A new year brings new opportunities to take a bigger chance on myself and the things that I’ve come to believe in. I’m proud to announce that in 2019, I will be spending my full time on Tapestry Capital, a new venture focused on researching and investing in the digital asset space. Many of you may have known about this passion during the time it was just a hobby, but I nevertheless want to lay things out more completely — both to keep myself honest, and to help fill in the blanks for others who are curious and haven’t heard the details. If we’re overdue for a catch up, please feel free to reach out (more details are available at https://www.tapestrycapital.fund/). I’ll also be at TNABC this week in Miami, if that’s a more convenient place to sync up!
Part 1: How Did We Get Here?
In the summer of 2017, I finally checked “read the Bitcoin whitepaper” off the things-I’ve-been-meaning-to-do list, and found myself spending more and more of my free time doing research on what it all meant. If you’ve done any of your own research on the crypto space, you’ll understand this dynamic, of how every question lead to about 20 more things to read up on (for example, understanding even the basics of how bitcoin is secured requires some reading up on encryption, Merkle trees, and why ECDSA was selected as the hashing mechanism for bitcoin, as just one example). This initial burst of research was during the heyday of the bull run that seems more of a memory now, but I remember feeling that despite all the hype (I still have never touched an ICO then or since), there were real technologies, and protocols that could dramatically change the fabric of our lives, eventually, but in an asymptotic way once mass market adoption finally hit its stride, which we’re still far from. These realizations also fit so well with my underlying philosophies, and in a way which reawakened some of the younger idealism that a decade in New York had hidden away. I’ve always been a proponents of the universal right to voluntarily participate in free markets, a belief that’s only been further corroborated by my education, and my work experience seeing how the financial markets help allocate capital and labor in a way that ultimately makes everyone’s life healthier, safer, and more enjoyable. However, the everyday friction in the current system which we all experience tells me there’s still plenty of opportunity for disruption (and commensurate returns for investors).
To provide some further context, there have been only two other times where the very first use of a new technology felt like a complete paradigm shift. The first example which was seared into my mind was when I used a search engine (I googled sunrise and sunset times in 6th grade) and was struck by the profound yet personal impact of suddenly being able to access a new wealth of knowledge bounded only by curiosity. Similarly, a second instance of this feeling of eureka occurred when I first played a truly online game (via Blizzard’s Battle.net) — this was way before Twitch and Fortnite have made gaming more acceptable and mainstream, but even at that age I knew my own views on entertainment had shifted forever. Bringing things back to the present, this volatile transition from ignorance to understanding and then amazement also mirrored what I felt more recently, when I experienced the ease of my first (pre-segwit / fork) bitcoin transaction. Similar to how the internet of the early 90’s was extremely basic in functionality, ugly in form, and slow to load, the blockchains of today are limited in usage, with many technical problems (e.g. governance, security, scaling for payments) still being experimented on, but as I continued to do the work, I grew increasingly certain that there were real paradigm shifts on the horizon. While I was too young to participate in the rise of internet 1.0, I’m consciously, and publicly, making the choice to not miss the boat again.
Part 2: Thoughts on the “Crypto Winter”
Lots of people have written about the bear market of 2018 following the euphoria of 2017, so I won’t belabor the point too much. To summarize, I too believe we’re witnessing a unique confluence of ultimately temporary factors which have limited the pool of incremental buyers.
