LBI Tied To LEO

about 3 years ago

LBI is completely tied to Leo.

This might seem like I am being Captain Obvious yet there are implications here that few consider. The reason for this is we are dealing in an area that few of us have embarked on before.

The majority of us deal in a currency and that is it. We get paid in it, make purchases, and invest it. Our lives are spent dealing with a single currency, whether it is the USD, YEN, or GBP. Naturally, there are exceptions to this like when on travels. Nevertheless, for the most part, we operate in one currency.

This is not the case for multi-national corporations. They deal in many different countries, in a number of currencies. Hence, there revenues and earnings are subject to currency fluctuations.

It is a situation that can cause massive problems on the quarterly earnings reports. Of course, this is more of an accounting issue since it is unlikely that the different currencies are converted to a single one. For example, a company that is doing business in Japan will have revenues in the Yen. However, they also have ongoing expenses such as salaries which are also paid in Yen. Yet, if it is an American company, when reporting, the Yen has to be converted to USD on the financial statements.

LBI is in a similar position. All reporting is in LEO. This is how the fund was established. At present, this means little since most holdings are in LEO with a smidgeon of Hive. However, if the price of Hive skyrocketed, it could create a situation where the value of that, in LEO, drops.

Of course, since the percentage is so small it is not noticeable. Nevertheless, a larger stake in that or some other non-Leo investments could radically alter the numbers. As we saw in @spinvest, a falling Hive price actually made the Bitcoin held worth more. If the reverse happens, the value of the token falls since that is priced in Hive.

Please keep in mind that the perspective could change if one looks at the pricing in a third currency. For example, if the price of Hive increases, the value of Bitcoin in Hive will decrease, pushing the value of the SPI token down (since it is priced in Hive). However, the token could actually increase when priced in USD or EURO under the same scenario if both tokens are going up against fiat.

Which brings up another point: what is the objective of the individual. If one is eventually going to convert to fiat, then it is a good thing to look at the pricing in terms of that. Yet, if one is going to keep it Hive based, for example selling some SPI to get other H-E tokens, then the abovementioned situation is an issue.

Of course, nobody can control this. Markets go up and down, often misaligned from each other. This is why arbitrage situations exist and people profit off them.

The point is this is something to consider with LBI. It will not be exempt from this. The only way to avoid it is to remain a single currency fund, i.e. LEO. However, since we already have Hive as just part of the daily process, we know this is not possible.

Is all of this an accounting game? Perhaps. It is vital nevertheless, to consider what the token is priced in and how we want to approach it. At times, there are going to be opportunities that look good, yet we have to ponder what the denomination is. If for example, we expect a 10x in LEO yet only a 5x in Bitcoin, than buying BTC with LEO is not a good deal even though the price is going to go up (in our estimation). Looking at the investment through the lens of fiat is not helpful since we are not using fiat for the purchase.

LBI is priced in Leo and that is something we have to keep in mind with every decision we make. This is a radical change in thinking for most of us. Therefore, each opportunity is best explored through this lens. It is something we have to discuss openly to remind ourselves that while a move looks good in terms of our fiat thinking, it might be the worst move as it pertains to LEO.