Flipside Crypto News

Want a Gig in Crypto?

Two freshies for ya

Crypto Index Content Marketer

The right individual will:

  1. Snort crypto daily.
  2. Write like George Saunders.
  3. Market like Seth Godin.

Full role here

(seriously if you exist I would adopt you).

Flipside Crypto Client Relationship Manager

The right individual will:

  1. Inhale only the kindest crypto (but mostly after work).
  2. Cradle accredited investors in their hands, like Marie Kondo.
  3. Hustle, shuck and jive.

Full role here

Playing Ball With Bitcoin’s Volatility

Tom Seaver’s MLB Stats May Be Your Answer

Tom Seaver spent two decades as an MLB pitcher, picking up three Cy Young Awards and an induction into the Baseball Hall of Fame. Among other things, the twelve-time All-Star is known for consistently impressive stats over his long career. On sustaining these numbers, Seaver said:

“My theory is to strive for consistency, not to worry about the numbers. If you dwell on statistics you get shortsighted, if you aim for consistency, the numbers will be there at the end.” — Tom Seaver

Seaver’s advice might just be worth considering for those of us waist deep in the world of crypto investing. While difficult to do, dwelling too much on short-term price movements can distract us from a steady focus on the long-term potential of this space.

But with so much erratic price behavior how are we supposed to keep our eye on the ball?

The Reality of Volatility

Let’s start with an unavoidable fact:

Cryptocurrencies, including bitcoin, are volatile. Really volatile — at least for now.

In 2017, bitcoin was up over 1,300% but also experienced five corrections of 30% or more. While price movements this year haven’t been as stomach-churning, crypto markets remain unpredictable. As CoinDesk recently reported, bitcoin had an inter-day trading range of greater than $1,000 more than 40 times in the first four months of 2018 alone.

So, what’s causing the wild price swings?

As is the case with most investing, there’s not a clear or definitive answer to why prices move in a certain way. What there is, however, are a number of factors we know contribute in some degree to bitcoin’s volatility.

The most important of these factors is that crypto is such a new asset class. With much untested and a lack of clarity around the rules, it makes intuitive sense that bitcoin’s price would be volatile. Compounding bitcoin’s “newness” is that unlike investing in a business, with bitcoin there is no balance sheet to analyze, revenues to measure, or CEO to scrutinize. The result is that determining the fundamental value of bitcoin can be more subjective than with other investing.

But we are learning more and more about the price activity of bitcoin and other cryptocurrencies, and while no one knows exactly what causes each big price move, here are three factors that have been contributing:

1. Futures Activity

Bitcoin futures started trading a week before its price reached an all-time high on December 17, 2017, and many have linked the price volatility that followed with the launching of these futures.

There was a lot of excitement about bitcoin futures leading up to the December launch, which contributed the price appreciation, but once they were launched some speculate that certain large investors decided that purchasing futures was better than holding the underlying bitcoin, causing — or at least contributing to — the early 2018 sell-off.

Because bitcoin futures are only a derivative of the underlying asset, more futures activity doesn’t directly correlate to more people purchasing bitcoin, which is why it’s hard to know the exact impact of futures trading on the bitcoin price.

It’s also important to remember that there is no agreement on the impact of futures on the volatility of an asset.

Some believe the use of derivatives (i.e., leverage) can accelerate losses in a downturn, while others believe futures activity lowers volatility because it increases overall liquidity in the spot market for the asset. Bitcoin’s volatility has in fact been lower in the last few months, a sign that the latter might be true for bitcoin futures.

2. Exchange Security

Remember Mt Gox? Yea, well so do most other cryptocurrency investors. This means that any time one of the many crypto exchanges is hacked or has a public security breach, people fear the worst and often run for the exits, or at least trim back their crypto holdings. This really isn’t solely about exchanges, as any bad press about a crypto hack or theft–regardless of where and how it occurred–can make investors want to sell.

Exchange security is improving which will hopefully give investors more confidence in the safety of their crypto holdings going forward.

3. The Big Guys

While bitcoin’s market cap (~$110 Billion) has grown at a rapid rate, it’s still a very small market compared to other markets (e.g., there’s north of $7 Trillion in the world’s gold supply).

What this means is that hedge funds and other big investors can move the price with large buy and sell orders much more easily than in other markets. There is nothing illegal or unethical about purchasing or selling large amounts of bitcoin, but it’s a different story if there are participants involved in manipulative activities such as collusion or creating fake orders to move markets.

Fortunately, as with illegal trading practices in other markets, the regulators take this very seriously. Currently, the US Justice Department is looking into possible criminal activity around trading bitcoin, and it’s important that bad behavior is identified and punished if these markets are to develop.

It’s also important to note that crypto investors to date have been primarily individuals, which has also contributed to volatility. As more institutional investors put their money to work in the space, most people believe there will be less volatility given the long-term investment horizons for these large players.

Batter Up

There many factors that contribute to the rise and fall of bitcoin’s price. Things like geopolitical events, government actions to regulate or ban cryptocurrencies, and of course negative press reports around anything crypto-related.

While it’s important to not let short-term volatility distract, it’s equally important to try and understand where these price movements are rooted. Volatility in itself is not a bad thing and certainly can create opportunities for savvy investors.

At the end of the day, investing in this industry will continue to require diligent research, data analysis and maybe, above all else, patience.

We are, after all, still in the early innings.

Back to the Futures: Crypto Investing Looks Forward

Back to the Futures: Crypto Investing Looks Forward

As the price of bitcoin was about to hit an all-time high last December, announcements from the CBOE and CME Group gave crypto investors something else to be excited about. The two firms announced their commodities exchanges would soon offer the trading of bitcoin futures.

While this was an anticipated action by those following crypto developments closely, it was certainly a monumental step in the short history of crypto investing. Having reputable, established exchanges commit to trading these assets is a big deal.

But what exactly does this mean for crypto investors? Are futures the way of, well, the future?

Old is New Again

Futures contracts allow investors to buy or sell an asset at a set price – yeah, at some point in the future. Buyers are legally bound to pay for the underlying asset at the expiration of the future, while the seller is bound to sell that asset. These legal agreements are standardized and then traded on exchanges such as the CBOE. Most often, investors utilize futures to hedge the risk that a particular asset will significantly rise or fall in price down the road.

The concept behind futures is not new–there have been binding agreements to sell assets at set future prices since ancient times–but futures contracts have more recently become an important tool for investors to address down-the-road price fluctuations in a variety of assets. Like with any other type of derivatives trading, it’s important that investors are comfortable with the inherent risks that tag along with these types of investments (e.g., leverage).

Enter Bitcoin

The exchanges’ decisions are additional signs that the days of sophisticated investors getting queasy over hearing the words “cryptocurrency” and “investing” together are coming to a close. Futures have been understood and utilized by these investors for decades, so applying the use of these types of financial contracts to bitcoin makes intuitive sense. But, of course, bitcoin is still viewed as being extremely complicated thing to understand.

So how exactly will these bitcoin futures work?

The short answer is that bitcoin will be treated just like any other type of underlying asset. The prices of bitcoin futures are based off the bitcoin price, just like the futures for stocks, bonds, commodities or other tradeable assets. Like any other type of futures contract, bitcoin futures will be regulated by the Commodities and Futures Trading Commission, which has jurisdiction over US commodities markets. All that’s needed now for investors to buy these instruments is a registered futures broker.

Bitcoin is currently the only cryptocurrency with a tradeable futures product in the US, but it’s quite possible this may change in the future (futures contracts for Ripple’s XRP and Ethereum’s ETH are currently traded in the UK). Time will tell.

