Yuri Molchan

Crypto Asset Fund Bets $1 Mln Crypto Can Outdo S&P 500 in Ten Years

Morgan Creek Digital proposes a challenge to investors who believe crypto is worth nothing to make a bet it will outperform traditional stocks within ten years
Crypto Asset Fund Bets $1 Mln Crypto Can Outdo S&P 500 in Ten Years
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The Morgan Creek Digital crypto fund decided to make a bet similar to the one entered by Warren Buffett and Ted Seides, an investment manager. Buffett made a wager that an S&P 500 index fund would do way better than hedge funds can do if one chose them to make an investment.

Warren Buffett became the winner earlier this year. Now the crypto management fund mentioned above, headed by Anthony Pompliano, is following the steps of the world-famous investor.

Betting on the crypto horse

Buffett’s negative attitude towards crypto assets is widely known. He once said that virtual coins would end up badly, calling Bitcoin the most negative names possible. For the time being, the man’s hunch seems to be right – this year BTC has lost more than 70 percent of its value, making altcoins drop even further on the market.

However, that does not seem to discourage the founder of Morgan Creek Digital Anthony Pompliano, who is willing to wager $1 mln from his company’s funds if any other investor/banker, etc, accepts the challenge and wins.

Pompliano claims that for the past 10 years, Bitcoin and other digital coins have been outperforming all other types of traditional assets. He believes that BTC and co. have already outperformed the S&P 500 and the situation will continue for at least 10 years longer.

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Part of a bigger asset management firm

The entity headed by Pompliano is an affiliate of the Morgan Creek Capital Management fund (which has $1.5 bln in management) and this affiliate was open to work particularly with crypto. The company will choose one investor from all the applicants who will agree to take the challenge and make a bet.

The fund that is making the bet works with crypto assets, among them BTC, BCH, LTC, EOS and ETH.

The bet is that virtual coins will show a better financial result than the S&P 500 index within 10 years starting from January 1, 2019.

The situation may well repeat Buffett’s story. On Wednesday, Bloomberg’s technical analyst predicted the continuation of the red market in the near term. Buffett was in a similar situation after he made his bet when during the crisis of 2008-2009 the value of the S&P 500 plummeted but eventually, in the long run, he did win.

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🤷 Opinions Katya Michaels

Generational Crypto-Investment Gap: Why Warren Buffett Just Doesn’t Get It

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When it comes to crypto, old-school investors like Warren Buffett may not be the best guides
Generational Crypto-Investment Gap: Why Warren Buffett Just Doesn’t Get It
Contents

Investment in cryptocurrency is becoming more accessible to both experienced and novice investors, but professional guidance for trading the new asset is not readily available. The abundance of contradictory information in the media leads to further confusion, especially when well-known and respected investors like Warren Buffett voice vehement objections.

In truth, cryptocurrency is an exciting investment opportunity that shouldn’t be missed– nor should it be undertaken in ignorance. To understand how cryptocurrency investment can be approached for a safe and profitable outcome, CryptoComes spoke to Bob Loukas of Bitcoin.live, a cryptocurrency trading platform that provides expert advisement and training to its community, launching today.

Katya Michaels: How did you become interested in cryptocurrency trading and educating investors about this market?

Bob Loukas: I'm a trader going back 25 years– trading futures, forex, gold, stocks. More recently a new booming asset class has emerged where a lot of people are making a lot of money, and losing money as well, though that's probably a story that's not told too often. There is a lot of excitement, and as a trader, you want to be a part of the new asset class, the new opportunity.

From Bitcoin.live’s perspective, it’s about helping people who don't have the experience that the analysts on our platform have. They understand that trading this asset class is in many ways no different to trading other asset classes that exist today because there are the same underlying principles.

It’s such a new industry and I'm seeing a lot of younger people, a lot of millennials, getting involved, drawn in by the potential and the excitement, but they aren’t all necessarily profiting like the media may lead you to believe. With Bitcoin.live we want to bring more of a balanced, experienced voice to the cryptocurrency space, and provide the tools and help that they need to succeed.

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A steady voice for guidance

KM: What kind of media coverage and advice do you think is missing from this space?

BL: I think what's missing is a steady and experienced voice.

