Henrik Andersson

Investment Highlight: Algorand

This is the first instalment of a series we call Investment Highlights where we briefly describe some of our current portfolio investments.

If we define Bitcoin as a first generation blockchain and Ethereum as second generation, then Algorand could be defined as third generation. Algorand was founded by Silvio Micali, a Turing award winning cryptographer and professor of computer science at MIT.

Algorand’s consensus algorithm is called Pure Proof-of-Stake. At its core is something called a VRF or a ‘Verifiable Random Function’. Micali, Algorand’s founder, was involved in introducing this cryptographic primitive in 1999. Much of Algorand’s security, scalability and decentralisation properties are thanks to this VRF (Dfinity, is another Apollo investment that utilises this primitive in its consensus algorithm). For each block, the VRF essentially selects a random set containing 1,000 tokens where holders validate the block. Each block is produced in below 5 seconds. The result is a protocol with potentially a very attractive set of tradeoffs between fast confirmations, robustness and security (Algorand requires that 2/3 of participants are honest). Despite being a Proof-of-Stake network, Algorand doesn’t have slashing as they don’t feel this is necessary to protect against bad behaviour. In our discussions with Algorand they do seem to be flexible on this point — this is something that could be implemented down the line if required.

To keep the network as lightweight as possible and to avoid unwanted complexity, Algorand will try to do more in layer 1 instead of at the level of turing complete smart contracts (layer 2). In our dialogue with Algorand, they expressed a goal to replicate ~95% of the functionality of current Ethereum use cases with layer 1 technology.

While Algorand has been criticised for not being completely permissionless, it is our understanding that they do have a strong emphasis on quickly becoming highly permissionless and decentralised. While a non for-profit foundation in Singapore governs the network, they have a for profit company in Algorand LLC which will provide support services to the network à la the Linux/Red Hat model.

From left to right: Algorand founder Silvio Micali, Apollo Capital CIO Henrik Andersson and Algorand LLC CEO Steven Kokinos

From left to right: Algorand founder Silvio Micali, Apollo Capital CIO Henrik Andersson and Algorand LLC CEO Steven Kokinos

The goal of Algorand is to ‘democratize finance’. This is an ambitious goal that falls well within our Investment Thesis. Our sense is that Algorand will initially focus on tokenised assets, stablecoins and different types of financial contracts.

Since the network went live in June, there has been an impressive list of announcement from Algorand in a short period of time:

  • Tether has announced they are integrating with the Algorand Protocol.

  • ISDA membership to enable financial organisations to use their existing templates and tools to easily create decentralised financial instruments.

  • Proposal to implement new fungible tokens and execution of atomic multi-party transfers (AMPTs) in layer 1.

  • New 200M VC fund, Algo VC Fund, focused on the Algorand blockchain platform.

  • IDEX, the leading DEX on Ethereum, will work on implementing a platform on Algorand using its layer 1 technology.

Apart from the above list, Algorand has shown impressive agility and innovation when it comes to token economics. Their first Dutch token auction in June contained an interesting buy back mandate. Algorand since then implemented an early redemption program for auction participants as well as a 200 million Algorand staking program. Talking to the team, it is clear that the 3bn Algorand to be injected into the ecosystem via auctions and other means will be done so over a minimum of 5 years. We also note that there has been a recent proposal to extend the token distribution to relay node runners from 2 years to 5 years which should, if accepted, lessen sell pressure in the medium term.

Algorand has a place in our portfolio as a base layer 1 blockchain that nicely balances a number of attractive tradeoffs and has so far impressed us with what they brought to market in a relatively short time frame.

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.

Bitcoin's Ever Increasing Scarcity

When Bitcoin’s creator Satoshi Nakamoto created Bitcoin, its inflation schedule was hard-coded in the software. It can not be issued beyond what the software specifies.

According to Satoshi Nakamoto:

The root problem with conventional currency is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve. We have to trust them with our privacy, trust them not to let identity thieves drain our accounts.

When Bitcoin launched in 2009, 50 bitcoins were issued every 10 minutes. That number is cut in half every 210,000 blocks —with 10 minutes between every block, that’s about every 4 years. This is the issuance of Bitcoin since 2009:

Source: Blockchain.info

Source: Blockchain.info

As we can see, close to 18 million bitcoins have been mined so far. If you look carefully you can also see two points in the history when the graph decreased its slope, in 2012 and in 2016. These points are called “halvening” points and marks the supply cuts. We are currently coming to the end of the third period when the supply is cut from 12.5 bitcoins every 10 minutes to 6.25 bitcoins. 