Not surprisingly, there are skeptics with concerns about the introduction of bitcoin-related derivatives. The Federal Reserve Bank of San Francisco recently released an opinion that the introduction of bitcoin futures impacted the price of BTC in a manner similar to the “rise and collapse of the home financing market in the 2000s.

But while skepticism should be expected, the reality is that the trading markets for crypto assets are developing a fast clip. Look no further than Goldman Sachs recently announcing it would start trading bitcoin futures, or this week’s New York Times article about Susquehanna International Group’s crypto trading operations — or even recent press reports about Fidelity Investments expanding in the space.

While crypto trading volumes remain low compared to traditional assets, the actions of these firms–and many others–seem to be indicating that this all could soon change.

Bad Intentions

Christopher Lloyd, playing mad scientist Doc Brown in “Back to the Future,” warns Marty McFly about the dangers of having information about the future:

Even if your intentions are good, it can backfire drastically!

For bitcoin investors, the future shouldn’t seem so scary.

As new investment products continue to be developed, more is understood about the risk/reward trade-off with crypto assets. Exchanges deciding that they will offer cryptocurrency futures means that more credibility is arriving to an area that has struggled to be viewed in a positive light by both regulators and sophisticated investors.

There will no doubt continue to be uncertainty as these markets develop. What is certain, however, is that crypto investing won’t be going back in time anytime soon.

Seeking: The Generally Unskilled but Ridiculously Crypto-Obsessed

Flipside Crypto is seeking someone with little experience, but a whole crap ton of obsession with cryptocurrency.


  • Are pretty awesome. But in a humble way. Like awesome-humble. Either way, most people will think you’re the absolute best.
  • Must communicate in short sentences. Should also (limit parentheticals) while minimizing big eviscerating words.
  • Have to be driven to learn. Without directions. Like, no google maps or anything like that.
  • Are digitally adept. What? No, not like yo-yos and patty-cake. Gawd. Seriously, like at turning on a computer.
  • May be hilarious. I just said that without smiling. Like, you could tell how funny that was just by looking at my face. I can move one eyebrow at a time.
  • Aren’t afraid of numbers. Personally 8s scare me.
  • Often ponder the wonders of marketing, especially when you find yourself buying a Squatty Potty or a Slap Chop.
  • Possibly are cheating on your significant other due to your relationship with cryptocurrencies.

We don’t really care if you went to college — we care if you have the maturity and drive to deliver responsibly, soak up new knowledge and generally kick ass.

Find us at hello@flipsidecrypto.com if you want to talk.

Facing the Fear Factor: Talking Crypto with Clients

Many financial advisors understand cryptocurrencies but are afraid to broach the subject with clients for fear of being laughed out of the room. There are, however, practical ways to ignite real conversations about this emerging asset class. 

In times of great technological change, there is never a shortage of naysayers.

We’re all familiar with these folks, quick to dismiss new technologies as “passing fads,” ill-conceived creations that have “no practical applications” or are “fatally flawed” in some way.

Our past is littered with quotes from naysayers. In 1964, Darryl Zanuck, the head of Fox Studios famously made a bold prediction about television:

Sorry Darryl, but my entire childhood would have to disagree.

No group is more familiar with naysaying than tech investors. Think back to Google being derided for not having a sustainable model because of its lack of cash flow. Amazon, Netflix and Facebook all faced this same sort of short-sightedness, and it continues today, just as it will tomorrow and the day after.

For all the doubters, however, there are plenty of folks on the other side, those that see great opportunity in new technology. Nowhere is this truer than in the cryptocurrency and blockchain space, which is presenting real opportunities long-term investors can no longer ignore.

But how can investment advisors and wealth managers — as stewards for individual investors — have serious conversations about this new technology? The terminology alone–hash functions, cold storage, proof of work­–is in itself a challenge. And what about all the price volatility, the hacks, the nefarious underworld activity? How should advisors approach these difficult conversations with clients?

We’ve been thinking a lot about this, and just recently put together a detailed guide that addresses many of the questions we continue to get from financial advisors.

In the guide, we recommend three simple ways advisors can approach these conversations:

1. Focus on the Past

First, ask your clients to flash back to what they thought of Google et al. ten years ago. Then ask them what they think of these tech giants now.

A much different story I’m sure.

It’s important to encourage your clients to think about where these companies once were, and how today they have become mainstream components of any investment portfolio.

The biggest winners were the investors with the foresight and the appropriate risk tolerance to invest in these companies early. Asking your clients to think about cryptocurrencies and blockchain in the context of past innovations will help put them in the driver’s seat with a comprehensible framework for how this new industry will evolve.

2. Specificity is King

It’s also important to focus on real cryptocurrency and blockchain use cases, which will help your clients recognize the potential endgame.

  • A lot of advisors understand the basics of cryptocurrencies and blockchain, but they don’t know enough specific examples to understand the sector’s end game. For example, value investors might have a hard time thinking of bitcoin and other cryptocurrencies as anything more than a non-cash flow generating inflation hedge.
  • Using real life case studies can help demonstrate that blockchain technologies offer distinct advantages for businesses and governments. These include tracking supply chains and collectibles, vote auditing, land registries, creating local or product-specific currencies and much more. Cryptocurrencies are the way forward to capture value from these new blockchains.
  • Another way to drive this point home is to compare crypto assets to more liquid versions of the shares that are held privately for early-stage startups. Cryptocurrencies allow access to an asset class that previously was almost entirely network-based and insider-based. Imagine investing in Facebook early on as opposed to during the IPO–which would have been the difference between making a billion-dollar return (as in Peter Thiel’s case) and merely making a few thousand.

In other words, there’s an endgame that goes way beyond virtual gold for this new asset class. Being specific about uses of the technology will help support its attractiveness as an investment.

3. Identify a Framework

Finally, talk to clients about a systematic way to evaluate new blockchain and cryptocurrency projects without the hype of short-term price fluctuations.

A framework for evaluating projects might include the following:

  • Consider the team: Are there strong business, design, and technology players in the space? Do they have proven track records for building impactful companies?
  • Consider the funding: Have they raised a traditional round of venture capital or are they associated with a high-prestige accelerator in the crypto realm (e.g., Consensys)? These are both strong positive signals.
  • Consider the business model: Does the landing page and whitepaper describing the project simply explain a viable business model and a realistic paying customer?

That said — even with the above roadmap — there’s more noise than you can shake a stick at in the crypto space. Telling the chaff from the wheat is no easy task. If you’re overwhelmed by the noise, start focusing on 3 core fundamentals:

  1. Is the asset mature enough to respond to effective trading strategies?
  2. Are developers building on the blockchain itself (follow the developers, right?)
  3. Is the token actually being utilized? This can’t be overstated enough — there isn’t a business that can succeed without actual customers.

It might go without saying that investing in cryptocurrencies at this point isn’t for everyone. If you’re an advisor, you should make sure you understand your client’s overall risk tolerance, comprehension of the utility of the technology, and comfort level with volatility.

And there are certainly a lot of other factors–the regulatory environment being a big one–that shouldn’t be ignored.

There is no escaping the fact that the blockchain and cryptocurrency sector still has a lot of risks. However, there is a way to paint a picture of the upside while reasonably managing expectations on the downside (e.g., focusing on projects that are going to create long-term value and avoid those with scanty thinking about their business model).

