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:

1_0il9J-avNW-yu3wdT4ftaw.png

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.

Test Driving The Future of Finance

In June 2017, Binance raised $15m in an ICO for Binance Coin (BNB). At the time, it wasn’t exactly clear what the value proposition was for BNB. BNB offered traders a discount on trading fees on Binance’s exchange, but this wasn’t exactly groundbreaking.

Fast forward 2 years and Binance is spearheading some impressive and innovative efforts. The most pressing is the creation of Binance’s Decentralised Exchange (DEX), which will be powered by Binance Coin.

Apollo Capital sees decentralised exchanges as exciting developments and crucial infrastructure in the world of decentralised finance promised by crypto assets. Decentralised exchanges promise minimal counterparty risk, lower costs and censorship resistance. We thought it would be an interesting exercise to sign up for the testnet and take our readers on a test drive through the future of finance.

Binance’s Testnet is only available to current Binance customers that have a minimum of 1 BNB. Perhaps this is a savvy marketing ploy, but the first step was creating a Binance account and purchasing 1 BNB (I was interested to observe that the only thing required to create a Binance account was an email address: no ID or anything else is required).

1 BNB Required.png

Next I needed to fund the account where I could receive 200 free testnet BNB sent to my wallet on the DEX.

Funding BNB.png
Funding Secured.png

The exchange looks similar to Binance’s main exchange. There are similar buy and sell ‘panels’ in the bottom right hand corner. There are markets on the left hand side and market depth on the right hand side. The noticeable difference however is there is very little activity. I’m not sure how much feedback Binance is receiving from people using the testnet, but I’d imagine it would be limited until there is a critical mass of users. The lack of activity is understanding, albeit a little frustrating for enthusiastic users like us. I placed an order to buy some BTC for BNB and despite being the lowest ASK, my order remained unfilled for a number of hours. A stark difference to the experience on Binance’s main exchange.

DEX Homescreen.png
BNB Buy:Sell.png

While it is promising to see the launch of the testnet, it appears that the real test will come with the launch of the exchange. As is often the case with crypto projects, given the immutable and censorship resistant nature of blockchains, teams tend to take their time to make sure everything is working perfectly. When considering the irreversible nature of transactions and the value of assets at stake, there is little room in crypto to “move fast and break things”.

Binance’s impressive record over the past 18 months in growing the world’s largest crypto exchange shows that it is highly capable of developing large projects at scale.

Readers might question why Binance would seek to disrupt its hugely profitable exchange, with another exchange that is decentralised. Aside from the immortal words of Steve Jobs, “if you don’t cannibalise yourself, someone else will,” part of the reason is answered by the new business model of crypto.

Traditional business models often revolve around extracting as much revenue as possible out of customers. Crypto assets can offer a new business model whereby the founding team is rewarded with a large allocation of tokens. The team then works on the project, encourages early adopters to look at and invest in the project and seeks to increase the value of the token. All going well, the team is rewarded by an asset that increases in value, as are the early adopters. The key difference of this new business model is alignment - all participants in the network are aligned to increase the value of the token. Binance seems to be a working example where the team have a large and early interest in increasing the value of its BNB holdings, even if this is at the expense of its main exchange. Perhaps it is telling that the team is willing to cannibalise its hugely profitable existing exchange, in place of something which may be even more valuable.

Disclosue: Apollo Capital is an investor in Binance Coin



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:

Screen Shot 2019-02-12 at 10.31.19 am.png

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:

Screen Shot 2019-02-12 at 10.33.11 am.png

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.

Apollo Capital's Response to the Australian Treasury Consultation

Apollo Capital is a multi-strategy crypto fund based in Melbourne, Australia. Apollo Capital invests in the crypto assets that are powering the next generation of computing infrastructure. Our investment process includes a regulatory review of compliance to relevant regulatory frameworks.

Definitions and Token Categories

1.1. What is the clearest way to define ICOs and different categories of tokens?

There is an increased industry understanding in categorising crypto assets. Note that we will use the term crypto assets as a broad term for all assets that are secured on an open blockchain network. Apollo Capital suggests the following categories:

  • Cryptocurrencies. These are crypto assets whose main purpose are ‘money-like’. This include crypto assets like Bitcoin and Zcash.

  • Tokenised securities. These are crypto assets that represent ownership and rights and would fall under the regulatory framework of a Financial Product. An example of this are tokenised shares with voting rights in a company.

  • Utility tokens. These tokens have a specific utility but doesn’t offer rights that reach the threshold of being categorised as a Financial Product under Australian regulatory framework. We believe examples of this include Augur and Maker.

