RECAP: 2018 FOX Autumn Global Investment Forum

Presenter: Matt Hougan, Global Head of Research, Bitwise Asset Management Session Description:  Cryptocurrencies like Bitcoin and Ethereum get headlines, but is there really any “there” there? This session took a hype-free look at what cryptocurrencies are, how they work, and why some people are so bullish about their long-term potential. The session also covered the biggest risks to the cryptocurrency experiment, including regulation, fraud, market fragmentation, and market manipulation.

Key Takeaways: 

• The bottom line is cryptocurrency is not going away and you need to understand it.  The hyperbole doesn’t help; if you may want to invest in it, you definitely need to understand the risks.  

• Crypto 101: Crypto allows for digital, peer-to-peer transactions without a central authority. It provides quick, immediate settlement, minimal fees and no “rent-seeking” middleman. Uses blockchain with a “proof of consensus” protocol, creating a uniquely secure database of the transaction.  

• Crypto 201: There are three ways to look at crypto currencies. Thesis 1 - Cryptocurrencies offer a store of value. Just as with gold, early on, stores of value are volatile. Stores of value are a large market (gold, art, off-shore assets).  Thesis 2: Reinventing financial services by simplifying transactions and eliminating middlemen, enabling fast, secure transactions at a lower cost. Thesis 3: Creating a new business model for, for example, securing file storage. Blockchain enables file hosting in a secure, low cost way.   

• Crypto 301: Role and risks of cryptocurrency in a diversified portfolio. Though data is limited, Bitcoin has exhibited low correlations to traditional asset classes historically. A study of performance over the last four years shows crypto may be able to increase the risk-adjusted return in a diversified portfolio (but data is limited).   

• Crypto 401: Blockchain vs. cryptocurrency – ‘“Private blockchain” is just a confusing word for a shared database -- Arvind Narayanan, Associate Professor of Computer Science, Princeton University. The market is changing rapidly for cryptocurrencies, with over 2,000 cryptoassets. As we don’t yet know the winners in cryptocurrencies, there are benefits in diversification as the space is evolving rapidly and multiple cryptoassets and blockchain have interesting features.  

• Crypto 501: Risks to consider: crypto is like an early-stage venture capital investment, but liquid and repriced daily. There are high potential returns, high volatility, high risk, and a multi-year return horizon. Important to understand custody. Regulatory environment is unfolding and evolving rapidly. Conclusion: underselling technology is usually a bad bet.  
   

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