DAA Manager Insights: Kenny Hearn
Einstein said that “The true sign of intelligence is not knowledge but imagination.” This is so true for crypto, which is evolving so fast. Today’s thoughts from Kenny Hearn can fire our imagination about what we can expect for the future of crypto.
Coming from traditional asset management, how do you see this new token world? Are we getting attention only because of huge returns or also because of a promising technology that might have a serious impact?
The world is hungry for any type of new growth industries. The bubble being created in global equity, property, and bond prices is very similar to what we are seeing in the new token world. The difference is that there is actually potential growth in these token offerings, while equity and bond assets have very little growth to show for their bubbles. It is a very interesting dynamic playing out. I am positive on asset prices and yet negative on global economic growth — that is because trillions upon trillions of dollars and euros have been printed using debt since 2008. So, we are going to see bubbles in all markets everywhere for quite some time!
The great thing about all this cash and this bubble following these new tokens is that this investment is supporting the building of a completely new global infrastructure that will enable and support peer-to-peer transacting or “the global citizen.”
This is particularly important in Africa, where the infrastructure supporting the current world we live in is very poor. The new blockchain infrastructure does not necessarily need to be built in Africa to support Africa. This is fundamental. Effectively, Africa can now outsource its technology infrastructure for uses such as banking the unbanked. The applications are extremely exciting, but there are those being built today that will only be useful after many years to come, and this is what differentiates value today. We like supporting those tokens that are very necessary in the next steps of enabling the blockchain to change and support users’ lives.
What is your logic behind constructing The Asymmetry Asset Array Index?
We find the recent attention in the token sale space very similar to that of the dot-com boom in 2000/2001. So we ran a scenario. Imagine you took the top 50 tech stocks by market cap back in 2000 — these included Google, Yahoo, Amazon, Priceline, and two others — and allocated 2% to each of these 50 stocks for your tech exposure in your portfolio. Then you went to sleep and woke up in 2017. We then assume 88% of those stocks went to zero and the previously mentioned six names continue to exist in your portfolio. What would that have given you in return per annum in USD? The answer is 14%, and this discounts the fact that you would not allow your investments to go to zero and would reallocate to the top performers. Therefore, given the similarities between the Internet and the blockchain, we believe that as in the above example, diversification is your friend. Furthermore, we are following those tokens with higher market caps because they have already raised serious amounts of money, paid their school fees, and have the greatest potential to bring these ideas out of the ether and into a tangible arena.
Where do you see a custody function in the crypto world?
I expect the custody function will fall upon whichever jurisdictions will provide what is necessary for the global citizen to thrive. At this point, it is impossible to say where that is, but I am certain there will be many players willing to raise their hand to attract that type of potential trade. Clearly, more decentralization and less censorship is best.
Do you have any global crypto predictions for 2018?
It is interesting to note the number of ICOs coming out recently that are basically clear copycats of something that already exists, and this number is only increasing. Among these ICOs, yes, there are some stars of tomorrow or those that will replace the incumbents, and these will need to be watched closely. However, it will be a case of “thrival of the fittingest” (Bruce Lipton): those that serve the greater organism and match what is most needed by whichever entity will be a success. It becomes clear very quickly which applications are serious about making a difference. Therefore, I expect 2018 to bring significant amounts of cash inflows from the monetary system in its current form into the new crypto/blockchain space, though there will be winners and losers. The visibility around who will be what is too difficult to determine at this point in time, but one cannot afford to sit on the sidelines during this “great redistribution of wealth” — therefore, diversification will be your friend.
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