Cryptocurrency And Innovation
Crypto has exploded in popularity in recent years, and a lot of the noise in this space centers around the price—is it going to the moon? Is it going to crash and burn? Personally, I feel this is the least interesting thing about crypto.
When The Strategic Funds first started looking into the crypto space, we were interested in harnessing the very real innovation that’s taking place within the space, which seems to be mirroring the way fintech moved in the early 2000s. First came the internet, then we started moving from physical banking to online banking, then came the rise of smartphones, and here we are today. While not every crypto project we see today will meet these requirements for disruption, crypto is a fast-evolving space of innovation that’s meeting a need in a very large, global industry.
Historically, innovation has been one of the largest wealth generators—from the invention of the wheel to the production of oil—innovation has a huge value, and if you’re in the right company at the right time, that means major returns.
As a wealth manager or investment advisor, when talking to clients who know nothing about crypto but are interested in investing in the space, its critical to explain crypto’s penchant for volatility – without confusing volatility with risk. If you look at crypto as an emerging technology and drill down into the technologies and fundamentals that enable it, you can have a great case for a long-term investment. But you must be really clear—especially with investors who are used to traditional assets—about the drawdown and volatility that can come from investing in a new asset class.
I’ve seen articles suggesting that you should look at crypto like gold, or like a hedge, but in my view, it’s more like venture capital in that you have to mark that price, and expect the high volatility. Some products are going to do extremely well, and some won’t make it, so you have to explain to investors why it’s smart to make crypto investments 2-5% of their portfolio as opposed to 50%.
Crypto is really exciting, because in an environment where everyone is fighting to generate alpha, crypto can provide a way to actually get that alpha. But these investments need to be done with a manager who really understands the subsectors of this space and understands the technology. There’s a huge opportunity here, and I think investors who can’t get answers from their investment advisors on this topic are going to end up leaving.
Nikolas Joyce is chief investment officer at The Strategic Funds, where he brings 20 years of experience designing quantitative investment research infrastructure and systematic trading platforms using leading edge technology.