June 21: SPAC woes, Crypto politics, Decentralized Solar, Op_CAT, Sharks, Radiopharmaceuticals

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In this edition of S3T:

• 📉 SPACs Falling Out of Favor: SPACs' popularity declined due to poor average returns and new SEC rules making them as slow as traditional IPOs.
• 🏦 Regional Bank Woes: Regional banks face more failures due to empty office buildings and suspect commercial real estate loans.
• 🪙 SEC Drops Ethereum Investigation: The SEC ended its investigation into Consensys, signaling a political shift towards crypto support. Paul Ryan suggested stablecoins could strengthen the US dollar.
• ☀️ Decentralized Solar in Africa: 65% of Africa's new solar capacity since 2022 comes from decentralized installations, reducing reliance on inefficient energy suppliers and boosting economic growth.
• 🌍 De-Globalization's Financial Impact: De-globalization disrupts global risk markets, increasing insurance costs and instability. Innovative risk management approaches are needed to navigate these challenges.
• 💊 Radiopharmaceuticals Investment: Biopharma companies are investing in next-generation radiopharmaceuticals for targeted cancer treatment. These expensive precision medicines raise affordability and access concerns.
• 💡 AI Getting Physical: Ray Kurzweil predicts AI will revolutionize medicine, manufacturing, and energy. AI could make solar energy projects more cost-effective.
• 🦈 Shark Conservation: Efforts to protect endangered sharks are crucial for ocean ecosystems. Illegal finning practices threaten shark populations, which are vital for maintaining marine balance.
• 🏛️ Educating Finance on Ethereum: Sam Jernigan explains Ethereum's value to traditional financiers by comparing it to SWIFT and CHIPs, emphasizing its cost-effective and secure transaction capabilities.
• 🛡️ Bitcoin's OP_CAT Debate: Bitcoin developers consider reintroducing the OP_CAT opcode for enhanced functionality, sparking debates about security and the cryptocurrency's core mission.

Opinions expressed are those of the individuals and do not reflect the official positions of companies or organizations those individuals may be affiliated with. Not financial, investment or legal advice. Authors or guests may hold assets discussed.

Falling Out of favor: Special Purpose Acquisition Corporations (SPACs).

SPACs were a favorite "fast track" to IPO mainly because they lacked transparency - and were geared to benefit investors more than companies. SPACs are falling out of favor for 2 reasons:

• Track record: The 400 companies that went public via SPAC had average returns of -67% (Finchat notes 10 rare exceptions with positive returns). Affiliation with public figures didn't help: SPACs that are tied to public figures usually fail.
• New rules: New SEC disclosure rules mean SPACs will take about the same time as traditional IPOs.

Regional Bank Woes

More regional bank failures on the way says Pacific Investment Management Co. - empty office buildings are part of the cause, the other is the commercial real estate loans originated during a time of easy money, and the previous valuations of the buildings themselves are just not holding up. The softening job market isn't helping.

SEC Drops Ethereum Investigation

The SEC notified Consensys this week that it is dropping its investigation into whether Consensys broke securities law by offering Ethereum. This legal position (Ethereum as a security) is of course is at odds with the SEC's Ethereum spot market approvals issued in May. This continues to reinforce the sense of that there is a turning point in the politics around crypto - as both political parties now seem to be competing to show their support for crypto.

Related: Paul Ryan suggests stablecoins could improve US dollar position in his June 13 WSJ Opinion piece.

Educating Traditional Finance about Ethereum

This excellent Bankless interview with Sam Jernigan offers one of the most succinct explanations of the value prop for Ethereum. Jernigan shares his favorite way to explain the value of Ethereum to traditional financiers: Ethereum is like SWIFT + CHIPs:

• SWIFT - the Society for Worldwide Interbank Financial Telecom - is the secure messaging system of the traditional banking world.
• CHIPS (Clearing House Interbank Payments System) is the financial settlement clearing house for banking transactions.

Ethereum provides more cost effective and secure versions of both.

In his Decentralized Finance advocacy and education, Jernigan is following an established playbook of change leaders:

• Expertise and connections in two different industries or areas of expertise, in his case Wall St and Crypto.
• Importing knowledge and ideas from one industry to another.
• Challenging the standing conventional wisdom of an incumbent industry

☀️Decentralization isn't just for finance

65% of Africa's new solar capacity since 2022 was installed by large firms contracting directly with developers. Decentralized solar installations are reducing Africa's reliance on dysfunctional energy suppliers that have been a drag on Africa's economic growth.

AI & the Physical World

Ray Kurzweil says AI is on track to transform the physical world, with profound implications for medicine, manufacturing and energy. One example Kurzweil offers: what if we used AI to accelerate our exploration of more cost effective chemistries and optimal materials? This could enable "photovoltaic megaprojects" that make solar energy so ubiquitous and efficient it would be "almost free."

Radiopharmaceuticals

Biopharma heavyweights are increasing their investments in next generation radiopharmacueticals - a different approach to cancer treatment that uses radioactive particles that, unlike previous radiation therapies, selectively bind on specific cancer cells and can be highly targeted to specific cancers.

