Henrik Andersson

Why Crypto Assets Can be More Valuable than Equity

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We often hear that crypto assets are not equity and therefore not valuable as an investment — i.e. they are great for the issuers as they don’t dilute shareholders. This is not necessarily the case.

Let’s have a look at Binance, whose CEO Changpeng Zhao in a recent interview said he believes their token Binance Coin might be more valuable than their equity. Simplifying somewhat, the company makes money by charging a commission on trades. The equity is a claim on the net profit, after all costs associated with running the exchange, all technology, marketing and personnel cost and so on. The company can choose to reinvest the profit or distribute that to its shareholders. The token, Binance Coin, gives you a discount on the trading fees on Binance. If the discount is 50%, all else equal, then half of all value should be captured in their token, less will flow down to shareholders. If the discount was 100% then no value would be captured by shareholders and everything would flow to token holders. The token holders thus capture value higher up the income statement.

Binance is disintermediating the company Binance in favour of Binance Coin.

Binance is disintermediating the company Binance in favour of Binance Coin.

With Bitcoin there are no shareholders, no CEO, no board of directors. All value is captured in the token, lower case bitcoin. The people working ‘for Bitcoin’ are mostly volunteers contributing to the open source code. There are some exceptions, the for profit company Square recently announced they are hiring Bitcoin and crypto engineers to contribute to the project.

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The crypto landscape has seen the emergence of a new a kind of organisation not driven by shareholders but by a team working on a common project where the economics are centred around a crypto asset. Take MakerDAO as an example. MakerDAO is a decentralised lending facility on top of Ethereum. There is a not-for-profit foundation behind MakerDAO that can sell Maker tokens (currently in the top 20 of crypto assets) to finance the development of the MakerDAO system. The Maker token derives value from users borrowing money through ether collateralised loans — interest payments is made in the Maker token. Thus the Maker token is another example of a top income statement claim. There are no cost items that the Maker holders have to pay before realising value. That’s not a coincidence. The economics of crypto projects are driven by:

  • Open source. These projects need to be open source, otherwise they wouldn’t be ‘trustless’. If they were not trustless, they wouldn’t need to be built on a blockchain to start with. Unnecessary rent seeking in the open source protocol, will lead to a fork — someone will fork out the excess protocol level taxation.

  • All value captured in the token. Since any other value-capture can be forked out, there is no value left for profit seeking shareholders.

In the brave new world of crypto, we see that shareholders are replaced by token holders. Employees are replaced by volunteers, grants or paid-in-token by the protocol contractors. The token becomes a measurement of success, the employees of Binance want to get paid by Binance Coin. The founder of MakerDAO lives and dies by the success of Maker, the token.

In the next bull market, we believe Bitcoin will surpass the market cap of the largest company in the world. I.e. crypto networks can be bigger than a single company and crypto assets can be more valuable than equity. It is definitely not the case for all crypto assets, only the most well built crypto networks adhere to the success formula described here. It’s our job at Apollo Capital to find these diamonds in rough.

Disclosure: Apollo Capital is a holder of Bitcoin, Binance Coin and Maker.

Henrik Andersson is the Chief Investment Officer at Apollo Capital . Based in Melbourne, Australia Apollo Capital invests in the crypto assets that are powering the next generation of computing infrastructure. For more information, please see apollocap.io.

Crypto is Cutting the Gordian Knot of a Complex Financial System

Satoshi vs. the legacy banking system.

Satoshi vs. the legacy banking system.

The Gordian Knot is a legend of Phrygian Gordium associated with Alexander the Great. It is often used as a metaphor for an intractable problem (untying an impossibly-tangled knot) solved easily by finding an approach to the problem that renders the perceived constraints of the problem moot (“cutting the Gordian knot”) — Wikipedia

Crypto Assets cut the gordian knot of an increasingly regulated, compartmentalized, balkanized, complex financial system. We think that’s a pretty accurate metaphor for why crypto assets are important.

Before we had crypto assets, individuals had to trust centralised companies, institutions and central banks. Maybe more importantly, in doing business those institutions had to trust other institutions, creating layers of trust with a legal system around it. This has a created financial system that is:

  • Increasingly complex. Financial engineering to manage risk between financial institutions and speculators has created an immense level of complexity.

  • Opaque. Today, no one has a good grasp of the real state of the global financial system.

  • Fragile. The current financial system tends to create great bubbles every 10–15 years with subsequent crashes that affect all of society and that leads to tax payer bailouts of our financial institutions.

Crypto assets can disintermediate the trusted third parties — it not just improves the current system but it can completely cut the gordian knot. 

Here is the most simple example we can think of — how the gordian knot is cut in an international bank transfer:

From Apollo’s Educational Deck.

From Apollo’s Educational Deck.

In the latest financial crisis of 2008, undetected derivatives exposure lead to the collapse of the financial system and too big to fail financial institutions had to be bailed out by tax payers. That event ironically lead to even more complexity. The Economist notes in an article ‘Too big not to fail’ that: ”The law that set up America’s banking system in 1864 ran to 29 pages; the Federal Reserve Act of 1913 went to 32 pages; the Banking Act that transformed American finance after the Wall Street Crash, commonly known as the Glass-Steagall act, spread out to 37 pages. Dodd-Frank is 848 pages long.”

Dodd-Frank created more agencies to overlook the system, more regulation and more complexity, more lawyers and more ways to game the system:

The every increasing complexity of the financial system.

The every increasing complexity of the financial system.

The red tape of Dodd-Frank is in stark contrast to the Open Financial System. We have seen the first glimpses of new financial primitives built on open blockchains, so far mostly on Ethereum. Credit, lending, derivatives markets open to anyone, anywhere. These new crypto powered systems are:

  • Open and transparent. The rules are coded in software. There is no ambiguity about the state of the system.

  • Permissionless. Open to anyone, anywhere. A mobile phone and Internet connection is all that is needed for access, no red tape.

  • Unstoppable. Transactions are uncensorable and have the reach of the Internet.

In addition, since these system are open source, and powered by crypto assets, the stakeholders are more distributed and the financial upside obtainable outside of Wall Street insiders.

Modern society has greatly increased the ability to organise humans on a greater and greater scale. But this social scalability has come at a cost of greater and greater complexity. Crypto networks solves this complexity problem of social scalability. Bitcoin created money seperate from the state. Bitcoin has global reach, without having to trust a third party. Now, other financial infrastructure is being recreated, seperate from financial institutions and the complexity of what Nick Szabo calls ‘wet code’

Building a better financial system is an exciting future which will play out over the coming decade and that we want to be part of.

Henrik Andersson is the Chief Investment Officer at Apollo Capital . Based in Melbourne, Australia Apollo Capital invests in the crypto assets that are powering the next generation of computing infrastructure. For more information, please see apollocap.io.

Software is Eating Software


In 2011 Venture Capitalist Marc Andreessen wrote an article in the WSJ titled ‘Why Software is Eating the World’. The gist of that article was that more and more major industries and businesses were being run on software. Thus it would makes sense to invest in this new infrastructure despite the market creating a dot com bubble at the end of 90s.

We believe that crypto assets are powering a new generation of software and that this software has the power to disrupt many of today’s industries and businesses which in turn are run on software. However, we are not just talking about a new generation of software that is replacing the current system, we are talking about something much bigger — software that is displacing current business models. Just like Amazon disrupted bookstores, this new generation of software called crypto networks will disrupt some of today’s businesses built on software.

This new paradigm involving crypto assets that ends up with Software Eating Software is likely to play out in a gradual fashion going through different phases. Below I outline a possible scenario how it might play out:

Phase 1 — Software Eating Commodities

Digital scarcity was the first application of crypto assets. Bitcoin like gold is scarce but is superior in many other ways through the power of being based on software. Bitcoin is programmable, can be stored more easily than a physical commodity, it can be sent quickly and effortlessly like an email, it can be easily divided and unlike gold its authenticity can be easily verified with software. 

So in phase 1 of this crypto based revolution we have digital scarce objects and specifically Bitcoin as a digital Gold:

A physical commodity like gold can be displaced with a crypto network like Bitcoin.

A physical commodity like gold can be displaced with a crypto network like Bitcoin.

Phase 2 — Software Eating Contracts

In the second phase we have software performing simple contracts. These have so far centred around certain well defined financial contracts. These have recently gained traction in what has been called the Open Financial System or Decentralised Finance (DeFi). Contracts range from lending, borrowing to derivatives prediction markets and decentralised exchanges. 