We refer Treasury to the FCA recent ‘Guidance on Cryptoassets’ for a similar categorisation as above.

Drivers of the ICO Market

2.1. What is the effect and importance of secondary trading in the ICO market?

Crypto assets are often similar to early stage venture investing. One key differential factor is the early liquidity as crypto assets trade on exchanges. This increases price transparency and lowers liquidity risk compared to venture capital investing.

2.2. What will be the key drivers of the ICO market going forward?

The big boom in ICOs in H2 of 2017 was prompted by a market fuelled by speculation. ICOs have been around for around 5 years and will continue to play a role in launching new blockchain network independently of where in the market cycle we are.

Opportunities and Risks

3.1. How can ICOs contribute to innovation that is socially and economically valuable?

ICOs offer a way to bootstrap new networks by making early users stakeholders in a new network. This is a flatter and more democratic versus traditional venture capital investing. See this blog post by Chris Dixon (a16z) for further thoughts on this. Economically, as blockchain networks predominately are a new computing platforms for trust, massive savings can be made. See RMIT Prof. Jason Potts article ‘The $29 trillion cost of trust’.

3.2. How important are ICOs to Australia’s capability to being a global leader in FinTech?

Crypto networks are a new computing platform for trust. It heralds a new design space for entrepreneurs, investors and computer scientists to build global software applications that utilise this primitive of trust. This has, and will continue to, lead to an explosion of innovation, particularly in the finance vertical. ICOs are a way for crypto startups to raise working capital without such a heavy reliance of venture capital funding, itself centred in Silicon Valley. On a high level, ICOs are a new source of innovation funding - this should be taken seriously.

Specific to Fintech, Decentralised Finance, or #DEFI, is arguably the most promising emergent vertical in crypto.

There are projects that enable the borrowing and lending of assets peer to peer, i.e. without a bank or lending institution in between. Dharma and Compound are key examples here.

Other projects enable the creation of credit through a collateralised debt position. Similar to how people leverage their house as collateral to secure a mortgage, MakerDao allow users to collateralise ether, the native token to Ethereum, to draw out a debt position denominated in their USD-pegged token, Dai. Soon other assets will be able to be used as the underlying collateral.

Binance, the world’s largest exchange, is developing a decentralised exchange that will enable the peer to peer trading of assets. This exchange will allow users to retain custody of their assets throughout the trading process. And Binance have the resources to deliver - they made more in profit than Deutsche Bank in Q1 of 2017.

Crypto is both a patent threat to incumbent financial institutions and perhaps the biggest innovation opportunity of a generation. Australia should support, and incentivise, projects to be based in this country. Having clear ICO guidelines is a critical first step. As with any enterprise, certainty is highly valued.

3.5. Are there other risks associated with ICOs that policymakers and regulators should be aware of?

ICOs have been very polarising. Most are not worthy of the money they raised through their ICOs. Hype, no doubt, drove much of the ICO boom in H2 2017. Conversely, some ICOs have funded extremely innovative projects that are provided substantial value to investors.

Key risks associated with ICOs include:

  • Fraudulent promises and claims

  • Some bad actors targeting unsophisticated investors

  • The token sold in the ICO having little or no current or future value.

  • ICOs do not represent an equity stake in the enterprise. They offer few rights, particularly in the early stage of a network.


Regulatory Frameworks in Australia

4.1. Is there ICO activity that may be outside the current regulatory framework for financial products and services that should be brought inside?

It’s Apollo Capital’s view that crypto assets that are representative of a high enough level of rights in centralised projects are considered Financial Products under Australian regulation. All other crypto assets are either too decentralised or do not meet a sufficiently rights threshold to be considered a Financial Product.

4.2. Do current regulatory frameworks enable ICOs and the creation of a legitimate ICO market? If not, why and how could the regulatory framework be changed to support the ICO market?

More clarity is needed.

We believe increased regulatory clarity of what constitute a Financial Product would benefit innovation in Australia. We would like to emphasis the global nature of the crypto landscape.

