Evanston Capital Management x Token Terminal: Interview with Marcos Veremis

We sat down with Marcos Veremis, managing director at Evanston Capital Management. Marcos previously spent 13 years with Cambridge Associates, where he focused on alternative investments, including research and implementation of uncorrelated liquid and illiquid strategies. Before joining Evanston, Marcos led Cambridge’s research into the emerging space of blockchain technology and crypto assets.

Evanston Capital Management is an alternative investment management firm focused on providing multi-manager alternative investment programs for institutional and high net worth investors. ECM has approximately 175 institutional investor relationships and $3.2 billion in assets under management.

What was it that initially drove you to crypto? Has your view on crypto changed as you’ve spent more time in the space?

From a professional perspective, given the multiple roles I played at Cambridge Associates over the past 13 years, both in the hedge fund space and more recently in venture capital, I had the great fortune of eyeing the crypto space from both directions already back in 2016.

From a personal perspective, I was immediately fascinated by the space for many reasons:

1. The idea of being able to create and transact value without intermediaries directly on the Internet was groundbreaking, to say the least.
2. The space combined multiple disciplines such as game theory, economics, cryptography, distributed systems and governance.
3. The level of disagreement in the investment world, with regards to the technology’s merits, caught my attention. Smart people were taking sides both in favor and against. There were those who argued that crypto was a bubble and those who argued that the technology was transformational. I had never witnessed such a disparity of opinion during my career.

In my personal time, I started reading books like ”Mastering Bitcoin” by Andreas Antonopoulos and other crypto-related material on the Internet. Over time, I started making personal investments directly in crypto assets and funds, and also in companies as an angel investor.

With regards to my views on crypto, my conviction has grown stronger over time, and I believe the space has a high likelihood of being broadly transformational. In my view, even Bitcoin itself is an incredible innovation — one that is quite misunderstood and under-appreciated.

You have been working with institutional investors for years, how has their view on crypto evolved over time?

I think that it has evolved significantly. When we started covering the space in early 2018, institutions were not taking crypto seriously. Then, in the summer of that year, Andreessen Horowitz came to the market with their first crypto fund, in which some of the most prominent university endowments in the US had invested. That was the first wave of institutional involvement.

Facebook’s Libra project, announced in the summer of 2019, was another catalyst for interest. Fast forward to today, a number of thought-leading institutions view crypto as a form of very early stage venture capital with option-like payoff potential. On the other hand, many institutions are still actively researching the space trying to understand the technology, protocols, companies and the investment manager landscape.

What makes crypto interesting for institutional investors? Has the current market situation affected this?

In terms of their interest in crypto, I like to divide institutional investors into three different buckets:

1. Those who confuse crypto with Bitcoin and hence only focus on the non-sovereign money narrative. Within this group, the vast majority still tend to dismiss Bitcoin — a view that has slowly been changing during Covid.
2. Those who view crypto as a new way of getting rid of middlemen, cutting costs and increasing efficiencies. Many folks in this group are still in the ”blockchain not crypto” narrative camp, which is mistaken in my view. It’s mistaken for a number of reasons, but perhaps most importantly because public blockchains cannot function without crypto assets, and public blockchains are at the heart of this technological innovation.
3. Those who understand crypto as having many aspects to it, including the fact that it offers creative minds the freedom to innovate unconstrained. As a consequence, investors in this camp are looking at many areas like stablecoins, store of value assets like bitcoin, DeFi, gaming, infrastructure, etc. They are comfortable investing in both tokens and equity, and generally consider crypto to be a form of early stage venture capital with the potential for early liquidity. I would call these the institutions that are furthest in their research into the space.

To your question, I think that the incredible money printing that is taking place has strengthened the store of value narrative, and we’re seeing more institutional investors looking into Bitcoin. In addition, the digital nature of crypto assets, as well as their global reach and fast settlement in a physically impaired world, seems to be making their adoption faster.

I also think that the more general backdrop is favorable for crypto, not just the current crisis. This includes concerns about privacy, data monopolies and reduced levels of trust in middlemen and intermediaries more broadly. In that sense, crypto is both a technology and a social movement that reflects the needs and spirit of our time.

What alternatives do institutional investors have when investing in crypto?

As of now, the alternatives range from investing directly into crypto assets and crypto companies, and/or allocating to index, hedge and venture capital funds. It should be noted that many venture capital funds in the space invest in both illiquid and liquid tokens as well as equity.

Thus far, the closed-end venture model has been preferred by professional managers because it offers predictability for managers investing in a highly volatile market; the capital is drawn in over time and investor redemptions are restricted compared to an open-ended model. The tradeoff for LPs is that they have to lock-up capital for a longer period of time and forgo potential trading opportunities. I tend to favor the VC model when investing in liquid crypto assets, acknowledging that crypto offers interesting opportunities for other models as well.

In your experience, what should allocator’s keep in mind when choosing between crypto-only versus generalist VC funds?

From a venture capital perspective, crypto introduces novel technical and operational aspects. These include early liquidity, network participation, open-source and non-traditional business models that require new frameworks to analyze and understand them.

In my view, traditional VC firms tend to have structural barriers to effectively invest in crypto. Because generalist firms are often consensus-driven organizations, you will have investment committees with numerous people at the table who know little about crypto, which naturally leads to crypto investments receiving a lower priority.

The evidence suggests that partners at generalist firms who have been interested in crypto have spun-out and/or launched dedicated crypto funds. Oftentimes the generalist VC firms have outsourced their crypto allocations to such funds. Therefore, I think that the way to invest in this space at present is via crypto-native funds.

During the past few years, there’s been a lot of talk about institutional investors entering crypto. Where would you say we are in the life cycle of institutional adoption?

I think that we are very early, both in the development of the industry and institutional investment activity. However, the institutional involvement is increasing, both through allocations to crypto funds, but also to more traditional managers, as evidenced recently by the likes of Paul Tudor Jones entering the space.

In terms of the geographic location of institutional investors, US institutions have been the first movers, alongside some significant Asia-based investors. Europe on the other hand, lags behind as a result of higher institutional risk-aversion.

You can find more information about Evanston Capital Management on their website.