- Exciting sector… bad investment
- Is a CBDC even constitutional?
- Exchanges vs. Brokers vs. ATSs…
Dear Reader,
Welcome to our weekly mailbag edition of The Bleeding Edge. All week, you submitted your questions about the biggest trends in tech and biotech. Today, I’ll do my best to answer them.
If you have a question you’d like answered next week, be sure you submit it right here. I always enjoy hearing from you.
I can’t recommend this private raise…
Hello Jeff,
I just found out about a nuclear fusion company that is currently doing a raise on Wefunder. The company is called LPP Fusion. Given your enthusiasm for the concept and your regular updates on fusion companies in The Bleeding Edge, I’m curious to know why it isn’t a Day One Investor recommendation.
I read the information and watched its pitch video in order to try and figure things out myself. The $67 million valuation is higher than your typical recommendations. However, I don’t think that is high considering this is a company that, if successful, would transform energy production on a massive scale.
Are you not recommending it because the company doesn’t yet have a working prototype? If you choose this question for your Friday newsletter, I look forward to learning why this company doesn’t make the cut.
– Steve G.
Hi, Steve. Thanks for writing in with your question. And I’m glad you’re thinking about things like valuation and market potential. These factors are extremely important when evaluating early-stage companies that don’t yet have a commercial product.
To catch readers up, fusion technology is different than nuclear fission that we’re likely familiar with. At a high level, nuclear fusion is the power of the sun. And when the industry commercializes this incredible technology capable of net-energy production at scale, it would mean cheap, nearly limitless, and 100% clean energy capable of powering our electrical grids.
So, yes. I’m closely tracking this technology as well as any companies involved. And the private raise you mentioned did catch my eye. But I won’t be recommending it in the pages of Day One Investor.
Before I go any further, it’s important for me to say that I haven’t spoken with the company or evaluated the technology. I look at hundreds of potential investment opportunities a year, more than one a day, so I have to apply filters in my analysis and decide whether or not to engage further or pass. Here’s what jumps out at me after a quick pass:
LPP Fusion has been around for a long time. From what I can tell, it was formed around 1994 when it received its first grant. It appears there was another grant around 2008 and again in 2015. These were all small grants, certainly not enough to sustain an operating company in build mode.
The company raised a $6 million seed round in 2015, which was the only major round the company has held. And then starting in 2020, it has held crowdfunding raises every year with limited success, including this more recent round.
From what I can tell, there are no notable investors of any kind in the last decade. This is always a red flag, a series of crowdfunding raises with no strategic investors or large VC firms stepping up. If LPP had something real, there would always be important investors present for a company that has been around since 1994.
LPP’s website is a complete mess. If we look at the technology, it has its focus fusion energy generator with very little information available. And then we have its X-Scan technology designed for x-ray vision. It appears that neither product has been developed after almost 30 years since LPP’s incorporation. Is it a nuclear fusion company or an x-ray vision company?
If we look at the latest “news” on the website, the last posting was in November of 2020. And the last presentation about the company was published in the summer of 2021. Yet, the company is currently raising capital in a crowdfunding raise?
And when I review the crowdfunding page on Wefunder, there is a lot of general information about nuclear fusion, fossil fuels, and electricity production; but what about specific information about LPP Fusion, its current progress, its product roadmap – there’s absolutely nothing.
And then there is this gem on the crowdfunding page:
Historically, those who ruled society stood in the way of the development of new sources of energy, because control over power production has always been tied up with political and economic power. New ways of producing power threaten the Powers That Be. When feudal lords were the Powers That Be, they fought against the use of coal, which threatened their fuel monopoly based on the woodlands. But those kings and lords were swept aside by revolutions and new types of societies developed fossil fuel power as the basis of the Industrial Revolution. Society went forward and those Powers that Be became the Powers that Were.
I don’t mean to sound too critical, but this is lunacy. I understand the point, but this kind of philosophical, tilting at the windmill, has no place in a pitch deck or investment pitch.
The key point is that there are red flags everywhere, and there simply isn’t enough concrete information to make an informed decision. I wouldn’t even consider investing my own capital, which means I would never recommend something like this in Day One Investor. There just isn’t enough justification for me to investigate any further. Time is too precious.
But I’d like to finish on a positive note. There was one thing that I did like: LPP intends to use hydrogen-boron (pB11) fuel for its fusion reactor that doesn’t yet exist. I’m a big fan of pB11 as a fuel. It’s a cheap fuel that is energy dense and widely available. And the best part is that it doesn’t emit any nuclear waste at all when used in a fusion reactor.
This is the same fuel used by TAE Technologies, a company that I have written a lot about in the past and would invest in if given the chance.
You’ll have no privacy and you’ll be happy…
Jeff,
If as U.S. citizens we have a right to privacy, how is it legal for the government to create a digital coin that they totally control that can track every cent we spend?
– Rod D.
Hi, Rod. It’s a fair question.
To catch readers up, the technology in question is a central bank digital currency (CBDC). In many ways, a CBDC would be identical to the money we use today, with one big difference. It would be purely digital and controlled by a centralized entity (the Fed/federal government).
As I’ve been sharing with readers, I think the implementation of a U.S. CBDC is just a matter of time. And I believe a precursor is the “FedNow” settlement system, set to be rolled out to financial institutions sometime in July.
