Q&A with Shezad Kapadia of AMSYS Capital

The crypto market offers uncorrelated alpha that can provide beneficial returns to those who are able to properly manage the volatility swings that the market goes through daily. The market is traded 24/7 so there are lots of strategies that can be implemented to take advantage of the lack of participation from seasoned traders and institutional algorithms. Since the market is still in its early stages as many of these token companies are considered as startups, there is massive potential being a new market where these startups can turn into full-fledged companies.

Institutions, Family Offices, and other traditional investment vehicles have faced significant regulatory and custody issues up until this point. Many prominent exchanges don’t fall under US jurisdiction and are basically unregulated. This has led to wash trading, dishonest business practices, and non-transparent operations. While this may strike some as a reason to avoid Crypto assets, it is simply growing pains of a new asset class. As this asset class matures, honest and reputable exchanges have solidified their position and the bad actors are slowly being washed out. Between Fidelity recently offering Bitcoin trading and custody solutions and the CME exchange bitcoin futures contract hitting record daily volume over half a billion dollars, with proper due diligence, exchange security and custody are no longer the major concerns they once were. Adding Crypto to a diversified portfolio offers tremendous potential benefits. To start, Crypto assets have effectively zero correlation to any other asset class and added to a portfolio can reduce volatility and enhance returns. the average rolling one-month correlations range from slightly negative to slightly positive, with an average correlation of zero. This provides evidence that digital assets can be considered a diversifying component in multi-asset portfolios. Moreover, many digital assets are imperfectly correlated to one another, which means there are even more diversification benefits within the asset class itself. Crypto assets offer unique market opportunities and risks, thus creating a diversifying return stream for investors. As such, they should be considered a component of the optimal beta portfolio alongside traditional assets such as equities, bonds, and real estate.

The public at large has yet to fully understand the world changing implications of the Crypto industry. Most think it to be a speculative bubble based on false hope and assumptions, a mania with no basis in reality. As with technology revolutions of the past, Crypto requires thinking outside of traditional metrics and definitions of value. In the early days of the internet the scope of its impact was once estimated to be the collective users of the post office and newspapers. It was difficult to see the potential with the limited tangible products. People had trouble understanding how the democratization of information could have world changing implications. Much like the internet opened Pandora’s Box for information, Crypto is doing the same for value. Crypto can be thought of as “the internet of value”. Open, distributed ledgers and permissionless, censorship-resistant, trust-minimized computation are going to reshape massive sectors of the global economy. Currently, much like the internet in 1995, the products and usability are a bit of a mess, and regulation is only starting to come together. The potential however, is profound. Use cases span non-seizable assets, censorship-resistant prediction markets, asset tokenization, new online advertising systems, and jurisdiction-less enterprises.