Driving force for widespread adoption

Interview with Ateet Ahluwalia: CoVenture Crypto – Partner, Lead Portfolio Manager: “We expect continued entrance and adoption on the part of institutions”

Ateet Ahluwalia comes from traditional financial industry, with 12+ years experience in trading and portfolio management at hedge funds and investment banks, including Barclays Bank and Goldman Sachs. Being passionate about global macro, trading, and emerging technology, Ateet conducts a deep analysis of the current market situation and combines it with his extensive trading expertise. 

What’s new and trending on the digital asset market agenda?

Institutionalisation of Digital Asset Industry: We expect continued entrance and adoption on the part of institutions. For example, the Intercontinental Exchange (ICE), operator of 23 exchanges including the New York Stock Exchange (NYSE), announced that they plan to launch their Bakkt digital asset platform. Nasdaq has confirmed its plans to launch Bitcoin futures at some stage in 2019. Additionally, Fidelity launched its digital asset custody platform in March 2019, building the critical infrastructure necessary for institutions to get involved. On Monday, May 13th it was announced that Crate and Barrel, Nordstrom, and Amazon-owned Whole Foods—now accept Bitcoin and three other types of digital money. We expect more positive news over the next few months leading us in 2020. The most significant news of 2019 thus far was the announcement of Libra coin. 

Libra, a stablecoin backed by “Libra Reserve”, has been at the top of everyone’s mind. While Libra is supposed to be a diversified basket of real assets, I just don’t see how they don’t divert the lion’s share of their assets into short-date T-bills. The US is the only liquid, developed market deep enough to handle their inflows given negative rates across Japan and much of Europe. In Switzerland, rates are negative out to the 30-year point of the curve!  I do like the potential scale they hope to achieve with almost 3bn MAU (monthly active users). By signing up 12+ companies to support its cryptocurrency network, Facebook has brought an added element of legitimacy to the asset class by demonstrating that corporate America wants in.

Trading: JPMorgan said the influence of the Bitcoin futures market has been understated due to the prevalence of fake reported trading volumes by most cryptocurrency exchanges. According to JPMorgan, if estimates stating only 5% of reported trading volume is genuine are right, real Bitcoin trading volumes in May totaled ~$36 billion. Therefore, the aggregate volume of $12 billion on CME and CBOE futures contracts over the same period may have had a more significant impact on the market than initially considered. Increased volume at the CME and Fidelity will continue to be a driving force for widespread adoption amongst traditional financial players

Which type/class of DA is the most attractive for institutional investors?

On the liquid side, Bitcoin is the largest cryptocurrency by market cap. It is available on multiple regulated exchanges.  It is by far the most attractive option given it dominates 66.1% of all cryptocurrency flows (excluding stablecoins).

On the illiquid side, equity investments in blockchain companies have become popular over the last couple of years. Harvard and Yale’s endowments have made large investments in Blockstack.

Do you consider Facebook’s recent (reported) move into digital assets industry an important step for the industry? Yes/no, and why?

We [Coventure] wrote an entire whitepaper on this topic – link here! 

Which projects and assets do you work with? Mostly?

 Bitcoin and Ethereum primarily. We also have an index that includes top 15 market cap weighted cryptocurrencies.

Venture capital – do you think/agree that Asia is growing stronger as an incubator for Fintech, and bringing up future Fintech unicorns? Or the US still tops the list?

Yes, we agree that Asia is becoming a fintech market leader. Companies like Alipay and WeChat exhibit the powerful opportunity of being the dominant mobile banking solution as their payment options have proliferated across all mobile value transfers. Once established as a consumer’s digital wallet, the ensuing financial data enables companies like Alipay and Wechat to create financial products that are more competitive than traditional banking solutions. CashApp, Venmo, and now Facebook’s Libra are all striving to become the dominant Western digital wallet provider. While we believe a large majority of Fintech innovation happens here in the US, there are very valuable lessons and companies to learn from in Asia. 

What is CoVenture’s main criteria for a good project/startup? Name up to 5 features.

Our venture approach within the crypto business is a natural extension of our core competency around crypto trading infrastructure. Operating in this environment not only gives us a unique perspective of being the beta testers for our portfolio companies but also enables us to perform a different level of diligence on future startups in the environment.

The latest announced deal is our investment in Nomics, the first and only API company that provides raw, gapless trading data ingested from the top exchanges by volume. Nomics is a great example of startups that we are interested in. Not only do we use Nomics in our day to day activities, but also in providing further diligence of the market.

Following these criteria, are some of our theses. Banking Solutions, AI & Data Economies, and Maximum User penetration are particularly interesting to us at CoVenture Crypto. 

Banking Solutions – We think that banking regulation is difficult to change. Blockchain solutions must first improve processes rather than try to radically change them. The immediate cost savings will introduce more conservative institutions towards innovative technology. Similar solutions can be used to help bridge the gap between unbanked markets and financial systems.  

AI and Data Economies – Digital footprints are creating new economies. This extends beyond marketing, including vehicle data, city planning, retail expansion, weather data, and real-time market intelligence. An open marketplace for data enables companies to enhance data ingesting algorithms and users to own and monetize their data.

Maximum User Penetration – Value accrues to those that get crypto in the hands of most users. These projects operate outside of regulatory friction creating the opportunity to move fast and break things rather than operate in a sandbox. 

Investors, especially those who are new (or relatively new) to the world of digital assets, need to be in the loop and stay informed on the performance of specific themes within the ecosystem. How can that be achieved?

There is so much great educational content available for cryptocurrency. Webinars, podcasts, YouTube channels, and online courses all do a fantastic job of making this asset class understandable. During its more nascent days, crypto content only existed on small platforms. While those platforms have matured to legitimate information providers, traditional names like Bloomberg are contributing as well.

Something people who are newly exploring Crypto are unaware of is how important Twitter is in the discourse and education of Cryptocurrency. It’s home to some of the most fascinating and thoughtful conversations. 

Here at CoVenture, we publish research reports, webinars, and are featured on podcasts regularly. If you want to learn more, we have a Research team that can create ad hoc reports for information seekers. You can reach them at [email protected]

From nexyst: You can access CoVenture’s published research and other materials in their portal on the nexyst platform. 

Author: Olga Yaroshevsky
Date: 4 November 2019