You've got a new breed of investors coming in and with that, some social media influencers– people in the trading space who are hiding behind the immunity that social media provides. They are coming across as professionals when they're really not.

They were able to provide trading advice in a bull market when it wasn't so much their expertise, but the fact that all ships were rising and all prices were going up.

Now it’s been exactly five months since December when the market peaked. A lot of people are losing money and those social media personalities either disappeared or they just don't have a clue on how to provide guidance to people.

Our analysts have been through the dot-com boom and the gold boom and the stock boom of 2008 and in some cases, like Peter Brandt, well before that. We want to provide the professional guidance that is lacking today.

Trading crypto vs. investing in the space

KM: Do you think for this particular asset class it is more important to understand the technology behind it or to understand the mechanisms of market trading?

BL: That's a good question because often traders who are looking at price movements over a few days or weeks fall into the trap of trying to understand and align technology, making an argument for buying something on a long-term fundamentals perspective. But really, they are going to be in and out within a week or two. Those two just don’t gel.

You need to understand if you’re a trader and you're trading price movements or if you're an investor who is looking at a coin and trying to understand whether this is a technology that's going to survive the next crash or regulatory overhead.

As an investor, you need to figure out whether it's going to be the one that gets adoption, which eventually results in utility, which eventually obviously means more of a long-term profit. So, for trading? No, it's not important to understand technology. It's about how the price is moving. If you're an investor, you really should know what you're investing in.

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Horses for courses: old and new investment strategies

KM: What do you think prevents investors like Warren Buffett from being Bitcoin enthusiasts despite their extensive experience? How can they be wrong?

BL: They’re not wrong. I think it's just a matter of someone's comfort zone and what's worked for them. Why get into another realm where they don't have the expertise? It's just too far removed from what they’ve known and what they’re best at doing.

Back in the nineties during the dot-com boom, Berkshire Hathaway stock was grossly underperforming the market because Buffett also didn't understand that technology and he basically said, I can’t invest in something I don't understand. It's a similar thing, it’s a similar dynamic. Even his investments in Apple and IBM only came very recently because they now fit his fundamental, Graham philosophy on stock investing– with cash flows, profits and a better understanding of valuation.

It's just a matter of horses for courses. People need to feel comfortable with where their money's going, and they should. If they don't understand crypto, I actually recommend that they don't make that leap of faith.

It's better to be in a world where you understand what you're investing in and why, as opposed to being completely lost.

KM: What about Bill Gates? He understands technology and was a big part of the Internet innovation period. Why is he so vehemently against crypto?

BL: I feel as if this is more of a one-off case– Microsoft was often behind the curve on technology adoption. They were very good at acquiring companies when they were falling behind and staying relevant in that sense, but they weren’t necessarily known as a forward innovator.

I think Gates doesn't really represent that group of past-generation innovators and early adopters. There are a lot of old-school tech gentlemen and founders who really embrace Bitcoin today.

I feel that Gates really adopted the Buffett mindset, and describes him as a mentor, as well.

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Investment for novices: setting specific goals

KM: With that in mind, what are the most important things that potential investors need to know and understand about cryptocurrency to help them make informed decisions?

BL:

It comes down to the question I always ask: what is your goal? Are you a trader? Are you active? Or do you just want to get some overall exposure to a new industry and not be left behind from a portfolio standpoint?

Let's take the investment side. You may just want to have about five percent of the portfolio as an investor in Blockchain. You want to be with the blue chips of crypto– obviously, Bitcoin is number one by far. Then, you also want understanding what Bitcoin is, get an overview of the technology, read the white paper. There are plenty of resources out there to understand what Bitcoin and the Blockchain technology is all about.

If you’re trading, it's about understanding risk management, trade management, the psychology of trading. There are fundamental trading skills that I feel everybody should learn if they are going to buy and sell any security or any asset class.

There are a lot of free resources out there for learning the basics. Bitcoin.live is different in that we are more analyst driven and much more tailored to crypto. We are talking about what Bitcoin is doing this week, and why, and how you could have traded the move, and what you should look out for from a risk standpoint.

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Regulatory stability will help mitigate risks

KM: How will clarity in regulation change the conditions for investment in the space? Will it legitimize crypto in the eyes of institutional investors and maybe even old school investors like Buffett?