Fear shouldn’t be driving client conversations about investing in the crypto space and the voices of naysayers should only be part of the discussion. As more investors become educated about cryptocurrencies and blockchain technologies, conversations should be focused on separating the good from the bad, not about avoiding the space all together.

For a free 30-page eBook on cryptocurrencies click here.

Don Quixote and the Benefits of Basket Investing

Investing in baskets is a convenient way to access the crypto markets and most importantly — diversify holdings.

“Don’t put all your eggs in one basket” is one of the most common, if not overused, phrases in the English language. Its origins, however, have been attributed to a sentence in the Spanish classic Don Quixote. The translated line from the novel: “It is the part of a wise man to keep himself today for tomorrow, and not venture all his eggs in one basket.”

It’s unknown if this was indeed the first use of the phrase, but regardless the statement is sage advice. The quote is particularly relevant for investors — maybe few more so than those entering the alluring world of cryptocurrencies. Fortunately for these folks, there are emerging ways to diversify hundreds of crypto “eggs” into multiple baskets.

Weaving Baskets Through the Crypto Maze

Basket investing isn’t a new concept, and really is pretty simple. By grouping together similar types of assets, investors can bet on a broad index of related assets or one cluster of investable assets from a specific industry, part of the world, or market capitalization (e.g., mutual funds or ETFs focused on specific sectors or geographic regions).

According to Coinmarketcap.com there are currently 1,628 crypto coins and tokens in circulation, and if the current growth trend persists there will soon be more cryptocurrencies than stocks traded on the NYSE. There are cryptocurrencies focused on user privacy, stable coins pegged to the value of traditional assets, and tokens focused on smart contracts. There are China-focused coins, cybersecurity coins, and healthcare-related tokens. It’s a lot to process.

In the world of crypto assets, basket investing follows many of the same principles applied to traditional funds. By bucketing cryptocurrencies into groups based upon the purpose of individual coins and tokens (see this postfor more on the differences between crypto assets), investors can bet on the use cases for crypto/blockchain technology they think have the most promise. If an investor wants broader exposure to crypto assets, there are also baskets with selected coins and tokens covering a diverse variety of use cases and functions.

Given that over 100 million individuals invest in mutual funds, significant regulatory oversight is a good thing. But we’re not there yet with crypto, and while regulators continue to monitor the use of cryptocurrencies, it will take time to determine what differences–and similarities–exist between this space and traditional investing.

Tisket Tasket, Careful With That Crypto Basket

It might seem as if anyone could just throw together a bunch of cryptocurrencies and say they are basket investing.

Good friggin’ luck.

Trying to learn about each and every available crypto asset is damn near impossible, and because no one is an expert in every field, it’s difficult for an individual to uncover where exactly opportunities exist.

The reality is that because there are so many coins and tokens, picking ones with a future is very complex. The key to basket investing is combing robust data analysis and modeling with effective diversification. Arbitrarily buying a bunch of coins focused on decentralized storage or fintech simply won’t work.

That’s not basket investing. That’s guess work. That’s spray and pray.

That’s a sure way to weave a bunch of losses.

Diversifying into Crypto Baskets

We believe in basket investing because we know how difficult it is to understand each and every coin and token out there and, as with any investing strategy, it will only become more complex to pick individual winners from losers.

But more importantly, we believe diversification is a fundamentally sound investing strategy — and as important with crypto investing as with other types of investing, and having experts do extensive research will lead to better outcomes.

At Flipside, we develop baskets by evaluating cryptocurrencies using proprietary algorithms that measure maturity, developer behavior and utility. Frankly, we rarely read whitepapers or even study the team. We let the data be our guiding light.

We also spend countless hours backtesting our strategies and providing results to our investors. Our Horse Race Backtest leverages the abundance of available data to help us determine what assets will perform over time, comparing results to top 10 market cap weightings, the Coinbase Index, S&P 500 and other options.

So how do we provide basket investing for retail investors? Two options:

  1. First, for the crypto-curious person looking for long-term exposure to these assets, we offer a basket of the Flipside Index: a diversified, minimally-correlated basket of crypto coins and tokens. This is a particularly good option for an investor new to this space, who probably doesn’t have the time, patience, and resources to research these assets, and certainly doesn’t want to take a scattershot approach to buying into cryptocurrencies.
  2. Second, for someone who has specific interest in a particular sector, industry, or realm of crypto technology, we utilize basket weaving technology to offer countless basket themes and variants. Think the best use case for crypto is decentralized storage? There’s a basket for that. Think the future is fintech, proof of stake, privacy coins? There are baskets for those as well. The key is that Flipside baskets are all based on technical analysis — so you can diversify into baskets knowing that the underpinning metrics are sound.

An Ongoing Crypto Journey

In Don Quixote, the protagonist sets out on expeditions through Spain, completing various deeds along his adventurous quest. Most of his acts are motivated by an altruistic desire to make the world a better place.

At Flipside, we share some of this starry-eyed optimism for the future and believe crypto is changing the world for the better. But we also recognize that different motivations, as well as evolving iterations of the technology, have led to a growing list of use cases all over the map.

Some of these are proving worthwhile, some are showing future promise, and some are just outright terrible. It will no doubt take time for the good, bad and ugly to shake out, and uncertainty will be the norm as regulators wrap their heads around what they should (and shouldn’t!) be doing in this space.

As the crypto markets develop over time, it’s very likely crypto baskets will become available via traditional brokerage houses, in the same way these brokers currently offer fund and ETF products.

Regardless of the current uncertainties, a future of investors having access to baskets via their brokerage accounts will be truly transformative.

How ‘bout them eggs?

Crypto Horse Race: Using Data Analysis to Separate Winners from Losers

With the Kentucky Derby in the books, horse race fanatics are setting their sights on the upcoming Preakness and Belmont Stakes–the two summer races completing the Triple Crown.

We’ve been thinking about horse racing too, albeit less about pedigrees and stride lengths, and more about evaluating performance. Specifically, in the race to generate positive returns on crypto investments, how can one analyze past performance?

Backtesting performance is nothing new to investing. In traditional markets (i.e., non-crypto), investors measure portfolio performance in two main ways. First, by looking at absolute performance, a measure of how much a stock appreciates or depreciates over time. This is most often done by looking at standard deviation, a common metric for a stock’s volatility.

Second, investors consider relative performance. Looking at performance on a relative basis essentially means comparing a stock’s rise or fall to that of a similar stocks or group of stocks (e.g., an index like MSCI). Tools such as tracking error and the information ratio are common ways investors measure relative performance.

It’s obviously important to know a stocks absolute performance, but relativeperformance is really what provides insight into whether there is value add in a stock-picking process. The return that is generated over the index return–aka alpha–is how portfolio managers demonstrate they are picking the right stocks. Alpha, when generated within an investor’s risk constraints, is how portfolio managers prove their worth.

But how can we measure relative performance in the crypto space?

It goes without saying that measuring crypto asset performance is far less developed, but there are tools emerging that allow investors to determine how their crypto picks are performing against the broader markets. For example, Coinbase has a market cap weighted index fund that gives investors exposure to the assets listed on its exchange, and Bloomberg recently launched their own benchmark index that will compare the performance of ten digital assets.

While these indices are helpful, we’ve been concerned that there really is a lack of sophisticated approaches to actively invest in crypto assets. Technical analysts in the stock market look at historical price and other factors and then use quantitative tools determine a stock’s trajectory, and we think the same type of rigorous research should happen with crypto. In other words, what if we apply serious technical analysis to the available data, and see which digital assets come out on top?

