We’re back in Los Angeles after a productive 10-day trip to Chicago for The Trading Show and New York for NYC Blockchain Week.
We had the opportunity to give multiple keynote presentations and panel discussions at conferences in Chicago and New York, all of which were well-received. We also had the opportunity to share our thoughts on the crypto markets on a number of media outlets. We wanted to share those appearances with you here. Helping frame the narrative around this exciting technology and asset class is an important part of our role as capital allocators in the space. We’re honored to be given that privilege on such a large stage.
"On February 8th, the crypto markets started acting differently. That emanated from Litecoin – Litecoin went up 30% in a day on February 8th. That sort of lead the initial, earliest stages of the crypto rally. It is no coincidence that that happened nine days after the Fed did this dovish capitulation. In mid-December Jay Powell was still talking about being on ‘auto-pilot’. Remember that term? Remember how much the market didn’t like the term ‘auto-pilot’? You know who else didn’t like that term? Donald Trump didn’t like that term. So, he’s on Twitter chastising the Chairman of the Fed, and guess what – it worked. The Fed went from this stance of on ‘auto-pilot’, balance sheet roll-off, tightening through the end of the year to complete dovishness, all future hikes on hold, and accommodation by any-means-possible. Then you had the ECB, and the BOJ, and the PBOC, and the Reserve Bank of Australia, and Canada, and New Zealand just cut rates last week. So, all of these Central Bankers are now moving in this same direction. There is now there is no path to end the largest monetary and fiscal policy experiment in human history. They have now shown us that they don’t have a path, and there is no political willpower to go and end Quantitative Easing which would put the whole world into a recession – all asset classes would go down at the same time because they’ve been reliant on this cheap money. Bitcoin is an insurance policy against that. It is a way to step outside of all of that. The total market cap of Bitcoin is like $110 billion. But 60% of that hasn’t moved in over a year. So now you’re talking about a sort of circulating supply of, call it, $60 million. That’s like one large cap stock. Not even a big stock. That’s like Costco."
"Reflexivity means that market participant’s perceptions of the market effect the market, which then, in turn, change market participant’s perceptions. There’s a circularity to that. It means that higher prices beget higher prices and lower prices beget lower prices. This Reflexivity trait, you see it a little bit in other asset classes but there is no asset class where it’s so present in more than crypto because crypto derives such a significant portion of its value from Network Effect. Network Effect and Reflexivity are intimately related."
"Broadly speaking, BTC is not a safe haven asset right now. People are speculating that one day it may become a safe-haven. Right now, it’s a risk asset. And what it looks like someday when Bitcoin morphs from being a risk asset to being a safe-haven asset, it’s really hard to say with any kind of high degree of certainty. But when you look at the characteristics of Bitcoin and you line it up next to gold and you put this kind of Austrian economics framework around that – I mean, it’s durable, it’s divisible, it’s portable, it’s uniform, it’s accepted, and it’s scarce. And you look at Bitcoin next to gold, and Bitcoin actually fulfills those six characteristics of money pretty fully. And folks are speculating that if the world decides that they need a little bit of Bitcoin, there’s not nearly enough Bitcoin to go around."
Please note Travis’ interview begins at 20:25.
"We talk a lot about risk-adjusted returns which is not a phrase that is uttered very often in crypto but is a phrase that was uttered all the time in my prior career path. There’s plenty of risk that exists in this asset class as it is. But we also think that the sort of risk-return proposition of crypto broadly is going to be really compelling over the next 1, 3, 5, 10 plus years. So we differentiate ourselves by picking spots where you can just find really attractive risk-reward opportunities. The way we make investment decisions through the framework of what we call our Four Foundations. Which is: Qualitative Research, Fundamental Valuation, Quantitative Tools, and Event-Driven Catalysts. We stand up an active portfolio management strategy on top of those Four Foundations. Those Four Foundations generate a couple dozen signals in aggregate, quantitative and qualitative signals. What we’re trying to do is take the preponderance of evidence that’s generated by those signals and make investment decisions accordingly."
Jill Malandrino: Correct me if I’m wrong but you can’t necessarily evaluate a crypto asset like you can a traditional stock asset. There’s not fundamentals attached to it as much as, let’s say, a US equity.
Travis Kling: Right, so it’s not equity. It’s not a legal claim on revenues or earnings or assets or cash flows.
Jill Malandrino: So, it really is that Network Effect that’s driving the price up?
Travis Kling: Yeah, and what we think it is is an implicit claim on Network Effect. If the token is structured the right way, then you have this sort of implicit claim on Network Effect. Granted, a little more squishy than EBIDA. But in the same way that we know that there’s a relationship between the price of a stock and earnings per share of a stock, the P/E ratio, we know that there’s a relationship between the value of a network and the activity of the network. The value of a network is pretty easy to ascertain – it’s market cap – although there are alternatives to that. Then there’s a lot of different metrics you can use to measure network activity. Things like transactions per day, active wallet addresses, US Dollar value transactions…
Jill Malandrino: So, it’s a different set of fundamentals that you’re looking at?
Travis Kling: Yeah.