This non-exhaustive list includes:
- price volatility eroding the store-of-value thesis of bitcoin (BTC)
- different and evolving valuation metrics (or an absence thereof) — we’re still in the “clicks-per-eyeballs” stage of fundamental analysis, and not the “MAU/DAU/subscriber guidance” stage of sophistication
- technical selling pressure from ICOs who have had to manage significantly shorter runways assuming they didn’t monetize their ETH immediately
- lower-quality mainstream coverage (compared to coverage of traditional markets)
- US regulatory uncertainty, contradictory / conflicting messaging from federal and state bodies
- Delays of institutional grade exchanges / custody solutions
- International differences between legal exchanges, jurisdictions, and investor pools
- That’s before you even get to the upfront investment of time to even understand and differentiate coins / projects enough to be comfortable putting dollars to work, since this requires learning a little about a wide range of topics (see the hashing example above)
At the same time, there are plenty of long-term green shoots, a subset of which are below:
- Actual building (client updates, code commitments) for major coins/projects continues, and more are ready for mass adoption transaction volumes today than a year ago at the end of the mania
- Sign ups / sales of consumer hardware wallets and US exchanges have decelerated but continue
- SEC has been clamping down on scams, and issuing more specific guidance
- Industry participants have started creating self-regulating in several countries, including Japan, the UK. Similar to how FINRA governs broker-dealer behavior in the US, I think exchanges and similar businesses will jump
- US states like Wyoming seeking to compete in the new area of being crypto-friendly territories, clarifying state-level money transmission laws, and hoping to attract future tax-paying businesses / residents
- International interest (in terms of exchange volume) favors Asia, but that leaves the US with the biggest potential to catch-up. Keep in mind US equity trading volumes and currency reserves in fiat show US influence to still be dramatically outweighing the rest of the world, so the flip in volumes certainly seems likely, especially when considering that the US having one of the most robust / safe financial systems and reserve currencies today likely has meant a slower need for adoption of imperfect version 1.0 blockchains
- Anecdotal personal observation of more LinkedIn contacts moving to crypto-businesses or crypto-adjacent jobs (others can now count me in that group too)
Part 3: Conclusion and Opportunity
Picking the right investments even in the world of traditional assets is tough, and has gotten tougher over time. Gone are the days of easy alpha in the stock market that Alfred Winslow Jones was able to harvest for decades at a time, as volume and superior returns have concentrated in the hedge fund industry over time. I’m lucky enough to have received world-class training and the chance to work alongside talented colleagues at each of my previous firms, and through those experiences, have gotten a sense of the rigor, dedication, and creativity required to generate consistent returns in that context. Focusing those skills into a framework prism that’s applied to distributed ledger technologies, I now believe that there’s a window of opportunity to transplant those skills and teachings in a way that will let me add value as an emerging manager within the digital asset sphere.
I’ve been an investment banker, and a hedge fund analyst, but before all that, I was a dreamer. Maybe it was due to growing up in the US as the direct result of my parents’ dream for a better life and the willingness to take a chance and immigrate here, or just noticing how quickly other people’s dreams became products and services that I use everyday. Dreams are what drove me to reassess what I was doing with my time, and what ultimately led me to resign from Point72 last summer. I am now taking the first big step towards that future, and hope that sharing my journey to this moment intrigues, informs, and maybe even inspires others.
I said earlier in this article that I’m a dreamer, and one of my favorite things to think about is how the world of tomorrow could look. Here’s a brief list of what that could mean, in no particular order (some these ideas already have teams working on these projects):
- Reduced friction in many high-fee transactions today where lots of middle-men inflate prices and reduce economic transaction volume from what would ultimately be ideal:
- Real estate buying / selling, including contract and escrow services
- Deposit banks would have reduced footprint and product offerings as most non-physical assets can be self-custodied, OR held with super-national “banks” that are even more secure, cost-competitive and easy to use than the minimally-competitive landscape today
- Payment systems will have competing offerings that offer tradeoffs between cost, speed, security, decentralization, anonymity, etc. with the help of distributed ledger technologies
- Some smaller and forward-looking countries (perhaps those who are pegged to the USD today in the Caribbean, Africa or Middle East) will have adopted one of the existing public cryptocurrencies in addition to, or instead of, its existing fiat currency to supercharge tax revenue, accelerate tourism, and save on paper currency printing and security costs
- Insurance premiums and claims (assets on the chain that are lost / destroyed could be reimbursed without an adjuster getting involved), with better data resulting in cheaper coverage for all
- A diversification away from advertising-driven content monetization on the internet, towards more micropayment potential on a per-viewing or small-scale subscription basis. Whoever figures this out, assuming it’s not one of the existing internet behemoths, will join their ranks
- Sliding scales will exist for privacy in the context of economic transactions in a way that doesn’t exist today, which consists of anonymous (cash) and fully trusted / traceable. Perhaps this will enable you to pay for anonymity either directly with a higher fee, or indirectly through a more securely private cryptocurrency (where the protocol layer enjoys a premium in the market)
- And many more things that haven’t been thought of yet…