Seymour Asset Management CIO Tim Seymour and CoinShares CSO Meltem Demirors join host Melissa Francis, former CNBC, MSNBC, Fox Business, and FOX News anchor, to delve into the nuances of the digital currency market.
Melissa Francis: Welcome back to Magnifi by TIFIN. Today, we are talking crypto and the best way to incorporate it into a portfolio. Tim Seymour is CIO of Seymour Asset Management, and Meltem Demirors as chief strategy officer at CoinShares. Welcome to both of you.
Tim Seymour: Thanks Melissa.
Melissa Francis: You guys have both been pioneers in crypto. But before we get to that event, I want to get your reaction to what you heard Anthony Scaramucci say. Well, let’s start with crypto. I mean, he says he thinks it’s going to get to 100,000 in the next two years. What do you think about that?
Tim Seymour: Meltem, do you want to jump in? I’ll jump in. Yeah, I think we’ve seen a ton of volatility in crypto and Bitcoin markets in the last, probably five years. So the question of calling where 100,000 is the mark, I think the more important dynamic is that prices are moving higher and that the drawdowns of 20% to 40% seem to be somewhat garden variety. I think we’re going to get into this conversation, the fundamentals for owning Bitcoin.
Something I also heard Anthony talking about is the regulatory environment around Bitcoin is something that’s actually a friend to the pricing, and despite the decentralized nation and some of the ethos and the existential reasons for wanting to own Bitcoin, and I get it. Defi to the moon, but Bitcoin’s going higher.
Melissa Francis: Okay. So I didn’t understand the regulatory part of that. You think the regulatory part is going to get worse or better?
Tim Seymour: I think regulation is a tailwind. I think it gets better and I think more regulation means more adoption. Look, we know the institutional capital that’s been following it, and that’s certainly the pool of capital that I feel like I’m close to and I sit in the middle of. As far as I know, institutional money managers, they want the ability to invest, they want the ability to not have to CYA in terms of what their compliance teams and what the regulators have done yet to give it a green light. I think there’s a lot of money. I think there is a wall of capital on the sidelines.
Melissa Francis:Meltem, what do you think?
Meltem Demirors: Yeah, so I’ll go with Howard Marks’ advice here. He always says, “You can name a date, but not a price, or you can name a price, but not a date.” I certainly think what I’ve experienced over the last eight years as an investor in this industry is the lows are higher and the highs are higher.
I think if we zoom out and look at Bitcoin in particular, and we look at it over 10 year cycles, what we see here is a market that is very cyclical in nature. In Bitcoin, we go through about these four year cycles that correspond with Bitcoins having, or having in its inflation rate, it’s supply schedule. What’s really important to note is 85% of all Bitcoin that will ever exist have already been mined. The demand for Bitcoin continues to increase if we look at daily trading volumes, if we look at the demand coming from the structured exchange through to product side, which is the business we’re in at CoinShares.
What’s been interesting to note is, again, if we look at investment trends, it’s important to not focus on cycles, right? It’s important to focus on secular trends. If we look at the secular trend, if we look at what’s happening with the digitization in financial services more broadly, if we look at how distribution patterns are changing, what we see it’s no longer just financial institutions who are distributing investment products or financial products to end clients. It’s social media platforms, it’s apps, social trading platforms. So I certainly think, we believe in a future at CoinShares where every company in the world will be a financial services company. The future of financial services looks very different going forward than it did in the past.
The investment tastes of my generation, millennials, are changing and they’re very different, not of their parents. We’re in the midst of the largest wealth generational transfer in history, right? There’s 56 trillion in wealth that will transfer hands over the next 10 years. People want to invest differently.
What’s really unique about Bitcoin is Bitcoin is imbued with very specific social and political values, which is quite interesting. We have seen a shift with investors wanting to deploy their capital into things that align with their values.
We see this with the rise of ESG investing, we see this with the rise of investments in tech companies, some of which, like Tesla and others, resemble religions more than they do companies, quite frankly.
Melissa Francis: Or cults.
Meltem Demirors: Yeah. You know what? Cult, religion, I don’t differentiate. It’s all good for us.
Melissa Francis: Oh boy, yeah. So let me, let me stop you for one second there because I want to ask both of you guys if you are a modest investor or you’re someone who’s pitching to a modest investor, in one minute, how do you explain the value of investing in Bitcoin? Why must you do it? Tim, you go first.
