The importance of the coronavirus mutations for cryptocurrency

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Steve Sokolowski
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Joined: Wed Aug 27, 2014 3:27 pm
Location: State College, PA

The importance of the coronavirus mutations for cryptocurrency

Post by Steve Sokolowski » Fri Dec 25, 2020 11:20 am

The most significant news of the past few months is, by far, the new coronavirus mutations recently discovered in the UK and South Africa. The mutants have now been shown to be much more transmissible than the older variants, with an R0 value over 5 (compared to 2.7 for the original variants.) Because it is more transmissible, it is certain to eliminate the old variants and become dominant everywhere, whether countries foolishly shut down borders and impose travel restrictions or not.

Most news articles have focused on how much more difficult the new variant will be to control, and how many more deaths there will be, because so many more people will contract it. Experts have correctly predicted that death tolls from models need to be adjusted upward, and that there should be a higher peak of deaths even than the current one, as the new strain spreads to the United States, where the virus is most prevalent. They have also discovered that the current monoclonal antibody treatments could now be ineffective.

Few outlets are following the story to its logical conclusion: that even if vaccines have the same effectiveness on this new strain, the number of people vaccinated to end the pandemic now needs to approach 90%, rather than the 60% or 70% previously thought necessary, because the virus spreads more easily. And that number assumes that the vaccines are 95% effective against the new strain - if they decline to 90% effective, the vaccination rate needs to be even higher. Another logical conclusion is that if the virus has mutated to become more virulent several times independently all over the world, and if that happened in under a year, there is a much higher probability than previously thought of additional mutations that make the virus even more virulent.

It is almost certainly impossible to vaccinate 90% of the world's population. First, 40% or so of people respond to pollsters that they don't want to be vaccinated at all. Second, some people have allergies that contraindicate the vaccines. Third, people taking immunosuppressants or who have autoimmune diseases may want to receive the vaccines, but cannot do so because that would be too dangerous. Finally, the longer it takes to vaccinate people with the current vaccines, the more people are infected in the meantime, providing more opportunities for mutations to make the vaccines less effective.

And the "time" is indeed long - despite there having been 10 million doses of vaccines produced and shipped, somehow only 1 million of them have been administered. Hospitals complain they can only administer a few hundred doses a day, but they aren't vaccinating during the middle of the night, or on Christmas Day, or on the weekends. How many more lives could be saved if these vaccines were being administered at 2am, in addition to the 9 to 5 when they claim they are doing their best?

The implications of this latest development are that outbreaks of COVID-19 are now likely to continue indefinitely, rather than there being the "end" to the pandemic that many people talk about. As someone interested in economics and markets, as many people involved in cryptocurrency are, recognizing this implication provides the opportunity to invest in the most promising industries.

As a result of the mutation, the idea of society returning to "normal" in 2021 is now impossible. Nobody is going to a packed arena for a live concert in 2021. It may be possible that by next Christmas the virus has become less common, but event organizers will still have to deal with the liability for outbreaks. The constant testing, 2-week quarantines, and other procedures required when a case pops up will cost so much, or create so much risk, that certain types of economic activity remain infeasible. If 2023 arrives and people stop wearing masks in the subway, I'll be surprised.

The key to understanding what to invest in is to look at what the biggest hurdle to going out today is - trust. Trust was already one of the biggest problems facing the world before the pandemic, but now it is a life-and-death problem. I would feel much better about going to public spaces if I saw that everyone there wore a mask - correctly, without touching it or uncovering their noses - but that isn't assured, so I stay home most of the time. By the end of next year, I'll trust family members enough to go to family gatherings (maybe), but it's unlikely I (and many others) will do the following:
  • Go on a cruise
  • Drink at a bar
  • Attend company parties
  • Attend a professional sporting event
  • Take a nonessential job that requires me to work in an indoor office
If I don't want to do these things, people who are older, obese, or immunocompromised will certainly not do those things.

In my opinion, smart investors have two ideas in mind right now: current companies in the cruise, bar, concert, and especially theater industries are effectively done for because they cannot last until a time when the virus is no longer a threat, and as a society, there isn't enough money to keep bailing out these businesses forever. Members of Congress have been doing the opposite: continuing to pay unemployment assistance without strings attached, and continuing to renew it every time it becomes apparent that the situation is not improving for these industries.

Of course, I'm not for suddenly making servers and bartenders homeless by ending their assistance, but I am against providing this assistance with no conditions. An ideal approach is to provide a small basic income to the unemployed, and to invest money to develop low-education jobs for these workers in other industries. Package delivery, for example, has become atrocious, but the shippers won't invest in improving it because they fear hiring too many people, only to have to lay them off when the world returns to "normal." If we provided a transition path to transform the economy, we would come out stronger for it. Unfortunately, however, owners of closed establishments insist on not changing strategy, and the longer we try to futilely save dine-in restaurants and bars, the more likely it is that, whether it be in the Spring or the Summer or later, a crisis will suddenly develop when the Republicans decide to care about deficits again, or when the world's currencies start to dramatically inflate due to borrowing too much money.

I propose three alternate approaches to trading this news, in ascending order of profitability. The first, which may seem a great idea at first, is to short entertainment stocks, like theater chains and restaurants that make most of their money from indoor dining. While I have little doubt that these industries will see fewer customers, the problem with this first approach is that the government can stay solvent longer than you can, and these stocks may simply keep going up every time another round of bailouts is passed. That's what's been happening for the past few months, both as investors celebrate the plan and because all the new money ends up in the stock market because interest rates are near zero. But you don't want to buy these stocks either, because they will crash when the money runs out.

A second safer stock option would be to buy virtual reality stocks on the grounds that live events are likely to move virtual during 2021 and may never return in the same way after that. VR has reached the point where cell phones were about 10 years ago, when the technology reached the "base mainstream level" and every year now brings exponential improvement in hardware and software. You can be of the opinion that the TV has a role in the living room because of socialization and ease of use and still bet big on VR on the grounds that "going in person to a concert" will be replaced with "putting on your headset to experience a live concert with people from all over the world seated around you." The football game can still be broadcast on traditional TV while the league sells a premium experience to VR users that emulates attending a game. The problem with VR stocks, however, is that VR is now as good as real life in many cases, but all the headsets are sold out and the technology is limited by manufacturing. The order backlog on the Valve Index, for example, reached above 8 weeks in December 2020. NVIDIA 3000 series graphics cards to play VR games are selling on eBay for three times the manufacturer price. The immense demand for VR makes it clear the world is heading towards the complete immersion described in "Ready Player Two," but you can only sell software and content to users if there are enough headsets for everyone, which there currently are not.

The final approach is to buy coins, which is why this mutation news is worth discussing here. The mutations make it far more likely that currencies will devalue. Everything is setting up for a perfect storm next summer. Coins are already in a bull market, and sooner or later the fact that the world with carefree in-person meetings and events is not returning any time soon will dawn on policymakers. Most importantly, coins are the most liquid asset on the planet. They require zero effort to own, can be unloaded at any time, have no risk by the CEO making poor decisions about the company, and if you don't want to do research, you can just buy bitcoins as a safe bet should the dollar start to crash.

The key to making money in the markets is to take action before everyone else does, which is why we continue to pay employees in dollars and hold as many mined blocks as possible. Pay attention to how the mutation news develops, as it's a lot more important than people are thinking now.
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