Like other precision medicines, radiopharmaceutical are not cheap, and add to the challenge of ensuring affordability and equal access to care. William Haseltine has a good deep dive into the cost drivers of for precision medicine and some of the novel financing methods that are being experimented with to identify ways to ensure affordability.

What is OP_CAT and what it may mean for Bitcoin

OP_CAT - short for "operation concatenate" is an opcode that allows for the combination of two pieces of data into a single piece of data during the execution of a Bitcoin transaction, and could be used to extend or limit functionality. Bitcoin's original creator Satoshi apparently for security concerns removed the opcode back in 2011. Now some Bitcoin developers want to bring it back, in order to give Bitcoin more functionality beyond a trusted store of value - akin to Ethereum or other networks which offer expanded functionality.

Not everyone is enthusiastic about the idea - some propose that OP_ZKP (zero knowledge proof) would be more useful while others have outlined key concerns that need to be addressed. They argue that the Bitcoin as neutral money - the first money in history not issued or controlled by a central government - is enough of an accomplishment - let well enough alone.

But it is not in our nature to let well enough alone. So expect experimentation - and with that, the potential for risk, or at least perceived risks, which may lead to yes you guessed it: our old friend Vola Tility.

De-Globalization, Risk Agility & New Opportunities

This week, headlines about a North Korea - Russia treaty (a bromance says the Economist) set off alarms in capitals around the world, especially in Korea and Japan.

When we think about de-globalization and its associated tensions, our minds tend to jump to worries about war, which in the 21st century comes in multiple flavors: cyber, financial, drone-based, in addition to traditional conflict.

However, the financial implications of de-globalization may be the most pervasive and deeply ingrained, affecting economies on a global scale rather than just being isolated events. These financial shifts can lead to widespread economic instability, disrupt supply chains, and create new challenges for industries and governments as they navigate an increasingly fragmented global market.

One critical area impacted by de-globalization is the global risk markets, the retrocessionaires essential to reinsurance. Reinsurance, in turn, underpins most forms of insurance, enabling the world's industries and individuals to function and thrive in spite of risks.

As de-globalization progresses, these critical players may find themselves fractured along geopolitical lines, with grave potential for increased costs and reduced availability of insurance coverage. This could ripple through various sectors, affecting everything from healthcare to manufacturing, and highlight the need for innovative solutions to manage risk in a less interconnected world. Understanding these impacts is crucial for developing strategies to mitigate risks and ensure stability in an interconnected world that is slowly pulling apart.

In Global Risk Agility and Decision Making Daniel Wagner and Dante Disparte argue that our era of man-made risks (climate, cybersecurity, terrorism) require a set of new approaches as traditional risk approaches become obsolete. The authors argue for a new Agile Risk Manager that is "part sociologist, anthropologist, psychologist and quant who no longer treats risk as a cost of doing business, but instead as a catalyst for growth."

This new era will bring a new international financial architecture (IFA) that will offer particularly interesting opportunities for healthcare - which has been the source of a large, persistent and growing category of risk: Healthcare driven risks. In the wake of ACA these risks have been largely dumped on doctors and their patients - two parties that are, in contrast to global risk investors, profoundly ill-prepared to manage - let alone monetize - risk.

Another (really good) take: Brad Setser's Foreign Affairs piece at first glance seems to be arguing that de-globalization is a myth...but further in, it becomes clear that Brad's intent is to draw a distinction between healthy and unhealthy forms of international cooperation.

Brad warns that many unhealthy forms of globalization still exist:

"if policymakers focus discussion on the costs of deglobalization, they risk overlooking the many unhealthy forms of globalization that still exist and persist relatively undisturbed. China’s role in middle America’s deindustrialization is now widely acknowledged. But the role that the U.S. corporate tax code plays in that deindustrialization is not. Allowing American corporations to continue to use tax-avoidance strategies that transfer profits and production out of the United States is unhealthy for the global economy, even if it boosts measures of U.S. trade and foreign investment."

🦈 Nature Notes: how sharks maintain healthy ocean ecosystems

In the fascinating world of ocean science and sustainability, scientists like Diego Cardeñosa work with local fishermen to protect endangered species like the smallest hammerhead shark, the yellow hammerhead. By tagging and tracking these sharks, they gather crucial data to help conserve marine life, ensuring a future for these incredible creatures and their habitats.

Unfortunately, sharks are becoming critically endangered due to the illegal practice of "finning"—a brutal practice of cutting off their fins and leaving them to die, all for a bowl of shark fin soup that costs over $100. (another example of flawed values driving economic behaviors which bring devastating environmental consequences). Sharks and rays numbers are down 70% in last 50 years and 1 in 3 species now face extinction.

As apex predators, sharks are critical for maintaining balance in the ocean ecosystem; their extinction or reduced numbers disrupt species below them in the food chain by allowing other predators to proliferate and devour more of the fish humans rely on for food and negatively impact coral reef and seagrass habitats.

Great Juneteenth Read

Back in June 2020, (Juneteenth became a federal holiday in 2021), Annette Gordon-Reed shared this personal perspective on growing up in Texas, the first state to celebrate Juneteenth.

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