The HorseRace BackTest

Which brings us back to the racing analogy. The sum of our thinking over the last several months resulted in a backtesting methodology we call the “Horse Race Backtest.” Here’s how it works:

We first observe the potential range of returns for our baskets of crypto assets by considering three investment alternatives: holding BTC over the long-term; holding a market cap-weighted investment in the Coinbase Index; and holding an investment in the 10 largest crypto assets.

Next, we evaluate each of these three alternatives against the performance of our own portfolio over a 70-week period. The reason we use this time period is in part due to the increasing breadth of cryptocurrencies that have emerged and developed track records in 2017. In addition, we wanted to capture performance of these alternatives through the bear market in early 2018. Not surprisingly, even going back just 70 weeks the crypto landscape looks dramatically different–a factor we took into consideration as we developed our methodology.

Finally, we document rolling average monthly returns for our portfolio and the three alternatives. It’s probably also worth noting here that even when using this type of technical analysis, we focus heavily on the fundamentals of an organization when choosing crypto investments.

Here are the performance results from running the backtest shortly after May 1st, 2018.

We fully appreciate that this time period has been unique in the short life of cryptocurrencies. With all the crypto-promises being made and broken out there, we want to emphasize that these eye-popping numbers need to be viewed through a prism of reality that takes into consideration this being a very new asset class that’s untested in many ways (i.e., no need to fire your stock market portfolio managers). And as with any type of backtesting, previous results never guarantee future performance. But you knew that.

What’s more important to remember here is that by sifting through all of this data, opportunities to separate the crypto winners from the losers do exist. This isn’t a new development–technical analysis and quantitative principles are applied to actively managed stock portfolios all the time–but there is no doubt a lot being learned in real time about the behavior of the crypto markets.

Unlike an actual horse race, which of course is very speculative, with the right tools it is possible to make some sense of the crypto markets and ensure that you’re not left completely guessing about where to put your money.

Going for (Digital) Gold: Will Crypto ETFs Ever Make it to the Podium?

Cryptocurrency ETFs have been getting the Heisman from regulators. Should investors start looking for other options?

It’s safe to say that the Winklevoss Twins are currently America’s most famous pair of identical siblings (sorry Mary-Kate and Ashley).

The Harvard grads turned VCs first gained notoriety from their 2004 suit against Mark Zuckerberg over claims the Facebook founder stole their social network idea. They didn’t let the suit distract them from athletic endeavors, and in 2008 both represented the United States as rowers in the Beijing Olympics.

But while their athletic achievements are impressive, and the Zuckerberg settlement nothing to sneeze at, probably their biggest win to date was turning their energies to Bitcoin in 2013.

Crypto Twinning

The twins were some of the first large investors in the cryptocurrency space, particularly focusing on the development of products for investors. Their early entry into crypto led to significant wealth accumulation, but in March of last year, the duo received some bad news. Their four-year quest to launch a bitcoin-focused ETF was rejected by the SEC.  

In its response, the SEC found that the Winklevoss ETF–proposed to be listed on the Bats BZX Exchange–would not comply with current market structure laws aimed at protecting investors and preventing “fraudulent and manipulative acts.” In other words, the SEC believed there was just too much uncertainty and risk surrounding bitcoin to allow investors access to the registered funds it oversees.  

The SEC followed up in January of this year with a letter that both reiterated these concerns and also raised a number of questions around liquidity, custody and valuation issues unique to cryptocurrency vehicles. Because of these outstanding questions, the regulatory agency asked that applications for crypto ETFs be withdrawn.  

Actions like this have led to rising concerns in the crypto community over whether this emerging asset class would ever be taken seriously, and the SEC’s rejection left many of us wondering about the future of crypto assets. Would regulatory fear and uncertainty make it increasingly difficult to attract investment in this space? More specifically, are cryptocurrency ETFs DOA?

Well, not really.

The regulatory foot-dragging and hyper-scrutiny is not surprising in such a new form of investment, especially one that has evolved as fast as crypto. Rightly so, the regulators are asking a lot of questions.

While no one knows for sure what will happen with crypto ETFs, a little history can help us understand why there is investor demand for the type of pooled investing that ETFs can offer.

ETFs, Then and Now

The first ETFs were launched in the US in the early 1990s, at a time when sophisticated institutional investors were in search of ways to use diversified pools of assets to help implement increasingly complex trading strategies.

In the early 2000s, new ETF products were popping up left and right, covering a variety of asset classes, geographical regions, and management styles. Today, the ETF market has grown to well over $3 trillion in assets. 

There are a number of factors that have made ETFs popular over the years–ready liquidity, accessibility, and favorable fee structures to name a few. At the core, however, ETFs are really about diversification.

With roughly 1,500 crypto coins and tokens now in circulation, it makes sense that investors would want to find ways to diversify their crypto holdings in a manner similar to ETFs. And many investors were excited over the prospect of being able to have a liquid, publicly- traded fund of crypto investments.

Double Time Product Development

But a lot has changed since that first Winklevoss ETF filing in 2013. While it may have been assumed five years ago that ETFs were the best way to diversify crypto holdings, there are now more and more emerging options.  

For instance, there is an increasing amount of data available to investors, as trading volumes rise, currencies build track records (BTC reaches its 10-year mark in 2019!) and systems are built to monitor, analyze, and disseminate information to the public.

Beyond the data availability, there have also been significant product developments in the crypto markets. In the public realm investors can buy shares of the Bitcoin Investment Trust (GBTC), a fund traded over-the-counter that seeks to track the performance of bitcoin, and more similar offerings are being considered.

There are also several types of private funds, hedge funds and even fund-of-funds as well. Many of these vehicles require participants to be accredited investors or are targeted to institutional investors. With the recent decision by CME Group and CBOE to offer bitcoin futures, more products are being created to meet the needs of investors looking to hedge risks in the space.

Some investors are also taking an indirect “bank shot” approach, by investing in the public companies that are actively exploring blockchain technologies and digital assets (e.g., Overstock, IBM, Nasdaq). There are proposals for active ETFs that would invest in these types of companies and others benefiting from blockchain and crypto technologies (not to be confused with the proposed ETFs that invest directly in crypto assets).  

So Now What?

While the crypto ETF may be in a semi-zombie state for now, there no doubt have been significant developments for investors in search of vehicles to provide investment diversification. Even the Winklevoss brothers have continued to aggressively innovate in this space, and recently received approval for a patent that would allow exchange-traded products to be settled with digital currencies.

For now, there’s no need to hang your hat on the future prospects of an ETF offering. Many new investors are starting with modest crypto investments and then giving consideration to increasing holdings as risks become clearer and the industry more developed.

At Flipside, we help our clients diversify and better understand the risks associated with crypto investing. While we’re short on famous Olympian twins, we have an abundance of data and tools aimed at helping investors make informed decisions.

Coins for Every Tom, Dick, and Kanye

Cryptocurrencies currently outnumber fiat currencies by nearly tenfold. But even with the flood of crypto assets, there are practical ways investors can separate the wheat from the chaff.

In early 2014, the hype around Bitcoin–which months earlier had crossed the $1,000 threshold for the first time–was inescapable. According to some, the new currency had touched the sky and there would be no turning back–Bitcoin was headed to the moon.

This first round of crypto euphoria, coupled with an increased understanding and general excitement over Bitcoin’s groundbreaking ingenuity, sparked the emergence of about a dozen new cryptocurrencies. Most of them, including Litecoin, Ripple, and Monero, are still around today. One of them–Coinye West­–is not.

