Tokyo FinTech
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Tokyo FinTech

Travis Kling of Ikigai Asset Management at the TEAMZ Blockchain Summit

Travis Kling, Founder & Chief Investment Officer, Ikigai Asset Management

Travis Kling, Founder & Chief Investment Officer of Ikigai Asset Management, a Los Angeles-based cryptocurrency hedge fund, provided the keynote on the second day of the TEAMZ Blockchain Summit held over the weekend in Tokyo. With his discussion about crypto market participants and crypto market prices action, Travis looked to address the following:

  • Where are we?
  • Broadly, how did we get here?
  • Specifically, how did we get here?
  • What are the chances that we have bottomed?

Where are we?

Broadly, how did we get here?

2008 saw the beginning of the largest monetary and fiscal policy experiment in human history. In 2017, the Federal Reserve began its quantitative tightening. Consequently, in 2018, risk assets performed terribly, culminating in a dumpster fire for risk assets during the fourth quarter. On January 30, 2019, the Federal Reserve capitulated. On March 10, 2019, Jay Powell appeared on “60 Minutes”, and confirmed the Fed’s dovishness further about two weeks later. Meanwhile, there was further supportive commentary from the European Central Bank, the Bank of Japan, the People’s Bank of China, the Reserve Bank of Australia, and others.

Specifically, how did we get here?

Major events during the year-to-date crypto rally

  • TRX rallies >80% in early January on the back of the BTT airdrop, peaking on January 10, the day of the airdrop, and subsequently collapsing more than 35% in the following four days
  • ETH pumps once more than 30% in January for Constantinople, collapses after the hard fork dates is pushed back to February 27, and then pumps again more than 50% leading into the hard fork, before collapsing three days prior to the fork date
  • BNB begins its pump the day TRX collapses on the back of excitement around Launchpad ICOs; CZ continues a relentless campaign of value-accretive announcements through February and March, driving BNB more than 200% in an almost straight line; every dip is bought with conviction
  • LTC pumps 30% in a day on February 8 on massive volume on the back of loose talk about MimbleWimble being implemented on LTC; it goes on to pump an additional 40% on essentially nothing over the next five weeks; every dip is bought with conviction on no news without regard to fundamentals
  • Individual small-cap cryptos begin pumping in early February, in conjunction with and seemingly with “permission” from LTC; some pump on positive news, some on no news at all; most of the pumps do not see subsequent dumps; pumps continue through March

Legitimacy of the Q1 rally — BNB

  • Far and away the Q1 pump most substantiated by actual fundamentals is BNB
  • CZ is doing a great job driving value for BNB holders, albeit in his unique way — if you hold BNB, you are able to participate in Launchpad ICOs (subject to regulatory jurisdictional clearance); if you invested in the three Launchpad ICOs to date, namely BTT, FET and CELR, you are currently up 6.3x, 2.3x and 2.9x
  • Ikigai have analyzed the order books for each of these ICOs; it is apparent that each of these tokens are heavily supported by “market makers”; CZ keeps a group of these market makers in his inner circle; it is highly likely that these market makers receive advantageous terms (i.e., free or deeply discounted tokens) to provide liquidity for these ICOs
  • Put differently, CZ has entered into a social contract with BNB holders — if you participate in Launchpad ICOs you will make money; and you get to make money in this fun, exciting, gamble-y fashion that Binance customers love
  • CZ has created his own miniature version of the 2017 ICO mania; when you are domiciled in Malta and count the Singaporean sovereign wealth fund as an investor, you can play games like this

Legitimacy of the Q1 rally — LTC

  • LTC is a heavily manipulated crypto with little fundamental value
  • The number of developers actively committing to the LTC github has gone from over 40 in 2017 to three currently
  • 64 addresses currently hold $10m+ LTC, while 648 addresses hold $10m+BTC; 298 addresses hold $1m+ LTC, while 6,955 addresses hold $1m+ BTC
  • Shorting LTC at scale is difficult/impossible
  • Historical volume profiles suggest a thesis of increases in wash trading (evidenced by viewing aggregated exchange volume on Coinmarketcap) kicking off on February 8, likely in response to LTC long/short positioning
  • The current crypto market rally appears to be emanating from and led by LTC, which can have its price manipulated higher in a manner and to a degree BTC and ETH prices most certainly cannot

The “Risky Whale”

  • Ikigai believes a relatively small number of highly sophisticated, well-capitalized, highly risk tolerant market participants have been walking this crypto market higher over the last seven weeks, beginning with LTC on February 8 and punctuated with the April 1 explosion higher
  • Let’s call these market participants “Risky Whales” — crypto’s own version of Wyckoff’s Composite Operator
  • The price action on the weekend of February 23/24, where we saw a large, abnormal, unexplainable pump on Saturday followed by a larger, abnormal, unexplainable dump on Sunday, we have reason to believe was driven by a *single* Risky Whale — chicanery at its finest
  • BTC’s price was not higher than that weekend through the rest of February and all of March, while many smaller cap, manipulatable cryptos saw their prices soar