It is straightforward to calculate the total number of bitcoins that will ever be mined:

Screen Shot 2019-09-02 at 6.05.26 pm.png

Around the year 2140 the last bitcoin will have been mined and we will have the full supply of 21 million.

Lately there have been attempts to model this increasing scarcity in what is called the Stock-to-Flow model. For the below modelling we thank the pseudonym Planb, who writes on Twitter under the handle @100trillionUSD.

The stock of bitcoin is currently close to 18 million while the flow is around 0.7M per year for a Stock-to-Flow ratio of 25. The hypothesis is the Stock-to-Flow ratio drives value for a store-of-value type commodity like Gold or Bitcoin.

Source: PlanB

Source: PlanB

So far in Bitcoin’s life the price of Bitcoin has followed the Stock-to-Flow ratio remarkably well as can be seen in the chart above.

If we zoom out, we can look at where on the Stock-to-Flow ratio Bitcoin falls compared to other Stores-of-Value:

Source: PlanB

Source: PlanB

In the above chart, the coloured dots are Bitcoin while the grey dot is Silver and the yellow dot is Gold. Bitcoin has so far moved up and to the right as scarcity has increased. Note that the y-axis on the above chart is logarithmic and that the ‘market value’ of Gold is close to US$10tr vs Bitcoin’s current market cap of US$175bn.

I mentioned before that we are coming close to the next halvening event. In May 2020 Bitcoin’s supply will be cut in half again. Bitcoin’s inflation can be calculated as the inverse Stock-to-Flow ratio. After May 2020, Bitcoin’s inflation will be around 0.35/18=1.9%. That’s is below the target inflation of the global central banks —and from there it will only go lower.

We expect that the market will start pricing that event in closer to the end of this year. We think it’s wise for investors to consider a position as one of the world’s most scarce asset gets even scarcer!

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.

The Inevitable Future Enabled by Crypto Assets

With the release of Bitcoin’s white paper, Satoshi Nakamoto unleashed an unstoppable force.

With the release of Bitcoin’s white paper, Satoshi Nakamoto unleashed an unstoppable force.

The book The Inevitable by Kevin Kelly talks about 12 technological forces that will shape our future for the decades to come. The 12 forces that Kevin uncovers are inevitable because they are rooted in the nature of technology, not the nature of society. It’s a great read for anyone interested in our future and the big trends ahead of us.

I remember reading quite a while ago that one of Google’s design policies for new products was to imagine a world with unlimited bandwidth and ever decreasing cost of computer memory. They knew that technological advances would keep making Internet speeds faster and that, similar to Moore’s law, computer memory would become cheaper and cheaper every year. I.e. by realising the inevitable road ahead they could focus on designing the best products for this future world.

In a similar vein, Balaji S. Srinivasan, former CTO at Coinbase, recounts how the Internet was mocked back in 1988:


The Onion didn’t see the inevitable future of cheaper bandwidth that 20 years later would make streaming services like Netflix ubiquitous.

I’d argue that when Bitcoin was launched in 2009, Satoshi Nakamoto had showed the world the inevitable future of non-government based money. This was something that Nobel Prize winner Milton Friedman had foreseen 10 years earlier in 1999:

With the realisation that money is not something arbitrary that humans choose to adopt but rather that money with the best properties tends to win out over time — Bitcoin’s future looks bright. Fiat currencies have been inflated over time as governments can’t resist printing more. Secondly, security is unprecedented for a decentralised digital system like Bitcoin:


Many may dismiss Bitcoin due to things like:

  • Volatility — Crypto is known for being highly volatile

  • Custody — Doesn’t fit into existing custody models

  • Hard to understand — Crypto is a new paradigm that takes time to grasp

  • Poor UX — Crypto is a new technology where UX hasn’t been prioritised

We should ask ourselves are these really things that can’t be overcome with enough time and engineering effort? We won’t get into the details here but we certainly believe that the above issues can and will be solved over time.

Just as Bitcoin made non-government money inevitable and unstoppable, Ethereum showed us that smart contracts are inevitable. Smart contracts are contracts executed by software instead to humans. Some of the use cases of smart contract might take a long time to play out and some more exotic versions of the future enabled by smart contracts might never come to fruition.

However, what is exciting to us is that you can see a first glimpse of a new, more decentralised world, powered by smart contracts. Early applications include things like Ethereum based Compound where you can borrow and lend in a trust-minimised way:


With trust-minimisation we mean that we don’t have to trust the solvency of a financial institution. Compound and many other emerging applications in the Decentralised Finance space are built with smart contracts on Ethereum. While these platforms are still not mainstream, you have to on-board people to Ethereum and in many cases install a browser app like Metamask, having global access to financial services flowing as freely as information on the Internet is a glimpse into a more inclusive financial future.