Not surprisingly, the coin’s namesake didn’t find the word play amusing. Within days of its launch, Kanye’s lawyers effectively ended Coinye’s short life.

The Coinye experiment is a good reminder that low barriers to entry in the crypto space have allowed nearly anyone with the time, talent and inclination to launch their own cryptocurrency.

According to CoinMarketCap there are more than 1,500 cryptocurrencies representing nearly $400 billion in market capitalization. If growth trends continue, there will soon be more cryptocurrencies traded than stocks on the NYSE.

But how do you know which of these crypto assets are worthy of investment? While coin names like DopeCoin, LetItRide and HoboNickel don’t scream “safe investment,” there is certainly opportunity to diversify your investments in this emerging technology beyond just Bitcoin.

There are really two ways to think about crypto asset diversification.

  1. First, how do investments in crypto assets collectively impact your overall asset allocation (e.g., how does a pool of crypto assets correlate to your stock, bond and other investments)?
  2. Second, how can buying individual cryptocurrencies help reduce the risks posed by investing too narrowly in the space?

While there are many different angles to approaching the latter concept above, here are a few of the most important things to think about when evaluating individual cryptocurrencies.

  1. Coin or Token? The term cryptocurrency is used broadly, when in fact the word really captures two types of crypto assets–coins and tokens. At the most basic level, coins such as Bitcoin’s BTC, Litecoin’s LTC, and Stellar’s XLM transfer a unit of value from one person to another. Tokens, on the other hand, are typically run off Ethereum’s platform and can transfer just about anything from one party to another that would previously have required a trusted intermediary. Investing in crypto can be very different depending on the purpose of the coins and token. For example, tokens have been used for initial coin offerings (ICOs), an area that has been scarred with highly speculative and sometimes fraudulent behavior. ICO investing is far different than buying BTC or other coins, which share few of the same characteristics of ICO tokens.
  2. Size Matters. It’s important to remember that while there are many coins and tokens, a very small group makes up most of the market. In fact, the largest 20 cryptocurrencies account for nearly 90% of the sector’s market capitalization. Investing in cryptocurrencies that are more frequently traded and liquid (in relative terms), might not provide the quick profits some investors are hoping for with crypto, but as with stocks and other traded assets, less liquidity typically means more risk. Still, there are plenty of smaller crypto assets with merit, and depending on your risk tolerance some of these coins and tokens may be worth consideration.
  3. Who’s in Charge? Bitcoin was created to be a completely decentralized peer-to-peer network, but as the broader crypto landscape has evolved cryptocurrencies have taken varying approaches to governance. While most still target a decentralized approach, some have policies that centralize some decision making, raising questions over governance. For example, Ripple doesn’t rely on distributed mining for its coin XRP and many have argued Ethereum’s founder has outsized influence over coding changes. While it can be difficult to precisely decipher governance models, investors should prioritize having some understanding of a cryptocurrency’s protocol, and maybe more importantly, how changes to its rules can be made.

These guideposts are in no way exhaustive. There are, of course, many other factors investors should consider before jumping into buying and selling crypto assets. The experience of the team, the track record of the cryptocurrency, and the transparency of its operation are all as important in crypto as in other areas of investing. In other words, if you buy a coin or token created in a dorm room last week, don’t be surprised when it goes belly up.

The flashing lights of crypto can no doubt be distracting, especially in light of recent price surges with so many of these assets. In the current environment, taking a measured, well-informed approach to crypto investing is easier said than done.

In one of his infamous tweet storms, Kanye recently posted “decentralize,” a word that may best define the philosophy behind cryptocurrencies. Maybe KanyeCoin is next?

Sutton’s Law and the Security of Cryptocurrency Exchanges

 As investors become more interested in cryptocurrencies, trading venues are popping up left and right. But are these exchanges safe?

* * *

When a reporter asked infamous gangster Willie Sutton why he robs banks, he reputedly quipped, “because that’s where the money is.”

Willie Sutton, Infamous Bank Robber

Nearly a century after his criminal start, “Sutton’s Law” endures, used in medical schools to remind students one thing when making diagnoses: always consider the obvious.

Willie Sutton might be unable to comprehend the recent emergence of cryptocurrencies, but if alive today he surely would smell opportunity–1,500 new currencies, barely understood by legal authorities, that can be converted to real dollars? Sutton would be honing his coding skills at hackathons in no time.

As more investors wade into the crypto waters, the threat of hacks, thefts, and data breaches remains real, especially for those seeking out third-party venues to buy and sell cryptocurrencies. But if these venues are a target for fraud and theft­, how can an investor be confident exchanges aren’t swimming with criminals?

Looking at the short history of cryptocurrencies, it’s easy to understand the skittishness over crypto exchanges. In fact, a more disastrous start for the buying and selling of these assets couldn’t have been better scripted.

In 2014, as major news outlets were beginning to regularly cover cryptocurrency developments, the first bitcoin exchange to trade significant volumes, Mt Gox, declared bankruptcy after 850,000 BTC disappeared (approximately $7 billion today). The alleged theft was compounded by a number of things, including unsophisticated security protocols, extremely negligent management, and nearly zero transparency. The employees at Mt Gox, it turns out, had absolutely no idea how to run an exchange.

Right or wrong, reverberations from Mt Gox continue to tarnish the crypto markets, discouraging many of the crypto-curious from participating. And more recent hacks–Bitstamp in 2015, Bitfinex in 2016, and the Coinsecure theft this year–have provided plenty of reasons for individuals and institutions to remain cautious about trusting third-parties when investing in this emerging technology.

Today, however, crypto exchanges are slowly trudging through growing pains, working to find ways to address transparency, volatility and liquidity concerns. For the most reputable exchanges, developing more robust security measures is the most pressing priority.

There are over 100 (and counting) crypto trading venues, generally falling within two categories: those that offer direct peer-to-peer trading (a decentralized exchange) and those that act as brokers intermediating trades.

The largest in the US- Kraken, Bittrex and GDAX — account for a quarter of all cryptocurrency daily trading volume. These entities–sometimes mislabeled as unregulated–are subject to many US rules, including applicable regulations regarding securities trading, money transmission, and other consumer protection measures. Importantly, the exchanges are subject to the fraud prevention and anti-money laundering provisions of the Bank Secrecy Act and PATRIOT Act.

Regulatory uncertainties and a desire to protect customer assets (and provide a secure alternative to some of the fly-by-night exchanges) have led many brokered exchanges to take a measured, cautious approach to crypto trading.

One example is Coinbase’s GDAX, which employs a more conservative approach than most. The venue only supports more liquid cryptocurrencies (BTC, BCH, ETH, and LTC), and doesn’t allow margin or derivatives trading. Nearly one in five Coinbase employees work in compliance, which is not only a ratio surpassing most highly regulated banks, but also a sign of the regulatory seriousness and focus on security that is emerging among creditable exchanges.

As liquidity improves and market competition helps weed out bad actors, traditional exchanges are responding to meet the needs of crypto investors. The decision last year by CME Group and CBOE to offer bitcoin futures products means the same oversight and rules for the trading of commodities futures contracts is now applied to bitcoin futures. While a narrow part of the overall market, cryptocurrency futures may present a more secure, less fraud-prone approach to trading these assets. Only time will tell, but certainly progress is being made.

Undoubtedly, the rising popularity of crypto assets will continue to draw investors of every ilk: the technologists, the idealists, and even the criminal opportunists. But just because some of these exchanges are targets for crooks, doesn’t mean it’s unsafe to trade cryptocurrencies.