Tim Seymour: Well, I’ll just point out that part of the rationale and the raise on debts for Bitcoin is ineffectual central banks around the world. So whether an outright inflation hedge, or again, think of the unfortunate global scenarios, that scenario that’s playing out in Russia, Ukraine. Think about the fact that, probably appropriately, the US, the UK, the EU said they’re going to freeze $300 billion of central bank reserves for Russia.
Look, that’s what should happen in what’s going on with this crisis. I get that. But if I’m another country around the world, then I see the autocracy, the ability of the reserve currency central bank in the United States or the EU, or the Bank of England. Look, that concerns me. And by the way, that’s all very dollar negative in the longer term. We can get into macro and what’s how we’re going to finance the US deficit, but I think this is all an argument for Bitcoin. I think it’s all an argument for why the investment thesis here continues on.
Melissa Francis: So Meltem, it’s basically that central banks and governments around the world are run by propellerheads, as Anthony Scaramucci would say. What’s your one minute argument?
Meltem Demirors: Yeah. It’s actually 10 seconds. Bitcoin is an antidote to chaos and institutional incompetence that you can own in your portfolio. That’s it.
Melissa Francis: Wow. That was a good one.
Tim Seymour: What’s a propellerhead, Melissa?
Melissa Francis: I mean, I don’t know. I’m going to have to go back and ask Anthony. It’s something that he’s not, apparently.
Tim Seymour: Of course, of course.
Meltem Demirors: I’m picturing people with the little hats. With the little hat with the thing on top. I don’t even know. Is that what that is?
Melissa Francis: Yeah, so he’s dating himself. He’s dating himself.
Tim Seymour: I don’t think he’d put anything on his head that would mess up his hair. I might not either, for that matter.
Melissa Francis: Great, great point. All right, Meltem, let me ask you. So CoinShares does both passive and active crypto investing. What’s the difference? What makes the most sense for whom?
Meltem Demirors: Yeah, absolutely. So there are very different styles of investing. Passive investing is all about providing exposure to the market beta of crypto and crypto assets. So what that means is investors may, for example, just want exposure to the change in price of Bitcoin. So our Bitcoin ETP is a perfect product for them. It’s a product you can buy through your existing brokerage account. You stick it in your portfolio, you don’t need to do anything differently, you don’t need to open an account on a crypto exchange, you don’t need to get a wallet. You don’t need to do anything. All you do is enter a ticker and all of a sudden you have exposure to Bitcoin’s market beta in your portfolio. So that is a passive product.
There are also indices that we build that are passive in nature, whereas active means that we’re actively changing the composition of the portfolio to reflect changing trends in the market. On the active side, we’ve seen a lot of demand, not only for baskets of crypto assets themselves, but also for baskets of companies in the equity space that derive their value from crypto activities. We have a crypto economy, ETF effectively, that tracks blockchain equities. Today there’s over $100 billion in market cap and publicly traded crypto companies.
We’re one of those. We’re publicly listed, but there’s Coinbase and a number of others.
Then the other trend that’s been really exciting on the active side is new opportunities to generate yield. So this is more appealing to debt investors using these new debt markets in the decentralized finance, or defi space.
And then obviously the sexiest thing ever, seeing an absolute explosion of capital inflows, venture capital. Everyone wants to be in early stage tech. It’s where the returns are. So there’s venture capital early stage investing in both digital assets or tokens themselves, as well as companies that are building the infrastructure, the picks and shuttles of this space.
Melissa Francis: Tim, don’t worry about hurting her feelings. She can’t hear you. What did you think of those ideas?
Tim Seymour: I said, “Wow,” when I heard sexy. Look, we’re all here on Magnifi TV and trying to have an interesting afternoon. Look, what I heard her saying about investing in an emerging asset class is really smart. I’m someone that’s been investing in emerging asset classes for most of my career. I was an EM investor, I ran a long short EM fund. I lived in Russia at one point. Now I’ve spent a lot of time. I’m an investor in cannabis.
What I see in new asset classes is that, first of all, active management is highly effective. These are still inefficient markets. Let the professionals do the active managing and let them manage it for you. I think there’s a case to be made here that this market will continue to become more efficient. I do think that there’s a dematic approach you want to take to investing in crypto, and therefore passivity is part of where you really want to be because I think the market will evolve with you.
But this combination of being a passive investor but being tactically active, I think makes a ton of sense here. I think investors have seen where Bitcoin started out to be really the only way to play. If we were having this conversation only three years ago, that probably would’ve been the extent of the conversation. Obviously people know all about Ethereum. I think all those folks watching Magnifi TV, I worry about all the NFT deals you’re seeing. I think you should be better off investing in Ethereum or Solana or proxy plays or something similar because that’s the part of what we’re talking about today that I also think we could wave a caution flag around.
