One of the most well-known investors in the cryptocurrency space is Olaf Carlson-Wee, the founder of crypto-hedge fund Polychain Capital.
The first video I watched about him was a podcast from Y Combinator, between Aaron Harris and Olaf Carlson-Wee:
In this video (posted on 19 July 2017):
[02:25] Olaf talks about how hard it is to use traditional hedge fund strategies such as Long/Short and techniques such as margin trading when it comes to cryptocurrencies/digital assets (Olaf prefers the term ‘digital assets’ over ‘cryptocurrencies’ because he thinks that the blockchain technology has many more applications than just storing value and as currencies). Because of these difficulties, Olaf invests long-only and for the long-term. Most of his time is spent reading research papers.
[03.20] Rebalances the portfolio every 90 days. Goal is to keep positions for years.
[5.30] Olaf explains what he’s looking for when he’s reading white papers.
- A novel idea, a new application. Something that’s never been tried in a crypto framework.
- A fork of an existing idea is not that attractive for him.
- Something written from the ground up. “Ethereum was not a fork of Bitcoin.” and eg Tezos.
- Bets on people with great ideas.
[09:40] Likes Filecoin – a decentralised, distributed server architecture.
Likes ITFS (InterPlanetary File System).
[14:00] We can’t really picture what Web 3.0 (a decentralised web) will actually look like. What are the use cases for Web 3.0? What will be the components and architecture for Web 3.0?
[19:35] Thinks DAOs will be big over the next few years.
[29.40] Really goes in hard on Tezos (unfortunately, given their legal woes. Although, this might not detract from the project itself)
[40.00] really seems to be against traders and speculators, particularly when it comes to ICOs. He concedes that maybe long-term speculators are okay. 🙂
[44.50] Which protocols/projects is Olaf excited about right now?
- Ox (pronounced Zero X) 0xproject.com
- Maker and StableCoin makerdao.com
- (Mentions Augur and OpenBazaar)
[52.11] What blogs does he recommend people read if they want to dig deeper? He thinks most people haven’t done their research. He likes the IPFS team’s blog (I couldn’t find the blog he was referencing with Jesse?) as well as CoinList, a collaboration between AngelList and IPFS.
The next resource I listened to was Forbes’ Laura Shin interviewing Olaf for her excellent podcast Unchained
(Unchained is simply excellent and I only found it after googling Olaf to find out more about him. Definitely worth a deeper dive into this podcast very soon).
To find Laura’s podcast with Olaf, scroll down this page to Episode 17 | MAR 7, 2017 | 56:08
Why The First Employee Of Coinbase Launched A Hedge Fund
[19.00] How Olaf got into working at Coinbase. He was the sole front-line customer support until 250,000 users (!). He used an automated initial reply called Roger to help cope with this volume. Then hired support teams using a tough assessment test on Bitcoin (The Bitcoin SAT). (I found this on Olaf’s original Reddit post looking for new staff. Here’s the test. I’d love to see the answers to this!)
[28.50] Becomes Head of Risk at Coinbase.
[30.00] Got deep into the Ethereum ecosystem.
[32.00] Really starts to get excited and Olaf is excited about Golem (a peer-to-peer renting processing power protocol).
[35.00] Laura asks why these projects are creating tokens and not just using Ether or Bitcoin? Olaf argues that these tokens have beneficial network effects in that they help promote the project they relate to. Almost like having shares in the project. Like being an equity owner in a private company. (My interpretation: Their value appreciation is tied to the success and growth of the project. There are also returns such as dividends from some of these tokens etc.)
[38.00] How to decide what are legitimate or good tokens?
- Read white papers religiously – does it make sense?
- Looks at the codebase on Github
- Looks at Github ‘forks and stars’ (are other developers playing with this protocol?)
- Talk to founding team
[42.00] What are the reasons that you might pass on an investment?
- Where the token doesn’t make sense for the project it’s from. (Is this building network effects or is it not? If not, then it doesn’t make sense)
- Where the token’s success is tied 1:1 with the success of the project
[43:40] What are the projects/tokens that he’s excited about right now?
[47:20] There is regulatory risk facing the crypto space.
[49:00] GREAT QUESTION. How do you keep your digital assets secure? Bitcoin, Ether etc.
- Industry standard cold storage. Totally new computers that don’t ever touch the internet. Sending a crypto from online to totally 100% offline storage.
[51:10] Why did a VC invest in a hedge fund? This is a unique asset class.
- Bitcoin companies have raised 1.4bn in VC funding.
- Ethereum-based companies have raised 300m in non-VC money.
Further reading on Olaf Carlson-Wee: