As crypto investors we believe it is of utter importance which ‘sectors’ we invest in. This is the first decision we need to make before getting into the individual coins or tokens. We have written in the past that value creation is happening in native crypto assets along ‘moneyness’ and ‘governance’. There is also an argument that Security Tokens will be a massive application of open blockchain infrastructure. Two crypto assets with exposure to the security token market that we invested in are TrustToken and 0X. Broadly speaking the crypto asset space can be divided in three segments;
Infrastructure Tokens: We believe assets such as Bitcoin, Ethereum and Dfinity belong to this category.
Utility Tokens: A typical example is Binance Coin, used to pay fees on the Binance crypto exchange platform.
Security Tokens: This can be representations of real estate, VC interest or private equity.
Is there any value in the middle?
Due to the velocity problem, it is questionable what value we have in the middle, the utility token space. In making investment decisions, we are largely avoiding this space since its future value is so uncertain. Apollo’s security advisor Eric Wall just published this 30 part Tweet storm on the problem with utility tokens:
Eric ‘Altcoin Slayer’ Wall is one of the good guys.
So where does all of this leave us? We have identified our core sectors or categories where we believe the vast majority of the value in the space will be captured. These are:
Core investment verticals for Apollo Capital.
Note that there are also sub-categories, such as privacy coins and stable coins which we believe will play an important role in this ecosystem.
Crypto investors will have to determine if the market is big enough relative to the current valuation but also but also which investment properties matter. What makes crypto asset investments different from traditional investments is the open source nature of these networks. Being open source means that technology is improved and maintained by the community, and that most innovations (but far from all) can be copied and incorporated by any other project.
Fundamentally, we believe that crypto assets will have relative trade-offs, you can’t optimise a network on all the important variables. These are some of the properties we believe matter:
At the end of the day what you really have to evaluate are two things:
What is the project’s capacity to build the critical networks effect? Technology can to some degree at least be incorporated to the project over time.
Is the optimisation between the different ‘properties’ attractive and differentiated enough from other projects?
Value will accrue to moneyness and governance, not utility tokens. There will be a limited number of successful crypto assets that will be tremendously valuable. We will trust these blockchains to run the world’s native crypto assets, decentralised applications and today’s securities. Some of these blockchains will be as censorship resistant as possible, others will optimise on speed and privacy. Our job now is to build a diversified portfolio of assets to capture the future winners.
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Henrik Andersson is the Chief Investment Officer of Apollo Capital — Australia’s Premier Crypto Fund. The Apollo Capital Fund is a professionally managed portfolio of crypto assets, offering investors exposure to the fast growing crypto market. For more information, please see apollocap.io.