The book The Inevitable lists 12 verbs that will define our future: Becoming, Cognifying, Flowing, Screening, Accessing, Sharing, Filtering, Remixing, Interacting, Tracking, Questioning and Beginning. Thanks to crypto assets like Bitcoin and Ethereum, we would propose to add the verb Trust-minimising to the list of inevitable forces that will shape our future.

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.

Bitcoin - a Macro Perspective

As of late, one of Bitcoin’s properties in particular, its scarcity, is increasingly coming into the limelight. Unlike Gold, we know Bitcoin’s supply coming to the market. Gold is an asset of limited supply but its supply curve looks distinctly different than Bitcoin’s:

Schematic view of the supply curve of Bitcoin and Gold.

Schematic view of the supply curve of Bitcoin and Gold.

In fact while more and more Gold is found every year, less and less Bitcoin will be mined over time. While we don’t know the amount of Gold in the universe, anyone running the Bitcoin software can verify that no more than 21 million bitcoins will ever be created. This is what we mean when we say Bitcoin is a hard asset, it is hard to create, and it will only get harder.

Right now the world is going through a global easing cycle, meaning that as central banks are cutting rates around the globe, more fiat currency is printed. This will likely create an increased demand for hard, scarce assets that can’t be inflated such as Gold, land, real estate and Bitcoin. 

A record amount of debt is currently trading at negative interest rates. While Albert Einstein has been quoted as saying “the power of compound interest the most powerful force in the universe”, the bond market will have to learn the power of negatively compounding interest.


Gold and Bitcoin might be attractive as the world is entering a new wave of global easing as they will never pay a negative interest rate. However, importantly, Bitcoin is also gaining another quality that Gold has — that of being a risk-off asset. 

I believe there are behavioural learning cycles that the market goes through to find these risk-off assets. Japanese Yen is well known to be a risk-off asset despite Japan having one of the highest (public-)debt levels to GDP in the world. However, every time that there is a flight to safety the Yen will appreciate in value, and because it has done that in the past investors know it is likely to behave the same way next time. This learning pattern after awhile becomes self fulfilling. I believe the same thing is happening to Bitcoin at the moment.

This is what happened when President Trump threatened to increase Chinese tariffs last week:


A trade war means lower growth, thus the yield on US 10 year government bonds (US10Y) went down. Lower growth means lower demand for oil, thus crude oil (WTI) fell. Stocks, S&P 500 (SPX), fell dramatically. Gold traded up and Bitcoin traded up the most. The Japanese Yen (JPY) is not in the graph above, but the Yen strengthen as well.

Today’s (Aug 5, 2019) big macro story is that the Chinese is warming up to the idea of using the Yuan as a weapon in the trade war with the US. The Chinese Yuan reached a level against the USD not seen in over a decade:

Aug 5 global macro turmoil.

Aug 5 global macro turmoil.

Again Bitcoin (and other crypto assets) is the high beta risk-off asset. Gold and JPY are also higher but not to the same extent.

To conclude;

  1. Bitcoin is a hard asset, in fact much ‘harder’ in terms of scarcity than Gold as the supply has a strict cap at 21 million.

  2. More macro driven cycles like the above examples and the market will have taught investors that Bitcoin should be among gold and JPY as a risk-off asset.

We believe the global macro climate with easing and a flight to risk-off assets is a good backdrop to being in crypto assets in the short to medium term and wouldn’t be surprised if we wake up to more headlines like the below in the coming months.


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 Breaking Out

Bitcoin got known by its creator, Satoshi Nakamoto, first publishing the white paper on The Cryptography Mailing List on October 31, 2008.

Bitcoin white paper available at bitcoin.org/bitcoin.pdf

Bitcoin white paper available at bitcoin.org/bitcoin.pdf

The network launched on January 3, 2009. At the time, it was just a very small group of cryptographers that knew about Bitcoin. 

Nine months later in November 2009, Bitcoin reached outside mailing lists and private emails as Satoshi created the Bitcointalk.org forum . The BitcoinTalk forum became the go-to place for discussion in relation to Bitcoin and also crypto in general and it remains popular to this day.

Bitcoin still wasn’t worth much if anything. In fact, it wasn’t until May 2010 that the first real-world transaction took place. The value of Bitcoin was then less than $0.01. 

In July 2010 Bitcoin was introduced to a wider audience with an article in Slashdot. The site at that time was billing itself as ‘News for Nerds. Stuff that Matters’ — a large but limited audience. Slashdot has a big following among computer scientists and thus Bitcoin got in the public limelight for the first time. The price skyrocketed 900% to $0.08 over five days. In would go much higher, in February 2011 a Slashdot article mentioned that Bitcoin achieved ‘dollar parity’ or $1.00 — a milestone in the two year old currency. But the price rally wasn’t over. Forbes and Gawker published articles and the price of Bitcoin increased by another 30x over the coming 4 months.

In November 2011 Bitcoin would break out to an even bigger audience as this time Wired magazine was writing an article about the ‘Rise and Fall of Bitcoin’.

From 2011 Wired article: ‘The Rise and Fall of Bitcoin’.

From 2011 Wired article: ‘The Rise and Fall of Bitcoin’.

Bitcoin collapsed in value by 93% from a peak of over $29 in June 2011 to a low of $2.00 in December the same year.

At the time, no one could know for certain if Satoshi Nakamoto had unleashed an unstoppable force or if Bitcoin would slowly lose even more value and never come back.

It turned out that Slashdot, Forbes, Gawker and Wired had taken Bitcoin out from the small circle of cryptographers and computer scientist into the consciousness of a much larger audience and created an unstoppable force.

Bitcoin didn’t receive much media coverage in 2012 but the price started moving up again and as price appreciated it was going to break out to a much larger audience once again.

In March of 2013 Bitcoin hit $100 for the first time. The widely followed financial news cable network CNBC started regularly featuring Bitcoin.

CNBC in April 2013.

CNBC in April 2013.

Suddenly Bitcoin was breaking out to an audience in the hundreds of thousands. Bitcoin started increasing in price rapidly and in January 2014 reached $1,000 — another milestone.

While the online conversation was still happening on the BitcoinTalk forum that Satoshi started, the Bitcoin subreddit on Reddit had become one of the most popular places for online discussion. In the following years a large part of that conversation was moving to Twitter — what is now known as ‘Crypto Twitter’.

With the launch of Ethereum in 2015 and altcoins came a new wave of activity to the market. In 2017 the market was ready for another rally. The ICO boom slowly grew from early 2017 and by mid year it really picked up speed. The coming 6 months would see record activity media coverage and all time high prices. The crypto market had attracted attention of millions of people. Crypto had in many ways truly broken out into the mainstream.

With price, media interest slowed down in 2018. However big institutions had their eyes on the market and in 2019 Fidelity and ICE (NYSE) both announced the launch of their crypto related offerings. What really got crypto back in the spotlight however was the announcement by Facebook that they together with partners are launching a crypto currency called the Libra Coin.

Crypto was once again breaking out to a bigger audience and for the first time we had the President of the United States commenting on Bitcoin (and Libra), we had the Federal Reserve Chairman being asked about crypto in a congressional hearing and we had the treasury secretary holding a press conference about cryptocurrencies.

Federal Reserve Chairman Jerome H. Powell in July 2019.

In the last month crypto has broken into the consciousness of the President of the United States and the lawmakers around the world. Federal Reserve Chairman called Bitcoin a speculative store of value, a digital gold and some lawmakers have come out as defenders of the unstoppable force that Bitcoin and crypto represent.

Crypto is a reflection of a common belief, a network effect that grows stronger the more people joins the network. In its short 10 year history it has managed to make waves that have been felt in all corners of society around the world and no time previously has the waves been as big as in the last month. No doubt, the next leg up will bring in even more people and give even more attention to crypto.

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.

Investment Thesis Refresh

In a fast moving field like crypto assets we believe in the merit of having an investment thesis that is not set in stone but is updated as the market evolves. Crypto assets are based on a breakthrough technology. Far from all applications have been explored yet and some known applications have unknown market potential.

Irrespective of our final destination, Apollo Capital’s mission is clear:


Let’s unpack this sentence. We are:

1. “Investing in the crypto assets that are powering the next generation of computing infrastructure”

This is a new generation of computing. Specifically this new type of computing is replacing trusted third-parties with software. We can now do ownership and transfer of value (money, collectibles), participation and execution of smart contracts solely based on open source software not associated with a company or organisation. Software is both replacing rent seeking middlemen and enabling completely new use cases.

2. “Investing in the crypto assets that are powering the next generation of computing infrastructure

We think it makes sense as investors to focus on infrastructure investments when the potential applications are not yet clear. By investing in infrastructure we are exposed to any possible application being built on top of that ecosystem’s critical infrastructure. 

Not only do we believe infrastructure is a good starting point at the beginning of a new paradigm, our thesis is that most of the value will be captured in the lower parts of this new technology stack, specifically in what is known as base layer 1 Blockchains and Middleware:

Source: Apollo Capital

Source: Apollo Capital

Base layer 1 blockchains are their own chains like Bitcoin or Ethereum while middleware typically are smart contract protocols being built on top of one or multiple blockchains. 