So how should you, as an investor, approach evaluating an exchange? For starters, think about what kind of trading you wish to do, taking into consideration your level of expertise with trading other assets. Maybe you’re a risk-averse individual simply looking to buy and sell bitcoin, or maybe you represent an institution looking to hedge risk through short-selling and margin trading of several different coins. Your trading goals should be an important factor in choosing how to participate in these markets.

Regardless of the type of investing you plan to do, evaluating an exchange should involve the same type of due diligence you would use when choosing a bank, brokerage firm, or any other entity handling your investments. Beyond the consideration of varying fees and exchange rates, things like an experienced team, clear cybersecurity protocols, and attention to regulatory compliance should be of paramount importance.

Any serious exchange should be willing to demonstrate enough of a track record and process transparency to give you confidence you aren’t helping fund a Ponzi scheme. And while most exchanges require ID verification–some now ask for multiple layers of verification–always consider the risks of investing with a venue that does not require an ID (they do exist).

As stakes rise, crypto trading venues will continue to find new ways to protect assets. Many are adopting “cold storage” for cryptocurrencies, an offline approach that utilizes encryption, geographically dispersed vaults, and even paper backups. In spite of these measures, you should always be wary of leaving large amounts of crypto assets with any one trading venue.

At the end of the day, investing in any asset class will–and should–involve taking necessary precautions to protect your money. And as Sutton’s Law advises, it’s important to remember the obvious–criminals will always follow the money, whether in banks or on a blockchain.

The Conundrum of Crypto Press

A few weeks ago, a friend of mine decided to donate Bitcoin to a good cause. His Good Samaritanship ended up garnering international television coverage.

And with that, his misery began.

First his iphone started acting funny. An array of confusing notifications followed by an inability to access the phone altogether. Hackers had apparently “ported” his device.

Then the emails: Requests from his numerous Gmail accounts to change passwords. New login IP notifications. Double authentication confirmations for his Coinbase and Bittrex accounts.

In a race against the clock, he quickly changed all his passwords, and moved as much of his crypto as he could. He didn’t sleep for 36 hours.

Right when he figured he had thwarted the attack, he received an email — from one of his own email addresses:

“We’re in your Google Drive, and can see your spreadsheet with your crypto holdings. Send us 50 BTC or we take it all.”

Welcome to getting press in the world of crypto.

Flipside Crypto is pleased to announce it has closed a $3.4M venture round for its data-driven cryptocurrency investment vehicles.

True Ventures led the round, with participation from The Chernin Group, Resolute Ventures, Boston Seed, Converge and Founder Collective.

Adam D’Augelli — partner at True and crypto enthusiast, specialist and savant — is joining Flipside Crypto’s Board of Directors.

Plus, some additional news: after 5 months of investing, Flipside Crypto’s Club One substantially outperformed the Coinbase Index — a market-cap-weighted allocation of Bitcoin (BTC), Ethereum(ETH, Litecoin (LTC) and Bitcoin Cash (BCH) — delivering 141% return vs. 115% for Coinbase holdings.

Flipside Crypto’s ROI and Sharpe vs. Coinbase Index

All of this is news. And news means potential press. And press coverage means exposure and growth for your business.

In the world of crypto — in these early innings — it also means increased risk. Risk of losing your anonymity. Risk of theft.

It’s a Cornelian Dilemma: Press for invaluable exposure…or no press for increased protection.

My simple take: fear-of-hacking shouldn’t keep you from building your business.

Yes, do everything you can to protect your assets. Don’t cut corners. Don’t be sloppy.

And then it’s all systems go. Time to get the word out.

Flipside Crypto Closes $3.4 Million in Venture Funding From True Ventures, The Chernin Group and Resolute

Flipside Crypto’s Investment Clubs substantially outperform the Coinbase Index, which includes Bitcoin and Ethereum

Boston, MA — March 28, 2018 — Flipside Crypto is pleased to announce it has closed a $3.4 million venture capital round for its data-driven cryptocurrency investment vehicles. True Ventures led the financing round, with participation from The Chernin Group, Resolute Ventures, Boston Seed Capital, Converge and Founder Collective. True Ventures Partner Adam D’Augelli will join Flipside Crypto’s Board of Directors.

Flipside Crypto will use the funding to continue to develop and refine its algorithms, which analyze speculation, developer behavior and token utility for cryptocurrencies. In addition, the funding will be utilized to further develop Flipside Crypto’s suite of cryptocurrency management services, including cryptocurrency acquisition, digital walleting and custody services.

“This financing round will build on the tremendous outcomes from our first 6 investment vehicles,” said Dave Balter, CEO of Flipside Crypto. “We’ve proven our algorithms can deliver substantial ROI, while simplifying the process of acquiring a basket of cryptocurrencies for Club Members.”

The round of financing follows the launch of Flipside Crypto’s first six investment vehicles. Launched in 2017, the vehicles utilize Flipside’s algorithms to analyze the liquid cryptocurrency market and identify a diversified basket of 14–16 cryptocurrencies, including Bitcoin and Ethereum, as well as a number of altcoins club members can invest in.

In its first five months, Flipside Crypto’s hallmark Investment Club “Club One” substantially outperformed the Coinbase Index — which considers a market-cap-weighted allocation of cryptocurrencies available on Coinbase including Bitcoin, Ethereum, Litecoin and Bitcoin Cash — delivering 141 percent return versus 115 percent for Coinbase holdings. A Bitcoin-only investment would have produced a 92 percent return. Flipside Crypto’s “Club Two”, which launched in November 2017, has delivered 79 percent return versus 43 percent return for the Coinbase Index and 11 percent return for Bitcoin-only after three months of existence.

“We are thrilled to partner again with Dave, Jim (Myers), and Eric (Stone) on Flipside Crypto,” said Adam D’Augelli, partner at True Ventures. “They’re proven entrepreneurs and have established industry-leading algorithms for analyzing the value of cryptocurrencies. While it’s early for the space, we think Flipside could change how crypto infrastructure is built and funded.”

Flipside Crypto is currently accepting investments from accredited investors for it’s latest investment vehicles.

About Flipside Crypto

Flipside Crypto launched in mid-2017, by developing proprietary data models to evaluate liquid crypto assets and offering a series of investment portfolios related to cryptocurrencies. The company provides a full suite of services from algorithm development to acquisition, digital walleting and custody process for cryptocurrencies, as well as community tools and portfolio dashboards for investors.

Flipside Crypto’s Investment Vehicles

Flipside Crypto’s investment vehicles provide a portfolio approach to cryptocurrency investing, providing investors with diversified baskets of cryptocurrency holdings. Holdings are determined via proprietary algorithms that evaluate speculation, developer activity and utility of each cryptocurrency. Flipside Crypto has completed 6 passive investment products, providing investors a diversified set of cryptocurrencies based on its algorithms. The company is rolling out additional investment portfolio products in 2018.

About True Ventures

Founded in 2005, True Ventures is a Silicon Valley-based venture capital firm that invests in early-stage technology startups. With more than $1.4 billion under management, True provides seed and Series A funding to the most talented entrepreneurs in today’s fastest growing markets. The firm maintains a strong community that supports founders and their teams, helping True companies achieve higher levels of success and impact. To date, True has helped more than 250 companies launch and scale their businesses, creating over 10,000 jobs worldwide. To learn more visit True Ventures.

The Fate of Crypto Hedge Funds

At the end of a crypto event last week, two Millennial-era entrepreneurs approached me and started chatting about their new venture.