Specifically we believe the relevant regulator needs to clarify what ‘rights’ a crypto assets need in order to be categorised as a Tokenised Security (our proposed categorisation above).  We believe that the rights associated with a token to fall under this category should be similar to traditional shares or debt instruments. We further note that section 9 of Corporations Act (Managed Investment Scheme) refers to a ‘common enterprise’. Apollo Capital believes crypto assets that are sufficiently decentralised cannot be categories as a common enterprise. Therefore we recommend the regulators evaluate the categorisation of crypto assets both along the lines of rights and decentralisation. As an example, in our view, a crypto asset with ‘shareholder like’ rights that are not sufficiently decentralised should be categories as a Tokenised Security regulated under existing framework of a Financial Product. If a crypto asset is either sufficiently decentralised or does not reach the threshold of rights it cannot be categories as a Tokenised Security and it should fall outside the perimeter of regulation of Financial Products. Apollo Capital believes that categorising crypto assets that are either sufficiently decentralised or do not have shareholder like rights as Financial Products would significantly impede the innovative landscape in Australia.


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.


Bitcoin and Ether are Oversold  -  Here's Why

In this post, I walk through some key indicators of health in a crypto network to demonstrate why Bitcoin and Ether may be oversold, relative to their network fundamentals. 

Both demand-side and supply-side factors are analysed. I look at:

  • Price (demand-side);

  • Transaction count (demand-side);

  • Price vs. Realised Capitalization (demand-side);

  • Hash-rate (supply-side);

  • Developer talent (supply-side).

Folks myopically analyse price movements (and price movements alone) as if they were the only factor determining a network’s health. This couldn’t be further from the truth. Look at Ripple’s token XRP’s market capitalisation relative to its node distribution, or at Ethereum Classic’s recent 51% attack. This is not to discount price as an indicator, but to view it as a relative indicator, not an absolute one. 

By looking at only price, 2018 looks bleak:

Source: coinmarketcap.com

Source: coinmarketcap.com

Source: coinmarketcap.com

Source: coinmarketcap.com

This is not the whole story, even from the perspective of price. Note that in the past 2 years:

  • Bitcoin has increased in value 3.88x 

  • Ether has increased in value 10.80x 

But even if you bought recently, don’t be alarmed. There is an indication of overselling relative to fundamentals. 

Comparing price to usage in the Ethereum and Bitcoin networks (i.e. price to transaction count)a clear divergence is visible:

Source: Apollo Capital. Data from coinmetrics.io

Source: Apollo Capital. Data from coinmetrics.io

Source: Apollo Capital. Data from coinmetrics.io

Source: Apollo Capital. Data from coinmetrics.io

Similarly, the next graph looks at Bitcoin’s Price vs. the Realized Cap. 

Realized market capitalization is a novel economic metric designed by Coin Metrics, a leading crypto data site. Because large fractions of cryptocurrencies tend to get lost or go unclaimed, a measure is needed that weighs coins according to their actual presence in the Bitcoin economy. This is what Realized Cap does. 

When we analyze Realized Cap against Bitcoin’s Price, we can again see that Bitcoin’s Realized Cap is substantially higher than its current price. This again indicates Bitcoin is oversold:

Source: Apollo Capital. Data from coinmetrics.io

Source: Apollo Capital. Data from coinmetrics.io

On the supply-side, the price of Bitcoin and Ether has fallen below the hash-rate for both proof of work networks. A higher hash rate is better when mining as it increases your opportunity of finding the next block and receiving the reward, and in turn secures the network. It reflects more people contributing more real world resources to each network.

Source: bitinfocharts.com

Source: bitinfocharts.com

Source: bitinfocharts.com

Source: bitinfocharts.com

Another supply-side indicator is that of developer talent. More work is needed to gather accurate data, but anecdotal evidence suggests that Ethereum is winning the battle over its major current rival EOS. Likewise, Bitcoin’s developer pool is similarly impressive, particularly in regards to the off-chain scaling solution Lightening Network. Looking at their respective GitHub contributions one way of doing this, but again, more work needs to be done in this area to draw any conclusions.

To summarise:

  • The price of Bitcoin and Ether has slipped markedly more than their respective network transaction count (i.e. real network usage is price inelastic);

  • Bitcoin’s Realized Market cap remains robust relative to its price;

  • Hash-rate in both Bitcoin and Ethereum are down substantially less than their respective prices.

  • Zooming out two years, both Bitcoin and Ether are some of the best-performing assets, with a return of 3.88x and 10.80x respectively. 

  • The developer pool of Bitcoin and Ethereum could be a moat that cannot be easily replicated, although more data gathering is needed here.

Valuation frameworks for crypto networks remain an inchoate and nascent activity. We have a long way to go. In most asset classes, there are agreed upon models, and only the models’ inputs are debated. In crypto, we are still trying to work out the models themselves.

However, relative to network fundamentals, Bitcoin and Ether look cheap. 

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:

Screen Shot 2019-01-03 at 11.43.16 am.png

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.

“ThanksSatoshi”

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.