Our portfolio is balanced between layer 1 and middleware.

3. “Investing in the crypto assets that are powering the next generation of computing infrastructure”

Our investment thesis is that Blockchains and certain Middleware are enabled by crypto assets, these are critical for this new software system. These crypto assets are where the majority of value is captured in this new paradigm. Another way of putting it — crypto assets are the fuel for this new type of software.


We believe that there are two broad categories of applications for open blockchains: financial applications and non-financial applications. As we map out the Potential Value Capture vs. the Maturity of certain applications we end up with this picture:

Source: Apollo Capital

Source: Apollo Capital

We are convinced that the biggest potential value capture by crypto assets on open blockchains are related to financial applications. One reason why this is the case is that blockchains are only able to secure native blockchain assets and smart contracts related to those assets. Non-native blockchain assets like identity will be hard to secure using open blockchains. Furthermore, anchoring non-native blockchain assets like identity doesn’t necessary capture a lot of value in crypto assets. In many cases non financial use cases end up anchoring information (e.g. through a hash) to a secure blockchain like Bitcoin. This can be done relatively cheaply using only a nominal amount of bitcoin.

For these reasons, financial related verticals and the crypto assets underpinning these verticals are our investment focus at Apollo Capital, specifically:

  • Store of Value

  • Privacy Coins

  • Stablecoins

  • Open Financial System

These financial verticals will create an infrastructure layer for financial primitives that are:

1. Permissionless — accessible to anyone. Just like the Internet made the world’s information accessible to everyone with a smartphone, open blockchains will make financial infrastructure available to everyone with a smartphone and an Internet connection. And just like the Internet broke down the barrier for publishing information on the Internet, anyone will be able to create financial instruments by interacting with smart contracts.

2. Trustless — not dependent on a third-party but on auditable software. Just like the information on Wikipedia is not dependent on one third-party actor but a network of contributors, the financial infrastructure of the future will not be dependent on a single vulnerable actor like a bank, state or financial institution. 

3. Censorship resistant — financial freedom. The Internet is hard to censor, in the future our financial system will be hard to censor as the Open Financial System is borderless in nature and not tethered to geographical jurisdictions. 

Once the basic layer is built, composability of these building blocks will lead to more advanced financial primitives to emerge and finally to user interfaces through web and mobile applications.

Store of Value

Bitcoin as a potential store of value and unseizable asset not relying on a government is material. Gold and offshore accounts today account for tens of trillions in value. Properties of crypto assets such as Bitcoin are on many accounts better than our current versions. In addition crypto assets are programmable which opens up new avenues for innovation not possible with a physical commodity such as gold. Store of value doesn’t exclude other use cases such as payments, but in our view volatility needs to decrease before a store of value enters the real competition for other properties of money such as medium of exchange and unit of account.

Medium of Exchange

In this category we mainly have stablecoins and privacy coins. Stablecoins suffer from a trilemma trying to optimise on scalability, stability and decentralisation. This is a hard problem to solve but where we see a lot of innovation. There is massive potential in the coming decade for stablecoins that can get this equation right. It is likely that in the very long term stablecoins will find competition from more pure crypto assets not tied to a peg once the volatility of those assets starts declining.

Privacy coins enable private transactions to take place and is an interesting and fast evolving vertical besides cryptocurrencies running an open transaction graph. As privacy coins tend to be innovative using newly developed cryptography, there is generally a higher technology risk in this vertical versus non privacy enabled coins.

Open Financial System

This is a general term referring to a new financial system being built on top of open blockchains. The first financial primitives being built include:

  • Lending — being able to earn an interest rate on assets that you already hold.

  • Credit markets — borrow against assets that you hold in your portfolio.

  • Prediction and oracles — create a trustless source of truth for events outside blockchains.

  • Derivatives — a leverage bet on an underlying asset.

  • Decentralised exchanges —blockchain based trading without giving up custody of your assets.

  • Synthetic assets — blockchain assets that can trustlessly replicate non-blockchain assets.

While many of the above primitives are still experimental in nature, it is easy to see them in the future vastly outcompete traditional solutions at least in certain categories and circumstances. As an example, taking out a loan on a blockchain can be as easy as a few clicks on a web 3 enabled browser.

Running financial services on software instead of relying on trusted financial institutions not only opens up access but could lead to substantial gains in productivity as the financial sector in many countries makes up a very substantial part of the GDP. 

Core to our thesis is that the financial infrastructure being built on open blockchains will become a common utility not unlike the Internet itself.

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.