It was multi-faceted: a blockchain-enabled services business that would have a major impact on the world — but would first be funded by the raise of a crypto hedge fund. That hedge fund would invest in Tokens and ICOs — with 20–30% set aside to invest in their as-yet undeveloped crypto services business.

First step in building their services business: raise money for their new hedge fund.

How? A bit of savings and credit card debt, an apparent trust fund and — reluctantly — a fundraise (like them old-timers do it).

At the end of a conversation, we were joined by a few other folks. One of them was a young lady whose day job is at a bank, but has a side hustle going with a new Crypto Hedge Fund based in the British Virgin Islands. This Hedge Fund was Tokenized — investments convert into a Token that will rise and fall in price based on the value of all investments in the portfolio — and was structured to raise from investors based in India. $300k had already been committed toward a $5–10M raise.

Including these two, that made no less than 8 hedge fund pitches for the night.

Not even close to the record.

According to Hedge Fund Alert, as of November 2017 there were already 130 Crypto Hedge Funds.


Many are names you might already recognize: MetaStable, BlockTower, Multicoin Capital, Polychain. But underground and unlisted, there are hundreds — maybe even thousands — of smaller hedge funds that are just developing.

  • The majority are sub-$10M vehicles. “Training Wheel” funds that will establish credibility for something bigger later. That said, toss a rock into any crypto crowd and you’ll certainly hit someone with their sights on a $20-$50M fund.
  • Some focus on ICOs. Some on Tokens. Some on equity or SAFTs. Some will ferret out Chinese blockchain companies that will be huge in the U.S.. Some tap into Telegram pump and dump schemes. And some…well, why pick any strategy at all?
  • Many are raising money from family offices. A handful still focus on VCs and angels. A bunch mention the Whales they know on Reddit who might invest. One hung out with that kooky billionaire crypto maven, Brock Larson, but was too awe-struck to ask him for an investment.
  • Leadership of these new hedge funds is remarkably inconsistent. Sure, there are experienced entrepreneurs and some with substantive financial industry skill— but most have little to no experience, save for the fact that that they have a boatload of crypto enthusiasm and can rap the blockchain lingo.
  • Frighteningly few seem well-versed in the regulatory frameworks required for investing other people’s money. I asked one high profile crypto hedge fund manager (one that had already raised funds and had been actively trading, mind you) if he was registered as an ERA or IRA. “Neither” came the response, before noting he was actively discussing regulation and compliance with peer funds.

The first hedge fund was created in 1949, by Alfred Winslow Jones, with investable assets of $100,000. Today Renaissance Technologies, one of the world’s largest hedge funds, manages north of $45b of investor capital.

The term “hedge fund” is derived from the strategy of increasing gains — and offsetting losses — by hedging investments using a variety of sophisticated methods, including leverage.

For traditional hedge funds, long-short strategies are often employed: invest in long positions (which means buying stocks) and short positions (which means selling stocks with borrowed money, then buying them back later when their price has, ideally, fallen).

I bet if we polled all crypto “hedge” funds, less than 5% even understand leveraged buying or long-short strategies.

Truly. One labeled their strategy as, “pure intuition.”

But, well, the term hedge does sound cool.

And probably helps a whole heck of a ton when raising money.

Ok, that’s not fair.

There are two obvious reasons most crypto funds label themselves as hedge funds.

  • Lockups. Unlike mutual funds, hedge funds often seek to generate returns over a specific period of time. This is called the “lockup period”. Invest in a hedge fund and you cannot get out or sell shares until the lockup is over. For those leading as investment manager, this provides ample time to stay in business while you figure everything out.
  • 20% Returns. Hedge fund managers receive a percentage of returns they earn for investors. A typical 2/20 ratio means that 2% of the fund covers management fees (salaries, operations) and 20% of the returns go to the fund managers before an investor sees a dime.

Hey, this hedge fund thing sounds pretty good after all.

So, A Few Predictions

2017 saw the rapid rise and fall of public perception of ICOs: What started as an innovative cryptocurrency launch strategy became a misused get-rich-quick investment strategy.

By 2019, Crypto Hedge Funds will follow a similar pattern. Massive saturation will hit faster than anyone imagines, the cool factor will fade and capital inflows for non-sophisticated vehicles will dry up fast.

Beyond that whopper, 3 additional predictions for the Crypto Hedge Fund Market:

  1. Crypto Fund Managers will become ultra-aware and over-burdened by one major painful oversight: operations. The process of buying and storing cryptocurrency is not for the light hearted. There’s managing exchanges and OTC partners, setting up digital wallets, ensuring a foolproof custody process and tracking activities. This requires focus, time, energy, patience and resources. Fantasies of patient, thoughtful investing will be obliterated by the grind of producing tax-tracking spreadsheets and digital wallet management. Expect a wave of 3rd party resources to service the funds that stay in business.
  2. The 2/20 ratio and lockups will fall out of favor. Investors will want the same democratization and flexibility that cryptocurrency itself promises. Someone sitting in the middle taking an outsized portion of returns, while holding money hostage, seems awfully, sarcastically oxymoronic.
  3. A lack of competitive distinction, fundraising ability — and, dammit, necessary investing acumen — will lead to massive amounts of consolidation and, of course, outright failure. On the consolidation side, funds who shortfall their raises will begin pairing up with each other. Failures will take the shape of zombie-funds, left behind by fund managers who become disinterested and move on to other projects. And, yeah, there will surely be lawsuits galore.

So, for all those new crypto hedge funds out there— how about we just nip this in the bud?

Before it grows out of hand?

Too prune?

Flipside CEO on Bloomberg Baystate Business

On this episode of Baystate Business, Bloomberg Boston Bureau Chief Tom Moroney and Radio News Anchors Peter Barnes, Pat Carroll and Anne Mostue interview Dave Batler, CEO of Flipside Crypto. Some of the topics covered:

  • Not buying during crypto winters
  • Wallet loss and explaining the difference between a real wallet and a digital wallet
  • How we do all the work
  • Discussing Flipside’s first 6 clubs (with over $5.5m invested)
  • Running an investement “service” vs a fund
  • How Dave stumbled into Flipside
  • Whether Bitcoin is going to be the “currency of the future”

Dave stats at the 33:00 mark.
Link to the recording on Bloomberg.com

Listen here:

The Gift of Cryptocurrency Volatility

Earlier this week, I chatted with a professional “Active Trader” who had spent his career taking advantage of short-term price movements on highly liquid markets like stocks, currencies, options, and derivatives.

I suppose “Active” may be a slight misnomer here. This particular individual was currently on a very extended, very unwanted garden leave.

A year and 2 months ago he’d taken a package at his firm (which eventually imploded) as they sought to thin their ranks of traders — and he’s been looking for work ever since.

He explained that there were fewer and fewer roles for Active Traders in equities. Besides the rise of Algorithmic High Frequency Trading as a more efficient solution (leaving little room for the vagaries of human errors) his gripe was obvious:

“It’s impossible to make a real living as an active trader in an equity market where there is literally no volatility anymore.”

Apparently, 2017 was the least volatile year in the equities market since 1964. Just 6.8% volatility, which is nary enough for an active trader to make any sort of living.

But then there’s the crypto market — which completely redefines the concepts of volatility:

  • Holy Smokes! XRP goes up 33% in one day— which worthy of but a single raised eyebrow because its price went up 28,000% in 2017 alone;
  • At the end of December 2017 BTC’s price downshifted by $3,000 in a single day, eventually touching $9,000 in early 2018, but then over a few more days rises again to $12,500.