This is still a young market and many of the first services have just been launched in the past 6 months.

Contracts can be replaced by software in crypto networks.

Contracts can be replaced by software in crypto networks.

Phase 3 — Software Eating Software

In the third phase software primitives that have been developed and battle tested in phase 1 and 2 will be combined and reiterated over to create whole new applications that disrupt current businesses.

There will be new services built on the building blocks of the Open Financial System that will take market share from current centralised businesses for lending and borrowing. The first users will be those that value a permissionless and censorship resistant service. Many might be based in the developing world where access to financial services is limited.

Likewise, Decentralised Exchanges will take market share from more centralised brokers and exchanges with customers who value the obvious benefits of no or little counterparty risk.

Those who value a social network free from censorship might move to a more decentralised network built on top of a blockchain.

Today’s shared economy companies such as Uber, AirBnB etc could also be built on an open network — with no rent seeking middlemen.

Software based businesses is replaced by open source software.

Software based businesses is replaced by open source software.

These new blockchain based ‘businesses’ can be fuelled by crypto assets and the token-economics of the network act as a catalyst for adoption. No financial institution needs to be behind tomorrow’s lender, no company needs to be behind tomorrow’s Twitter, no platform fees need to be levied tomorrow’s Uber driver. Simply put, these could be the new public utilities built on open source code accessible anywhere by anyone at anytime.

10 years after the Bitcoin whitepaper, there is a growing consensus about the value of Digital Scarce commodities. We are seeing the first iteration of blockchain based contracts. Over the coming 10 years we will see crypto networks disrupt current businesses which in some cases will be replaced with open source software which for the first time can replace third parties and middlemen with open networks — this is the exciting new era of computing.

Still we face many challenges. Blockchains are slow, and in some cases they have proven to be insecure due to too much centralisation. Just like after the dot.com crash people are focusing on the bubbles and crashes that markets create and not on the breakthrough innovation.

Many of today’s crypto networks will fail to live up to the expectations. Still we see some of the best engineers working on solving some of the current challenges — that’s a huge opportunity and where we are putting our money to work.

Henrik Andersson is the Chief Investment Officer at Apollo Capital . Based in Melbourne, Australia Apollo Capital invests in the crypto assets that are powering the next generation of computing infrastructure. For more information, please see apollocap.io.

Crypto as a Force for Good

Index of Economic Freedom

Index of Economic Freedom

As crypto investors we are sometimes faced with the question about the usefulness of crypto. While we believe crypto assets can be the foundation for a new kind of trust infrastructure not just for money but more generally for contracts — we will here think about crypto as a form of money.

Living in Australia or another developed country in Europe or North America it can be hard to understand how important it is not having to trust the whims of the ruling party, a king or a brutal dictator with your money.

Holocaust survivor Ruth Weitz writes in “Flares of Memory — Stories of the Childhood during the Holocaust”:

Hoping to escape from the concentration camp, I had sewed coins inside the waistband of my dress before going there. Within the hem of my dress I sewed my mother’s engagement ring, and I secured a gold chain inside my long braid of brown hair. I knew the consequences were death if I were caught, but I wanted to be prepared.

Imaging if the jews trying to flew the holocaust had a means to protect their wealth by just remembering 12 words or a passphrase instead of hiding gold and risk being caught. 

With cryptocurrencies like Bitcoin that becomes possible, a potential store of wealth which is becoming speech. Uncensorable speech free from political influence, and not possible to confiscate.  

A current example of a country where people are really suffering under a brutal regime is Venezuela. Despite being a country with great natural resources its people are now struggling to survive. Due to poor governance, the inflation rate in Venezuela averaged over 32% from 1973 until 2017 before exploding in the last couple of years to over a million percent.

Fast collapsing Bolivar.

Fast collapsing Bolivar.

Carlos Hernandez, a Venezuelan economist, describes how Bitcoin has saved his family by keeping all his money in Bitcoin and only exchanging it for Bolivar when needed. He also tells the story how for anyone leaving Venezuela having money that is borderless and can be stored with just a passphrase in your head prevents people from getting their money seized by the military.

LocalBitcoins.com was founded in Finland in 2012 and has since then been a major peer-to-peer platform for buying and selling Bitcoin. The volume as measured in Bitcoin in Venezuela just hit a record on LocalBitcoins:

Data from coin.dance.