Rod, if you had asked me just a few years ago what I thought about a CBDC, I probably would have been more optimistic about the technology. Because there are definitely benefits.
As a technologist, I know that a CBDC would remove a lot of “friction.” It would make transferring money much easier and cheaper. And it would have come in handy during the completely unnecessary lockdown that we experienced during the pandemic.
Back then, the rollout of the Paycheck Protection Program (PPP) was so poorly run. It turned out to be a money grab. It’s believed as much as 15% of the funds were distributed fraudulently. That’s an incredible waste of taxpayer dollars.
But with a CBDC, the government could – in theory – “airdrop” funds into our digital wallets overnight. That’s what it means to remove friction.
When I first started writing about CBDCs years ago, I was more optimistic. Yes, by digitizing a nation’s currency with centralized control, there is clearly risk of misuse and obfuscation. But, like you, I assumed that there would be safeguards in place. Surely, the government wouldn’t go so far as to track our daily transactions and ban “undesirable” purchases.
I’m not so sure these days…
We’ve all watched this alarming trend of censorship, authoritarianism, and attempts at tyrannical control take hold in the United States and in other countries. During the pandemic years, peer-reviewed scientific studies were virtually “erased” from the internet. Experts that didn’t go along with the government narrative were blacklisted, de-platformed, or had their careers ruined.
And as we’ve already learned from revelations in the Twitter Files, there is a vast web of government – and quasi-government – institutions combing the internet for “wrong think.” All of what we discovered is clearly in violation of First Amendment rights.
But they knowingly did it anyway…
And “they” continue to do it, which means that it is highly likely that “they” grab for even more control and power in the future.
I’ll admit, I’m not a constitutional lawyer, so I’m sure one could provide a more detailed, legally accurate answer. But there is precedent for the government violating our constitutional rights.
The pandemic is the most recent example. In fact, Supreme Court Justice Neil Gorsuch just wrote an opinion on this very matter, beautifully done. Our rights were violated. And it was done in the name of what we now know to have been nothing but lies.
The Patriot Act did something similar, and yet the government has not returned all of those powers that were granted during what was considered to be war time.
And how about a favorite topic of mine – double taxation. The constitution says that a dollar earned cannot be taxed twice, and yet the government implements the death tax where it does exactly that. This egregious policy forces many families to sell their family homes and farms passed down from previous generations just to pay the death tax. Imagine working for 50 years, saving, building a homestead to be proud of and hand down to children and grandchildren, and then die knowing that it will have to be sold to pay the government a second time? Heartbreaking.
Rod – it’s not legal, and it won’t be fair; but that doesn’t mean it won’t happen. I wish I had better news; but I swallowed the red pill a long time ago, and I’d rather analyze things based on reality rather than fiction.
Exchange… or broker?
Hi Jeff,
Always enjoy reading The Bleeding Edge, very interesting info and thoughts on the technology industry.
I just read the essay about Coinbase possibly moving offshore because of continuing issues with various U.S. regulators (usually the SEC).
But the more I read about crypto exchanges, I realize I’m not fully understanding the differences between an “Exchange” and a “Broker” (like Fidelity or Schwab, etc.). I have accounts at Fidelity. I buy/sell equities (stocks, ETFs, MFs) very easily (a few clicks), can look at what I own, their value, etc. at any time of the day or night.
I have an account at Coinbase and can do the same exact things with the crypto I own. Why is one called an Exchange and one called a Broker?
Thanks,
– Jeff S.
Hi, Jeff. Thanks for the question. There are technical differences between an exchange and a broker. It all comes down to how the entity matches buyers and sellers. At a high level, most investors won’t mind how a transaction is completed as long as it’s done at the price they agree upon. But it’s worth exploring for us to be better informed investors.
We can think of a broker as an intermediary between one party and the investors that it supports. The broker looks to execute orders on behalf of its investors. It can access exchanges, institutional investors, basically any financial market, in order to execute a trade.
Brokers also take custody of our stock for us. After all, the days of receiving stock certificates have long since passed. Brokers tend to play that role in holding our stocks for us. The kinds of transactions that brokers engage in as well take days to settle. The purchase or sale of stock doesn’t happen within seconds. That’s why if we sell, say, $10,000 in Google, we can’t transfer those proceeds to our bank accounts until a few days later.
An exchange, on the other hand, is a lot simpler. It is an entity that facilitates the exchange of one asset for another. For example, an investor simply wants to exchange some bitcoin for Ethereum. The exchange matches the buy and sell orders to affect the exchange of assets.
To be clear, there is some nuance regarding exchanges. There are custodial exchanges and non-custodial exchanges. There are also centralized exchanges (like Coinbase) and decentralized exchanges. They all perform a similar function though.
And not to make things more complex, but there are also ATSs, or Alternative Trading Systems. These are electronic trading systems regulated by the SEC that also match orders for buyers and sellers.
ATSs are only available to accredited investors and institutional capital and are considered “dark pools.” The nuance is that they allow those transacting on the ATS to not publicly display the size and price of orders to others. There are some good reasons for this and also some bad ones; but ATSs are SEC regulated.
I hope that helps and provides some additional context that is useful.
Jeff Brown
Editor, The Bleeding Edge