Here’s the simple truth:

For equities, the Bears and Bulls are cycles of years or months. For cryptocurrencies, the Bears and Bulls are cycles of days and hours.

That shouldn’t be considered a weakness; the bear/bull rhythm of cryptocurrencies — the crushing pace of its volatility — are its strength. Massive swings are a benefit.

It speaks to those who appreciate risk; who are fearless in the face of fluctuations (FFF); who couldn’t be more bored by a stock ticker dribbling up and down pennies at a time.

This is why cryptocurrency is the gift to a whole new generation of investors: the Millennials.

The Millennials have yet to have their opportunity to make riches. They never saw 5% interest in a savings account. They’ve been squeezed and burdened by student debt. They missed the real estate boom; hell, they came of age during the housing crisis which soured them greatly to government, control — and of course, equities.

Sure, Millennials gave equities a shot. They started by shunning in-the-flesh wealth managers for rob-advisors like Wealthfront (why not let the computer try to make $ while you go hang gliding?); for those who wanted a hands-on high, they gamified their day-trading habit with Robinhood, an app that lets you buy and sell equities commission-free as if it were monopoly money.

But it was still equities. And equities didn’t move fast enough. Equities require patience. Who has time for that?

In September 2017 — when Bitcoin was still at $4600 — Charlie Bilello, director of research at Pension Partners noted that “Bitcoin and U.S. stocks don’t move together on a daily basis. They are basically independent of each other and I don’t see any fundamental reason for bitcoin and stocks to have a negative relationship.”

On January 16, 2018, gold coin sales increased fivefold, the same time cryptocurrencies were crashing 40%. And that very well may be indicative of an inverse correlation between the two investment vehicles.

For those who trade in gold, this is an opportunity: to swim in the same pool of volatility as cryptocurrency. While gold has always had some volatility, this provides a new sense of relevance —gold was the bracelet you bought or a hedge against oil or bonds. It was lumped in with housing and savings and traditional equities. Now it’s in the spotlight along with cryptocurrency.

If I were an equities trader — maybe even one who has been out of work — I might long for the day when equities correlated, inversely or directly, with cryptocurrencies to provide them the much needed volatility boost.

The volatility of cryptocurrencies. That is the gift.

1.23% Female Speakers: Shame on you, Miami Cryptocurrency Conference

And, here we go again. Another cryptocurrency conference with an all-male speaker line up.

Wait, wait. It’s not ALL male.

Phew <wipes brow, shakes sweat off hand>

There’s 1 female speaker out of the 82 listed on the front of the site.

Right, 1.23% female.

Wait, wait, that’s not true, there’s also a past speaker section. 33 speakers and — lo and behold — another female speaker.

So that’s 2 women out of 115.

1.73% for those keeping track.

Possible reasons for the male to female ratio?

A: There just aren’t that many women in cryptocurrency. Or there are less than men, and they aren’t “speaker” caliber.

Truth: Complete and utter bullshit.

I spent last weekend attending a gathering of crypto and blockchain enthusiasts on Powder Mountain in Utah. Among the few hundred people were many many (many) amazing women.

Know what? Most of them would crush it on the center stage.

Here’s a few: Jo Jo Hubbard from Electron UK or Jess Houlgrave from Codex Protocol or Marissa Kim from ARK Advisors — or the amazing (and amazingly funny) Shira Frank from Maiden.

When I pointed out the misalignment to another male in the crypto space, he responded:

Yeah good question. The ongoing gender gap in tech I suppose. I’m not planning on going either.

I’m sure none of this will endear me to the North American Bitcoin Conference organizers. Guessing I shouldn’t wait by my digital mailbox for an invitation to attend.

But you know what, I’d trade that any day to ensure the crypto industry doesn’t fall into the gender gap trap.

C’mon Miami, it’s not too late: do the work, find the women, shake up your roster, and make this a crypto conference we can all be proud of.

How to Invest in Crypto, Without the Carry

The House that Bogle Built isn’t simply a book about the creation of Vanguard Mutual Funds; it’s about the balls and nerve of Jack Bogle.

The guy essentially reinvented the concept of mutual funds with one incredibly simple trick: he provided shareholders the greatest portion of returns.

Before Bogle: astronomical commissions were paid to sales brokers, you covered the mutual fund’s high expenses, and then they took the majority of the investment returns.

After Bogle: No broker commissions, lower expenses to run the fund, and the shareholder took the majority of returns.

This became the Vanguard way.

                              John C. Bogle of Vanguard, in his early days

You can imagine how other mutual fund companies felt as Bogle flipped the entire industry on its head.

. . .

Today, we’re proud to announce Flipside Crypto Club 3. A process for investing in cryptocurrencies where the Members control the Club and returns actually go to you: the Club Member.

Club 3 follows up where Flipside Crypto’s Clubs 1 and 2 left off. Those Clubs were for experienced wealthy investors. This one is for folks with a little less capital to deploy.

Here’s how Flipside Crypto Club 3 works.

  • A limited number of individuals can invest $15,000, $30,000 or $45,000, and become members of Crypto Club 3.
  • The Club gets access to Flipside Crypto’s Github Crypto Index, Volatility Index, and Nodes Firehose Data to identify a basket of 14–16 cryptocurrencies (specifically ones which have a high likelihood of return over time).
  • The cryptocurrencies are acquired (balancing the ownership level to an allocation across an investment pyramid) and stored in digital wallets, and placed into a cold storage, encrypted solution.
  • Members pay a flat fee of $2,000 for us to run our software and club service for the first year (regardless of investment amount). If members would like Flipside Crypto to provide its software and services to the Club beyond the 1st year, it’s $500 for every 6 months.
  • Members can liquidate their holdings and transfer your cryptocurrency back to USD at any time —we use a 2-sig process so members actually custody the crypto themselves. And, there is no penalty or expense for liquidating.
  • The fun part is, club members get to vote on any suggested rebalancing. Votes happen in our Slack channel, where club members also share information and ideas an articles.
  • Note that we don’t believe in active trading. We mainly believe people should buy and hold (HODL). But if Club algorithms indicate a change should be made, it’s up to Club members to validate what the Club should do.
  • Members of Club 3 get access to Flipside Crypto’s Portfolio Dashboard, to check on the value of holdings at any time.
Flipside Crypto’s Portfolio Dashboard

. . .

The question we’re asked the most about our Clubs is why the flat fee instead of a carry?

A traditional fund model works like this. You pay 2/20 to be involved: 2% of your money goes to cover the company’s salary and expenses, and then 20% of the profit goes to those very same fund managers.

To me this feels like mutual funds before Bogle arrived. Yes, we could make a LOT more money if we charged 2/20. But to make 2/20 work, you need to raise a certain amount of capital (2% only covers so many expenses) and often you start to wind your axle around deal structures that optimize the 20%. This creates misalignment between the Investment Manager and Shareholder.

I’m not saying there aren’t good, moral, effective managers who charge 2/20, and of course many funds will deliver substantive returns. I’m just saying we decided to take a different route.

Why? This is your Club, we’re just helping set it up.

. . .

Your algorithms are really strong. Your process is really crisp. You make it really easy to get broad exposure into a the cryptocurrency market.

But you’re making much less than you could. Why? Why? Why?

I guess you should thank John Bogle for that.

. . .

The above references an opinion that is for information purposes only; is not intended to be an offer for sale and it is not intended to be investment advice. Seek a duly licensed professional for investment advice.

In the meantime, if you want to find more about Club 3, find us here. And clap below either way, so you can help your fellow traveler do some crypto investing.