Back in 2008, I had it all, first as a statistical arbitrage trader with Goldman Sachs and then as a senior trader at two of Asia’s top hedge funds, managing upwards of $1.5 billion. I traded equities, foreign exchange, equity derivatives and convertible bonds. I even started my own fund, which raised $20 million in assets in its first year.
Attracting clients came easily, and so did the money. It helped me acquire and rent 22 single-family homes in the southeastern United States, which generated 9 percent in revenue annually. In short, the finance industry was good to me.
Fast-forward a few years, to 2016. The second I learned about blockchain and cryptocurrency, I walked away from my earlier career. Eventually, I became the CEO of a crypto-intelligence platform, CoinFi, and we’ve just completed a $15 million ICO. I work grueling hours for no pay and use my spare time to convince everyone around me that cryptocurrency and the blockchain, together, constitute a legitimate industry that has the same potential as the internet did in the early ’90s.
To be clear, I don’t recommend this path. It’s a risky one to take, and it’s riddled with potholes. But if you’re an entrepreneur worth your salt, you should be paying attention to the crypto space. Failing to do so could be costly.
Crypto? It’s a gold rush out there.
Compared to the equities markets, the crypto markets are the Wild West. This means virtually no regulation, crazy volatility and a rapidly evolving landscape. The risk is extraordinarily high, but for those willing to venture into uncharted territory to stake their claim, it also means opportunity to sell picks and shovels in a digital gold rush.
Of all the people who have written about getting rich during a digital gold rush, few are more qualified than Marc Andreessen. At age 23, Andreessen created the Netscape browser, which was acquired by AOL for $4.2 billion in 1999 at the height of the dot-com boom. He then formed the legendary VC fund Andreessen-Horowitz, which was an early investor in transformative Web 2.0 companies like Facebook, Pinterest and Twitter.
In a 2014 op-ed for the New York Times titled “Why Bitcoin Matters”, Andreessen described a pattern of emergence for mysterious new technology, which, after decades of research and development, appeared seemingly out of nowhere. The Establishment dismissed this technology as impractical, while technologists and entrepreneurs hailed it as revolutionary. They were transfixed.
Then, finally, as mainstream companies began to emerge, the technology seemed poised to become a part of our daily lives. And some people began to look back at the events leading up to that point and wonder how early observers could have been so blind to the technology’s disruptive power.
The technology Andreesen was describing? Actually, he was describing three types of technology, as he clarified in his op ed: “Personal computers in 1975, the internet in 1993 and — I believe [Andreeesen’s words] — Bitcoin in 2014.”
Crypto has a road map.
One truly remarkable aspect of Bitcoin’s particular gold rush is that the history of equities provides valuable insights into the future of the crypto markets; and that history illustrates how great, big windows will open – but only briefly. Just as arbitrage trading — the purchase and sale of equities based on price imbalances — was ripe with reward in early equities markets, crypto is following suit.
In late 2017, I published a video showing how investors could make a profit manually arbitraging trading crypto across exchanges. As of today, pretty much all of those easy arbitrage opportunities have dried up, as crypto funds have consolidated the market. But they’ll be no shortage of future opportunities that will pop.
Crypto is creating new markets and sub-industries.
There are still major hurdles to clear for crypto to be a mainstream asset class, but for entrepreneurs this risk is creating a level of opportunity not seen in decades. Unlike equities, crypto assets are bearer assets. As a result, taking custody of cryptocurrency is all about securely storing and protecting valuable secrets; and the recent news stories surrounding data breaches indicates just how vulnerable those secrets are when they’re accessible via the internet.
Just this one problem creates hundreds of potential security and storage solutions — solutions that have yet to be fully explored and built. The opportunity doesn’t end with security, though. Here are some other areas ripe for development:
Prime services – There is still only a very limited selection of prime services available in the crypto space. They include, for example, credit (borrowing and lending crypto assets) and trading tools and products (shorting, derivatives).
Market intelligence – There is still no single canonical source that provides all of the relevant market intelligence a crypto trader needs to stay on top of the markets, the same way a Bloomberg Terminal does for equities traders.
Portfolio and order management – Investors need more robust solutions; even simple profit and loss tracking broken down by asset isn’t yet available for current portfolio-management systems.
Transactional infrastructure – The crypto market’s unorganized, shallow liquidity pools means institutional investors looking to deploy tens of millions of dollars into the cryptocurrency markets face significant difficulty executing those orders efficiently. The result? Companies like Caspian and Omniex are developing institutional level offerings to address this gap, and Coinbase is rolling out systems to cater to traditional institutional investors.
The point is that opportunity is ubiquitous, and there’s no limit to the number of sub-industries that could spin off of just this one asset class.
Crypto is disrupting traditional finance.
In the early-to-mid decade of the 2000s, money poured into the hedge fund industry. A single trader with a big idea at a small fund could make millions. Then, after the financial crisis, the industry became more competitive and low interest rates forced institutional investors to play it safer and consolidate funds. The game was no longer about the big idea. Rather, the people who made money were an extremely small subset with inside connections. Ideas became commoditized, opportunities shrank and the market compressed (and continues to compress) to this day.
Yet even as traditional finance becomes more competitive and margins grow thinner, the crypto industry is exploding. Getting started in this industry early means getting in on the ground floor in a market that is still in high growth mode. Doing so will make it a lot easier to succeed than entering a market where the bulk of the profits already have been claimed by a handful of connected insiders.
Don’t miss the boat.
In the end, I didn’t leave Goldman Sachs and hedge fund glory for crypto because I needed the money. I didn’t even leave because I wanted to be my own boss, necessarily. I left because I didn’t want to miss the boat on something so exciting and so revolutionary that it had the potential to reshape the way our world works.
History tends to repeat itself. Right now, it indicates that once the infrastructure needed for institutional investing is built, there will be an inflow of institutional funds into the crypto markets, and that means opportunities like those seen at the dawn of the internet. Whether that map leads to a pot of gold at the end of the rainbow remains to be seen, but when the opportunity of a lifetime presents itself, my opinion is that it’s better to swing and miss than to strike out just observing.
Author: Timothy Tam