DAA Manager Insights: Hive Digital Assets
Being aware of the possibilities in every situation is an important skill in the crypto world. Our DAA manager Hive Digital Assets knows this, pointing out that no one has perfect timing and there will always be trades that “could have been” or “should have been.” Read more about Hive Digital Assets’ views and their “wisdom of the crowds” approach to DAA design below.
Your backgrounds are slightly different, with Sudhir as an investment banker and Malcolm as a start-up guy. How did you meet?
We have known each other for a few years, and the idea to co-found the Hive Index came about in the summer of 2017 when I was in Berlin working on a personal project. We spent a week together discussing potential strategies for harnessing my knowledge of traditional finance and his hands-on experience in the start-up world.
Malcolm was one of the original investors in the ICONOMI ICO and identified the close correlation of many of the early DAAs. He was already trying to benefit from the shared knowledge of all the DAA managers by simply investing a portion of his ether and bitcoin into each DAA. However, he soon realized that keeping equal weighting required a fair amount of maintenance, plus a potential accumulation of exit fees.
After some friendly debate and a few shared spreadsheets, we came to the conclusion that we could create a single index to buy and hold the top digital assets on the platform — and that we could offer this with a lower management fee than most other DAAs.
The internal algorithm I designed for the Hive Index locks in earned gains and redistributes the profits in waves, enabling the portfolio to extend its run in bull phases and minimize risk during bear periods.
We’ve been happily surprised with our early success, more than doubling our AUM in our first three weeks.
Your timing was very good, since you started your DAA when the correction was over. Is timing important in the crypto world?
The crypto market moves in reasonably clear waves, similar to the traditional stock market. The patterns can be seen in charts going back to the early days of crypto, where money moves from fiat into bitcoin — and more recently ether — and then into altcoins. We were aware of these patterns, and as we saw money start flowing back into the “big two,” we launched the Hive Index to ride the wave as much as possible.
To take advantage of these patterns, we set some thresholds in terms of the ether dollar price for when to seed the fund. Nothing is guaranteed in investing — especially in the volatile world of crypto — but having a plan and sticking to it has proven time and again to be an excellent way to succeed in this market. The Hive Index has seen more than 80% gains since launch, so we are pleased with our decision.
For us, though, timing isn’t about being perfect. There will always be those trades that “could have been” or “should have been.”
We like Nassim Taleb’s concept of asymmetrical opportunities:
“Put yourself in situations where favorable consequences are much larger than unfavorable ones…I will never get to know the unknown since, by definition, it is unknown. However, I can always guess how it might affect me, and I should base my decisions around that.” –The Black Swan
If crypto really is the future, then we are still early in one of the biggest investment opportunities ever seen. The most important thing is not to sit on the sidelines. Looking for perfect timing or the perfect deal can easily lead to missing out altogether.
That’s why we created a crypto portfolio that is easy to understand and why we are happy to have it hosted on a platform that is already easy for investors to use. Once there is a fiat ramp-up on the ICONOMI platform, the Hive Index will truly be one of the simplest ways to buy and hold a highly diverse and relatively low-risk basket of cryptocurrencies.
As long as people only invest what they can afford to lose, the asymmetry of this opportunity could lead to fantastic rewards.
In your strategy, you mention that you will react to sentiment changes. How do you monitor such changes? Do you see stronger sentiment in crypto than in other markets (like the stock market)?
The underlying strategy of the Hive Index is to benefit from the direct sentiment of the entire ICONOMI investment community, including the decisions of individual DAA managers.
The twenty-five digital assets in the Hive Index are the twenty-five most popular coins on the ICONOMI platform. We have ranked them by the aggregated dollar value of every asset held in each of the other DAAs. Our plan is to recalculate the community’s holdings every quarter and only then add or remove assets from the index. In the meantime, we regularly rebalance the assets already held in the Hive Index based on performance. This combined strategy allows us to maximize gains without the high-fee implications of overtrading.
There’s already more than $100 million invested in DAAs via ICONOMI, and we expect this to increase over time. We expect that the diversity of assets available for DAAs and the diversity of asset managers and strategies will increase as well. This will lead to the Hive Index becoming more and more efficient, as it will have a greater amount of data to inform its structure.
We do believe that sentiment plays a stronger role in crypto than in traditional markets such as traditional stocks and shares. Crypto is reasonably immature in terms of market history, as well as in the experience of many of the investors. We have been in a steady upward trend ever since Satoshi Nakamoto created Bitcoin, and many of the people who have achieved record gains are not old enough to have experienced the dot-com crash. This leads to a relatively jumpy market where emotions and individual sentiment have a disproportionate influence on price. This is what leads us to the conclusion that an index that aggregates all the micro-decisions across an entire investing community — such as ICONOMI — is an ideal vehicle for the savvy armchair investor.
You are also active in the blockchain mining industry. What is your view on the energy dilemma coming from mining activities?
Yes, Malcolm is the CMO for Cyberian Mine GmbH, which is bringing renewable hydroelectric power from Siberia to the European mining market. He thinks that some of the stories that have been written in the past twelve months grossly exaggerate the extent of the industry’s power consumption: for example, the Grist piece stating that by 2020 Bitcoin mining will consume “as much electricity as the entire world does today.” Instead, he suggests that Bitcoin — even at the higher end of estimations — accounts for less than 6 percent of the power being consumed by the current banking sector.
The world’s economic system needs to change. Centralized capitalism was created in order to extract value and pass it on to kings, queens, and oligarchs. Even the most innovative startups that operate in the old-world system eventually have to bow down to the legalities of maximizing profit for shareholders — at any human or environmental cost.
We believe — alongside alternative economists like Charles Eisenstein, or “Throwing Rocks at the Google Bus” author Douglas Rushkoff — that the world needs a new economic order. This is what can stop us from destroying the environment through things like mass meat production and shift us away from the perpetuation of war forced upon us by the military-industrial complex. Cryptocurrencies will also open up opportunities to the billions of people who remain unbanked and support the move toward a universal basic income.
Bitcoin, Ethereum, and other distributed systems create the opportunity for real change at every level. Innovation will come. Even innovation in energy production. When the barriers to entry for impact on a global scale are removed — as ICONOMI has done for asset management — then change happens. Among other reasons, operations like Cyberian Mine are attractive to mining investors because they use sustainable forms of energy. It could be that the needs of blockchain miners will squeeze out fossil fuels, steadying the demand and reducing the costs of other renewables like solar and wind along the way.
Holding a diversified basket of cryptocurrencies will give early investors an edge in the upcoming changes in the financial landscape. We live in exciting times. Blockchain technologies will shape the new world, and the DAAs on the ICONOMI platform are a great way to be a part of this movement.
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