Fund Summit: Digital Assets & Liquidity
How to Guard against volatility & how the recessions will react
|genesis Block||May 29, 2019|| 1|
Jeff Dorman, Chief Investment Officer at Arca
Ateet Ahulwalia, Managing Director at CoVenture;
Arianna Simpson, Managing Director at Autonomous Partners
Tim Young, Founder at Neural Capital
Paul Brodsky, Partner at Pantera Capital
There are thousands of assets, but few are investible
It’s hard to think about the long term
Separate from private venture & has a hedge capability
Private investing is looked at a liquidity standpoint
On the venture side, there isn’t liquidity
It is hard to see the opportunites on the venture side until the concepts are validated, but with the public markets, liquidity is concentrated within such a small subset within the ecosystem
Fiat currencies have not fed the needs of people, which kicked this whole thing off.
Digital gold doesn’t necessarily need to be used in transactions, similar to Bitcoin
Stablecoins that hash more could also be used as options for payments & distribution
There might be a single digit # of currencies that behave like gold & a means of exchange. There could be 100s that would have commercial use cases
We don’t really know how it’s going to play out, so the only prudent strategy is to diversify appropriately among the winners
Looking at everything that comes down and their chances of adoption & scale
There was a european union who had confiscated 50% of assets from people.
Western consumers flocked to bitcoin when needing to turn to a store of value when their own government turned against them.
676 metric tons of gold was bought last year which is one of the highest amounts in history
When following what people do vs. say, you’ll see central banks buying more gold as a store of value and to back derivative contracts
Bitcoin is still be using for transactions and millions of dollars can still be sent anywhere in the world vs. the hassle of having to store or trasport gold
All crypto is a risky asset that has the store of value. Airbnb, Uber, & others also started out like this and then later achieved product market fit
Bitcoin & many of the tokens might not have achieved full product market fit
Network effects for valuation: Every digital asset has different characteristics to value them.
Metcalf’s law = value = the square of the connected users in the system
Digital assets are trending towards staking , which will be transformative in the future
Early stage investors are looking for scaling due to high risk and reward. Scaling can be the goal for any technology. So good things to look at are chances of adoption vs. scaling.
As an asset manager, it’s not really your place to tell family offices how to allocate, but it is important to educate them on the risks
With an asset with such a small market cap, it is expected to be volatile
There is a low correlation to public markets, so its reasonable to get out of “zero”
When there is another recession, it will be expected for crypto to be on the monetary rail to be global, & increase exposure of sovereign fiat currencies to help prevent central banks to inflate their money stock
In 2008, gold fell down 38% before rallying 3 fold, so you would sell when you can not when you want
In the crypto winter: Bitcoin fell 55%, S&P down 22%, while gold was pretty stable. In these recessions, its important to look at a broader time window
Since bitcoin is pretty liquid and serve as a store of value, this will start to matter in a recession. People’s underlying needs for liquidity especially with an 180B market can quickly be a priority when the time calls for it
In high stress, everything goes to correlation 1 in a short term burst
We don’t get as much traction with younger investors as you think.
It is the older investors who are more afraid of counterparty risk due to the past recessions
As crypto works outside of the financial system, clients are seeing that as an opportunity to reduce risk
When correlation is low, it is a good time to actively manage. There are a number assets that are starting to step out.
Many of the projects that are not operational yet, but the investments are to make them more operational
We look at attributing what form of alpha we can achieve based on typical trading measure such as: sharpe ratio, hitrate, portfolio var, beta, etc...
Venture investing is harder to benchmark
There are different substrategies within crypto whether it is active trading vs. venture investing
It is important to look at the other strategies and the expectations of the strategy
What token would you want to be holding for the next 10 years? Bitcoin, Maker, BitX (index fund for Bitwise) & Augur
Genesis Block Holdings, is a venture capital, digital currency, & mining fund focused on investing in blockchain technology that supports how the world will change in the future. Visit our website here: http://www.genbvc.com and listen to our podcast here: Apple , Spotify, Google