Dr. Parik Patel, BA, CFA, ACCA, Esq. If you don’t know me already, I’m a Chartered FinMeme Analyst (CFA) with a particular expertise in #stonk valuation (pro-tip: just multiply by two). 

I’ve been told that I have a particularly special insight into the world of finance and memes, so I decided to set up this newsletter to share my thoughts on the latest news, memes, and everything in between!

Expect a newsletter at least twice a month, and follow me on Twitter for more updates and daily musings. For this week’s newsletter, I’m going to highlight a crypto convert who’s become the world’s latest uber-billionaire, explain why interest rates tie to the latest stock market dip (yes, it’s time for a Dr. Parik MasterClass in economics), and flag some tweets that improved my week. Let’s get to it.

Crypto CEO Becomes One of the World's Richest Billionaires

— via CNN Business

If you want to get rich quickly, which industry should you spend time building in? It used to be software, then fintech, and now it’s crypto. So say hello to one of the least known yet wealthiest people on the planet, Binance founder Changpeng “CZ” Zhao, who boasts an estimated net worth of $96 billion, rivaling Oracle founder Larry Ellison and surpassing the fortune of India’s richest man, Mukesh Ambani.

Zhao was born in China in 1988 but moved to Canada when he was just 12. He majored in Computer Science before working in finance (yuck!) building software for futures trading. His route to crypto, like many others, was almost accidental, learning about Bitcoin from a VC with whom he played poker. After bouncing around several cryptocurrency projects and companies, he caught the first Bitcoin boom and launched Binance in 2017 as a pure play digital asset exchange that would not touch fiat currencies. 

Today, Binance is by far the world’s largest cryptocurrency exchange by volume, generating $20 billion of revenue last year, almost triple analyst expectations for Coinbase revenue in 2021. To put this into perspective, Binance regularly facilitates as much trading volume as the next four largest crypto exchanges combined. Zhao’s fortune eclipses that of even Bitcoin founder Satoshi Nakomoto, who has an estimated net worth of “only” $46 billion. So if you want to become a billionaire and you want to get there quickly, perhaps crypto is the place to be…

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In case you missed 2021 altogether (drinking alone in sweatpants, and then drinking very much not alone in designer sweatpants, can do that to you), China is a problem, Russia keeps doing Russia-things, all of our politicians are too old to understand cyber vulnerabilities, and we can’t stop sending random B-list celebrities and billionaires into freaking space.

All this to say, the Defense and Space industry continues to boom regardless of what is happening: 

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JPMorgan’s Marko Kolanovic Says It’s Time to Buy the Dip in Stocks

— via Bloomberg

Value investing, growth investing, and buying the dip are now the three predominant strategies on Wall Street. It’s been a wild week in the US stock market, with stocks dropping nearly 2% on Monday, led by technology heavyweights Google and Microsoft before promptly rebounding and recovering losses.

The fears came about on account of a “hawkish surprise” in the Fed’s meeting minutes, with worries that the central bank could raise interest rates faster than expected due to higher inflation.

So why does any of this matter? What do interest rates have to do with the stock market? Get ready for a Dr. P MasterClass…

To put it simply, it’s all about yield and opportunity cost. If I can get a higher “risk free” rate of return by purchasing treasuries, then suddenly I demand a higher rate of return from other investments like stocks that are higher risk. Since stocks are valued by discounting their future cash flows, the higher opportunity cost with a higher risk-free rate means that these cash flows get discounted at a higher rate. 

But why does this disproportionately affect growth? With growth stocks, particularly unprofitable ones, much of their value comes from cash flows that they are expected to generate in the distant future. As such, when discount rates go up, these cash flows become less and less valuable. In contrast, boomer value stocks are already profitable and derive much of their value from near-term cash flows, meaning that higher discount rates affect valuations less. 

According to JP Morgan’s Marko Kolanovic, these stocks will drive much of the next year of stock market growth, fuelled by the end of the pandemic and reopening demand. Will Omicron screw things up, or will it mark the end of COVID-19? All I know is that it’s always a good time to buy the dip.

Tweets of the Week:

To round things out, I wanted to flag some of my favorite tweets of the week, including lolz from Kyla Scanlon, Susan Su, and Ramp Capital LLC. Did I miss any heaters? Let me know!

~ Dr. PP out

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