Ari judges market pricing efficiency by the percentage of the market that is institutional money (higher = more efficient). Crypto in early 2021 is c. 3% institutional money.
Options are wildly mispriced.
Believes we are in the bottom of the 7th inning of the latest crypto bull market.
Oct - Dec 2020 was clear bull market for Bitcoin driven by institutional adoption. Early 2021 is alt season, as we generally see the following flow:
- Fiat > Bitcoin...Bitcoin rises
- Bitcoin profits > Alt coins...Alt coins rise
- ...and in reverse on the way out
Don't blow up; don't care about missed opportunities (great new ones come each month).
Key portfolio concepts
- Liquidity (listing on major exchanges) enhances opportunity size
- ...
Viable crypto use cases in the next 3-5 years (investment areas)
[1] Bitcoin as digital gold / store of value
[2] Decentralized finance — in its simplest form this is just decentralized exchanges (24/7 transactions, non-fragmented liquidity, true global instant liquidity)
- From this will come collateralized lending (already at scale)
- Non-collateralized lending (much harder problem, still in experimental phase)
[3] Digital art and collectibles (NFTs) — all major IP owners are racing to get involved due to success of NBA Top Shot
- Over next 3 years will see NFT space grow 100x in size
- Challenge as investor is that this will be horizontal growth...lots of IP coming onto blockchain, but unclear what specific assets will 100x i.e. who will be winner
- What will accrue the value? Platforms — will compete (as dealers) and will do well, but with small profit margins due to competition. Gaming — still early in crypto games but large economy to become NFTs (e.g. WoW sells billions per year of gaming collectibles which are not NFTs because they exist in the WoW walled garden...but they could become NFTs and thereby become decentralized and portable)
- Includes gaming — NFTs already exist at scale in gaming (e.g. WoW items), but they are within walled gardens of games; could increase in value if they became portable
Don't care at all about missed opportunities because there are new compelling opportunities every 1-3 months.
Most of the top 10 endowments have invested in crypto funds. Three of the largest endowments directly own crypto.