Melissa Francis: Yeah. Meltem, I mean, as long as we’re talking about calculus, what do you think is the better play right now? Is it owning the asset or do you want to go with one of the derivative plays, and what would that be?
Meltem Demirors: I think that’s so dependent on your risk appetite as an investor and how much time you want to spend on this. I think the challenge today is owning a passive basket of assets or owning exposure through structured products is a great approach for a family office, an investor, who doesn’t want to change their operational infrastructure, their processes and create new accounts, manage assets in new ways. There is a bit of a learning curve when it comes to active management in this space. You do want to have someone who’s experienced in this, who understands the landscape.
As Tim alluded to, anytime there’s new technology, there’s high utopianism, which we have an abundance of in the crypto space. But there’s also high grift. There’s a lot out there that really has very little merit, that is really about optimizing for outcomes for the founders of these projects. These projects don’t have longevity. And so an active manager can help you avoid those pitfalls.
But it’s important just to be very cognizant of your investing style, your own appetite for risk, your own appetite for volatility. There’s some investors we work with who are very uncomfortable with volatility. So perhaps for them, having exposure to the venture category where they’re locked up for five to seven years, where they’re not subject to this constant market is a better exposure strategy. Some people are very uncomfortable with their reputational risk associated with some of these potential situations where we do have this grift. And perhaps for them, owning a basket of well-established widely traded currencies within a structured product wrapper issued by a reputable regulated financial institution is a better way to go.
So it really is a productive question. There’s no prescriptive, one size fits all formula. It’s really, I think, a product of how you operate, what your comfort level is with engaging with this new asset class and all of its different channels through which you can get exposure.
And then lastly, just really thinking about what you, either individually or as an organization, have the capacity to actually do on a day to day, month to month, year to year basis.
Melissa Francis: No, that’s a great point. Tim, kind of along those lines, where are you seeing value right now that’s not crypto?
Tim Seymour: Interesting. Well, first of all, I think one of the rallying points around crypto and what we talked about with the ethos of a world war, central banks may have lost control. There is chaos as Meltem pointed out. I think hard assets are clearly a place where people want to be. As someone that’s invested, again, in different cycles of the commodities world, this is clearly a place where I think we are seeing hard assets, but resources and that trade, it continues to be a place that’s very interesting.
This isn’t too us about supply disruption from Eastern Europe, and everyone’s heard the math, the numbers around… Ukraine is basically the fourth largest net commodity exporter. This is a case where think of the structural under investment that has gone into copper mines and gold mines and iron ore mines, and frankly, the villainization of certain parts of the commodity chain over the few years by multiple administrations. I think you’ve left us with a place globally where commodities, and again, if you’ve traded commodities, these are long tail cycles. Well, guess what? The last commodity cycle started in 2002 and actually went through the crisis of 2008 and actually caught some fresh life through 2011 or 12. But ultimately it really died there and left a lot of investors holding the bag.
Remember, again, a lot of these companies were run for bond holders, for the owners of the companies themselves, not for equity shareholders. What you’re seeing in equities, especially in the energy sector, and I think in the resource sector now, is these are companies that are actually run for equity investors because they have to be because we’re not falling for the drill to infinity anymore and that growth with a balance sheet that doesn’t make sense is something that works.
So again, I like PGMs here. I think gold is going higher. I think people have been shocked that gold hasn’t done more here. Look at the three year chart on gold. It’s also been volatile. But gold is a store of value. Gold is the ultimate inflation hedge. And yes, I believe inflation is going to be higher for longer and we could have that whole discussion. But no, it’s not transitory services inflation, which is ultimately a great thing when you think about the labor force and where lower to middle class folks are finally getting a living wage. Well, there’s a major delay in what that means in terms of the inflationary impact of that. This is perfect for gold. And I think gold is where central banks are diversifying. I think they are diversifying in Bitcoin and other crypto. I think that’s something that we need to think about.
Melissa Francis: All right. All right, real quick I want to get some predictions from you guys about year end. You can pick a commodity or if you want to do crypto, just give me a good prediction. Meltem, what do you think?
Meltem Demirors: Yeah, I have three sectors I’m looking at. The future of the digital world, which we are on screens from the moment we wake up to the moment we go to bed and in our sleep we’re being tracked by digital devices, it’s about three material inputs. Number one is… CLICK HERE to watch the rest of this interview at Magnifi by TIFIN
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