S I LV E R 8 C A P I TA L
Quantitative trading strategy Ahead of the launch of their new quantitative trading strategy, GFM caught up with Manuel Anguita, CFA (Co-Founder of Silver 8 Capital) to get his views on recent developments What are the most significant changes you have observed in the market? How do these benefit investors and ultimately the industry as a whole? We started researching the space in 2014 and began trading in 2015. Back then, the total market cap of cryptoassets was below USD10 billion. At that time, there was sufficient information on the technology, but barely any professional investment analysis. We had to start from scratch, from developing a valuation framework to setting up every aspect of an investment fund, including new trading, legal and operational solutions tailored towards cryptoassets. Fast-forward to 2021 and the market cap has surpassed USD1.5 trillion! This marks a staggering growth in excess of 150x within a six-year period. The industry is still young, but much more professional, with ample trading solutions, financial instruments, custodians, law firms, research shops, etc. It has never been easier for investors to learn about this technology, evaluate its investment merits, and participate if they so choose. Where do you think the best opportunities are in the digital assets space? What is driving them? In our view, there are three distinct investment angles when it comes to cryptoassets: First, bitcoin has become a macro story: investors are attracted to its economic profile, which has the growth aspect of an asset that is experiencing a process of monetisation. Since the total addressable market of bitcoin as a new form of money is enormous, it does not need to replace any major currency to potentially reward investors with significant returns. In addition, bitcoin has a limited supply that is algorithmically determined (as opposed to discretionary). As such, bitcoin may naturally appreciate if inflation expectations rise. 6
This exposure to growth in its monetary uses, plus an inflationary hedge, provides a very compelling story given the macroeconomic environment that we are facing. Second, the industry is innovating relentlessly. Entrepreneurs are looking into every possible business application of this new technology, as we can see from the several thousand cryptoassets that exist today. From this perspective, cryptoassets offer a risk profile very similar to that of early-stage venture capital: most of these cryptoassets will fail, but a handful will most likely succeed, rewarding their holders handsomely. Investors looking for this type of high-risk/high-reward proposition will therefore be interested in gaining some exposure to the market. Third, purely from a trading perspective, these new assets are extremely attractive. Given the volatility, the industry’s growth rate, and increasing availability of financial products (including a growing number of derivatives), there are plenty of arbitrage opportunities for savvy traders. In addition, some of these assets show interesting statistical properties, which makes them particularly suitable for systematic trading strategies. How can investors best get exposure to these opportunities? It used to be the case that cryptoassets only traded on small and fragile exchanges. Counterparty risk was extremely high and difficult to mitigate, so access was limited to a small group of specialists. Nowadays, there are a number of sound and sophisticated venues where investors can purchase and take custody of cryptoassets. Probably the most well-known exchange is Coinbase, whose shares are about to trade publicly on NASDAQ (Silver 8 is an early investor in the company). Investors can also gain exposure to cryptoassets through derivatives, DIGITAL ASSETS IN FOCUS | Mar 2021