Data from coin.dance.

Cryptocurrencies in addition to becoming a store of value that is unseizable are programmable money that could potentially provide checks and balances for dictators which has throughout history made off with great fortunates:


It’s our belief that crypto assets is a new computing platform for trust. Specifically as money it has some important traits that humans have been valuing for millenia. It has the same kind of robustness and scarcity that gold has. We can now for the first time do scarcity in a digital form, going the full circle:

Source: Apollo Capital, Nick Szabo.

Source: Apollo Capital, Nick Szabo.

Cryptocurrencies are not yet private enough to protect us against all adversaries — maybe it most pressuring weakness. Supporting the opposition in a dictatorship using cryptocurrencies is still dangerous if you’re not very technical oriented and even so it is very hard to be sure that your transaction can’t be traced. There is still a lot of work to be done to make digital currencies as trustless, permissionless and as censorship resistant as possible.

Clear, however, is that as a store of value that can’t be seized or deflated by an irresponsible government is, as Carlos Hernandez puts it, “more than a buzzword when you live in a collapsing dictatorship.” 

At least when it comes to the digital dimension we finally have an opportunity, thanks to crypto assets, of moving the discussion from “don’t be evil” to “can’t be evil”.

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.

Social Media x Crypto

The wonderful graphic of  https://cash.app/bitcoin

The wonderful graphic of https://cash.app/bitcoin

The next 100 million users of cryptocurrencies might very well come from the big social media platforms. We predict that in 2019 some of the big platforms will make their first moves. 

This trend really showed up on our radar in a real way when in January 5, 2018 Mark Zuckerberg, the CEO of Facebook, posted his new year’s resolution:

For example, one of the most interesting questions in technology right now is about centralization vs decentralization. A lot of us got into technology because we believe it can be a decentralizing force that puts more power in people’s hands. (The first four words of Facebook’s mission have always been “give people the power”.) Back in the 1990s and 2000s, most people believed technology would be a decentralizing force.

But today, many people have lost faith in that promise. With the rise of a small number of big tech companies — and governments using technology to watch their citizens — many people now believe technology only centralizes power rather than decentralizes it.

There are important counter-trends to this — like encryption and cryptocurrency — that take power from centralized systems and put it back into people’s hands. But they come with the risk of being harder to control. I’m interested to go deeper and study the positive and negative aspects of these technologies, and how best to use them in our services.

It became clear that the biggest social media platform in the world is seriously looking in to cryptocurrencies. It was followed by a report by Bloomberg in December of 2018 detailing how Facebook is developing a stablecoin for WhatsApp. WhatsApp is Facebook’s popular messaging platform with around 1.5 billion users worldwide — more than any other messing app. After Facebook this month (February of 2019) made their first crypto related acquisition, recently media reports have surfaced detailing their hunt for further crypto acquisitions. We are really excited about what Facebook/WhatsApp will do in 2019.

Jack Dorsey is the co-founder and CEO of Twitter and founder and CEO of Square, the mobile payment company. It is increasingly clear he is a major Bitcoin bull. In March of 2018 in an interview with The Times of London, he said:

The world ultimately will have a single currency, the internet will have a single currency. I personally believe that it will be bitcoin

He personally invested in Lightning Labs, a company developing the technology, Lightning, for scaling Bitcoin and shared the stage with its co-founder Elizabeth Stark at Consensus in New York last year.

Jack Dorsey and Elizabeth Stark

Jack Dorsey and Elizabeth Stark

Square’s CashApp is already a top 10 mobile app in the US for peer-to-peer payments — they have had the functionality to buy Bitcoin for a while (btw a functionality that was developed by their engineers here in Australia!).

I speculate that Square will soon enable Bitcoin as a payment method on their readers you see at merchants in many countries around the world:

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Square could also be leading the adoption of Lightning and micro payments, as their CEO has confirmed is a question of ‘when’ not ‘if’ that technology is rolled out on CashApp. Lightning enables payments of as little as 1 Satoshi, that’s 1/100 millionth of a Bitcoin. Micro payments could make our money ‘streaming’ and enable us to get paid and pay for services on a per usage or per second basis.