BL: It’s two parts, in my mind. First of all, I’m more of a libertarian when it comes to regulation. I'm a capitalist, so my philosophy is very few regulations, but the ones that are implemented should make sense and should be enforced.

Second, I think we do need clarity across the board with all the agencies on what regulations are going to be put in place, and we need to get to that resolution quicker. Then, the capital markets can feel a little more confident that there's some stability in regulatory space where they can risk that capital. Right now they're concerned about making significant investments in this space because they don't know if their investment is going to get shut down by the SEC or some other regulatory body. And that's not good for the industry as a whole.

Without the lack of regulation today, there is rampant ICO scamming taking advantage of people’s gullibility. It happens in every big bull market – they're getting in as fast as they can, throwing up white papers over a weekend and raising in some cases millions of dollars.

Scams aside, some ICOs are legitimate, but they just really don't have any chance of coming to fruition over time. The intention is potentially good, but it's just not going to happen for 99.5 percent of those companies.

The more ICO failures we get, the more the Buffetts of the traditional investing world will look down on the space as being too immature for them to be seriously engaged and involved. That's just not good for the long-term viability of the industry.

Clearly defined Bitcoin cycles

KM: What are the Bitcoin’s trading cycles telling us about the asset?

BL: I've been mapping out Bitcoin cycles over the last couple of years.

I'm actually not surprised, but what we are seeing in the Bitcoin space is a very clearly defined 60-day cycle.

Of course, there are going to be shorter cycles and certainly, there will be long cycles over time, but I think we're still a little early in this technology for those to really shine and be very evident.

Right now we're near a 60-day cycle low, during which you normally get this really big “this is the end of Bitcoin as we know it” sell off. That happens every cycle low, and then you get this big reversal and swing in sentiment. Unfortunately, the cycles are telling me that we're still in a downtrend.

Even though after the cycle low we can get a really sizable rally over a month where the price can go up by $2,000 or $3,000, until I see real evidence that we’re broken out of a downtrend, I have to assume that the bear market is still in control.

That's where I see us right now– on the verge of another cycle rally, then probably another turn over the summer and into a cycle low, with maybe the end of the bear market coming in August.

But I don't know. I trade what the market is telling me as opposed to hoping and guessing where it could be.

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Bridging the crypto-generational gap

KM: A lot of people are shocked by the volatility of the crypto market as compared to the traditional stock markets. Has there been anything similar in terms of volatility, or is this the most volatile asset ever?

BL: Yes, I think it might be the most volatile, but volatility is actually decreasing pretty sharply from 2012-2014. As you get a wider adoption and you get more experienced participants from traditional markets, then you expect volatility to come down.

You also have to realize when you look at something like Bitcoin, it's not traditional in every way. Coins came on the market suddenly in 2009-10 and were traded for pennies. Nobody knew what these things were.

Gold doesn't have intrinsic value, we know that, but at least it has a couple of thousand years of relevance. This technology is just so different and new it just makes absolute sense that it’s got this type of volatility.

KM: When do you think crypto trading will become the new normal? When will we hit do you the tipping point when most people will be owning and trading cryptocurrency?

BL: There is a big divide out there. If you ask a room full of 20 and 30-year old traders, you're going to find that a big portion of them are trading cryptos only, have never traded a single stock in their life and have no interest in trading those stocks.

Then you've got the more traditional Schwab and TD Ameritrade accounts who go “Bitcoin? Crypto? What is that? Let me go onto Coinbase and try this out with my credit card.” I don't know if that divide will necessarily get bridged.

Certainly, once we get more clarity from the SEC and get more ETF product out there that can be bought and sold through a traditional broker– then I think you'll get wider adoption and more mainstream traders buying and selling crypto.

KM: It's interesting that this kind of contentious, volatile asset may actually serve as an entry point into the traditional markets for the younger traders.

BL: Exactly. The traditional brokers know that if they can offer a platform to trade crypto, they will have a customer base for decades after. And if they don’t get into this space, they're going to age with the boomers and generation X’s. So they need to get in and I think they will also put pressure on the regulatory bodies to allow them to start trading these cyber securities because they'll lose out if they don't.

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