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Capital Allocators Podcast

A few weeks ago I had a chance to sit down with Ted Seides who runs the awesome Capital Allocators podcast to chat about Starkiller, our strategy, how I ended up in quant finance to begin with, and some interesting stories along the way in fintech. I've been a listener of Ted's for quite a long time so when he asked me to come on it was huge thrill.

I think the conversation we had is specifically relevant now more than ever in this phase of the market where so many crypto investors and funds have been decimated by HODLing beta, something the momentum and trend following models we employ are designed to avoid. We're currently entrenched in a market regime where the "casino" is closed, there's very little new retail capital flowing into the asset class, and given the lack of intrinsic value of many of these assets investors are questioning whether or not there is any value at which there is some margin of safety to hold them. In this environment anyone actually managing risk shoots first and asks questions later, because unlike the S&P 500, these assets can go to zero, they are not really intrinsically tied to the long run growth of the economy. This is all rational behavior, and behavior we've seen through several previous crypto cycles.

But while that all may be true, the drawdowns in major crypto assets are starting to approach levels where if we see a serious capitulatory event, it does make sense to be ready with a list of assets you believe will survive and grow during the next cycle. Historically if you can identify those at even a 50% hit rate (the other 50% going to zero) after the overall market has drawn down 70%, the returns are spectacular. While there may not be much in the way of intrinsic value to these assets, the user adoption and retention metrics for these chains and protocols give us the ability to separate wheat from chaff enough after looking at our cross-sectional momentum models. While no one knows how long this bear market will last, we don't see the underlying fundamentals for a crypto "winter" where early stage investment dries up and devs stop building. While a good portion of this drawdown in crypto markets is macro driven, it's also taking place along side, and because of, a fundamental issue in the ability to scale transactions on major chains at reasonable prices and speeds. We've hit a plateau in the actual technology, and it's going to take builders upgrading the core technology to set off the next wave of major adoption, which will set off the next major upswing in asset prices.

I pity the person who doesn't believe those things will eventually happen. We've been through many cycles like this already, this one is no different. Literally every person who has called the death of crypto prior to this has been wrong. They are wrong again now.


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