But the reality is Jack Dorsey could very well have much bigger plans than that:

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Maybe a little ‘Too soon’ but social media platforms like Facebook and Twitter could indeed become the new banks in the decades ahead.

Last year we spoke with Josh Goldbald from Mobilecoin. They work with Signal to launch a new privacy centred cryptocurrency. Signal has been on the frontier of messaging apps for some time. It was the legendary developer behind Signal’s technology, Moxie Marlinspike, that helped Facebook deploy its end-to-end encryption in WhatsApp.

Telegram with its 200 million users did an ICO last year. They raised USD 1.7 billion from over 100 investors. According to Media reports Telegram’s blockchain is 90% developed and is looking to launch as soon as next month with a focus on Asian countries including Japan. Telegram is already a favourite messaging platform in the crypto space and might be the first big social media platform to launch a native cryptocurrency.

Pavel Durov, CEO of Telegram, always dressed in black.

Pavel Durov, CEO of Telegram, always dressed in black.

It is clear that some of the leading social media platforms are gearing up to dive into the crypto markets. Due to the sheer size of social media and messaging platforms they could be the on-boarders for the next 100 million people into crypto. Watch this space in 2019.

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.

Happy 10th Birthday Bitcoin

Front page of The Times Jan 3, 2009

Front page of The Times Jan 3, 2009

Today marks the 10 year anniversary of the launch of the Bitcoin network on January 3, 2009.

The network started with what we know refer to as the Genesis block or block 0. Encoded in the Coinbase of this very first transaction is a message: 

The Times 03/Jan/2009 Chancellor on bring of second bailout for banks”.

Coinbase of Bitcoin’s Genesis block.

Coinbase of Bitcoin’s Genesis block.

(You can see this for yourself on eg. Blockchain.info’s block explorer if you enter the first transaction hash: 4a5e1e4baab89f3a32518a88c31bc87f618f76673e2cc77ab2127b7afdeda33b)

I think there are two reasons why Satoshi included this message:

  • It proves that the network wasn’t pre-mined. Bitcoin is a distributed timestamp server — by submitting a transaction to the Bitcoin blockchain we can prove that an event didn’t take place later. By including a headline from a newspaper, Satoshi proved it also didn’t take place beforehand. No one cheated, it was fair game with no undue advantage.

  • It wasn’t any message. Bitcoin has libertarian roots. The launch of Bitcoin took place during the last financial crises and and the headline talks about ‘bailout for banks’. Bitcoin unlike the banking system is not based on debt but offers an alternative form of money, a digital bearer instrument.

Ten years later Bitcoin has had an extremely consistent existence. Blocks are found about every 10 minutes, 24/7, 365, transactions are being confirmed and the network is growing. This is despite it being completely open, not controlled by anyone. It has endured an endless amount of technical and social attacks through the years. 

The longer an idea or a technology (really anything non-perishable) has been around without failing, the longer its future life expectancy — this is what author Nassim N. Taleb refers to as the Lindy Effect

We at Apollo Capital think that together with Network effect, the Lindy effect is key when looking at crypto assets. The network effect is why Bitcoin and other crypto assets have value despite having no IP, the code can be copied. The Lindy effect is the reason Gold has a value of USD 8–10tr while Bitcoin is at 68bn — less than 1% of Gold’s value. Gold has been around for a much longer time. The fact that Bitcoin has been around un-harmed despite all that has been thrown at it for the past 10 years bodes well for the next 10 years — it actually gives it more strength.

Today, the debt level in the banking system that caused the financial crises of 2008 is much less, however the total debt level in the world is at record levels. This is the front page The Times today, Jan 3, 2019:

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The Times warns that a number of British universities are on the brink of a credit crunch after embarking on a record borrowing spree.

We believe the next financial crises that might be fuelled by a long period of record low interest rates and corporate debt will be a net positive for crypto assets such as Bitcoin. While crypto assets are currently off their lows, the volatility in the stock market just increased at the fastest pace ever

Crypto assets is an uncorrelated asset class, still very young, small with a potential big upside. We think it makes a lot of sense to have some in your portfolio or as Satoshi expressed it:

“It might make sense just to get some in case it catches on.”
- Satoshi Nakamoto

At the bottom’s of today’s edition of The Times there is a block hash. The coinbase transaction of that block includes another message.


Thanks indeed.

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.