The Risky Whale’s backstop

  • Why have these Risky Whales been willing to initiate these market manipulations over the last seven weeks? After all, if these trades go against them, they stand to lose millions
  • Ikigai believes it is because these Risky Whales are aware of a bid in BTC that keeps the entire market afloat; Ikigai knows anecdotally of crypto funds buying BTC for a long-term hold; Fidelity has been buying some amount of BTC for its clients and will likely continue buying; Ikigai know anecdotally of global macro funds buying BTC because of central bank actions
  • Sophisticated crypto investors can see this bid in the market through on-exchange analysis, on-chain analysis and conversations with OTC desks
  • It was apparent throughout Q1 from the relatively muted price action in BTC that this bid is patient and possibly price-sensitive (e.g., buyers at $3500 but not $5000); but the existence of this bid in BTC gives Risky Whales confidence that the bottom will not fall out on them so they can begin initiating the chicanery in LTC and small-cap cryptos
  • What does this mean for BTC and the health of the crypto market as whole? Can these Risky Whales “fake it until you make it” all the way out of a bear market and initiate the next bull run? Here is where it gets interesting; to lay out the Ikigai argument, Travis will elaborate on three separate but interrelated topics: 1) Reflexivity; 2) The Marginal Buyer & Seller; 3) The Damage of Punishment


  • Coined by George Soros, reflexivity is the theory that a two-way feedback loop exists in which investors’ perceptions affect the market environment, which in turn changes investor perceptions
  • Reflexivity is more present in crypto than any other asset class, because crypto derives more of its value from Network Effect than any other asset class
  • The more people are aware of, own and use BTC, the more valuable it is; if the world decides BTC is worthless and walks away from it, then BTC price can collapse to zero
  • Because Network Effect drives such a significant portion of the value of cryptos as a whole, higher prices beget higher prices, and lower prices beget lower prices; the collective market is constantly reevaluating the future potential adoption of crypto and price action has a large impact on this calculus
  • Reflexivity in crypto means prices tend to snowball — both to the upside and the downside; we have seen this play out multiple times in BTC’s 10-year history
  • Ending a bear market and the related negative reflexivity of prices can come from a marginal buyer that is willing to ignore the circular implications of lower prices begetting lower prices and provide an exogenous shock of sorts — a bucket of buying thrown on a fire of crashing prices
  • Oftentimes, such as in February, this exogenous shock of buying is accompanied with a string of positive fundamental news events — Jack Dorsey pumping BTC, FacebookCoin, JPMorgan Coin, Cambridge Associates report, global resumption of Quantitative Easing; the combination of which is enough to get the reflexivity moving back to the upside, and quickly begins gaining reflexive momentum back up

The marginal buyer & seller

  • The price of an asset at any given moment is where a buyer and a seller agree to exchange the asset
  • But that looks different in crypto, where most assets outside of BTC and ETH are highly illiquid; market depth is so shallow, the relationship between buyer, seller and last price is distorted relative to traditional, more liquid markets
  • As such, when prices are reflexively spiraling down, all it takes is one seller to have a slightly more bearish view on the ever changing value of Network Effect for prices to continue making lower lows
  • The same is true to the upside; it is not the entire market that needs to decide prices should be higher, just one marginal buyer willing to have a slightly more bullish view on the ever changing value of Network Effect; one marginal buyer with a slightly higher risk tolerance; or importantly, the illusion of a marginal buyer with a slightly more bullish view or higher risk tolerance, to move prices continually higher
  • Risky Whales may be providing that illusion as we speak

The damage of punishment

  • Markets get overbought and oversold all the time; oscillators like RSI, stochastics and Bollinger bands have been utilized for decades to understand when markets have gone too far in a bullish or bearish direction and a reversion to the mean is due
  • Over the last year, these reversions often happen suddenly and swiftly via “stop runs” — 10% moves in an hour are witnessed many times a day; by any measure, crypto prices are overbought right now, and a reversion is due; during much of 2018, these reversions would show up all of a sudden, with prices crashing violently lower
  • These crashes are damaging to investor psychology and in turn damaging to reflexivity and damaging to the marginal buyer
  • Risky Whales, who were rewarded during much of 2018 by slamming the market lower with shorts and inducing capitulative, high volume selling, allowing them to scoop up BTC at rock bottom prices, are well aware of how precarious this rally in crypto is — after all, they manufactured it
  • Those Risky Whales likely made good returns shorting the market in 2018 and accumulating BTC at low prices, but the profits available for that type of chicanery were dwindling — volumes and volatility were drifting lower and retail investors were leaving the space entirely
  • A new violent slam lower at this point, to go retest the lows or make new lows, would be so damaging to the precariously positive reflexivity that Risky Whales have manufactured year-to-date, that the negatives of such a move would likely outweigh the profits made on the short

What are the chances that we have bottomed?

We also had the pleasure to host Travis on the second episode of our Tokyo FinTech Podcast. If you are interested in hearing more from Travis, please check it out.

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Norbert Gehrke

Norbert Gehrke

Passionate about strategy & innovation across Asia. At home in Japan. Connector of people & ideas.

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