This is part 2 of my conversation with Ari Nazir. I was so happy with the content in part 1, that I decided to create this second episode from my conversation with Ari.
If you didn’t catch our previous episode, here’s some background: Ari is a founder and managing partner at Neural Capital, an advisor at Protocol Ventures, and Chief Investment Officer at Apex Token Fund.
He’s also outperformed almost every Crypto hedge around with a regulated, San Francisco based fund.
In part 1 of this interview we discussed, among other things, sentiment and momentum investing, some of Ari’s other favorite indicators, and Ari’s strategy of shorting everything pitched on CNBC fast money. If you haven’t listened to that episode, I’d go and do that now.
In this, part 2 of our conversation, we play a lightning round game of over over-rated / under-rated.
I hope you enjoy the conclusion of my conversation with Ari Nazir.
- Whether crypto index funds are overrated.
- How Ari feels about indexing as an investment strategy.
- Ari’s thoughts on security tokens and security token infrastructure.
- Why Ari believes On-Chain Governance is underrated and why people don’t understand it.
- The most overrated cryptocurrency that Ari has seen thus far.
- Why Ari thinks that NVT ratios don’t get enough respect.
- Ari’s thoughts on Stable Coins.
- How Ari feels about “thought leaders” in the crypto space.
- Why Neural Capital wants to be the “best fund you’ve never heard of”.
- What a day in the life of a crypto fund manager looks like.
Links Relevant To This Episode:
- Ari Nazir
- Neural Capital
- Protocol Ventures
- BlockTower Capital
- Apex Token Fund
- Nic Carter
- Willy Woo
- Naval Ravikant
- Jane Street Capital
- Parabolic Trav
Terms Mentioned in the Episode:
Clay Collins: This is part two of my conversation with Ari Nazir. I was so happy with the content from part one that I decided to create the second episode for my conversation with Ari. If you didn’t catch our previous episode here is some background. Ari is a Founder and Managing Partner at Neural Capital, and Chief Investment Officer at Apex Token Fund. He’s also outperformed almost every crypto hedge fund around with a regulated San Francisco based fund. In part one of this interview, we discussed, among other things, sentiment and momentum investing, some of Ari’s favorite indicators, and Ari’s strategy of shorting everything pitched on CNBC Fast Money. If you haven’t listened to that episode I’d go and do that now. In this, part two of our conversation, we play a lightning round game of Overrated Underrated, and also discuss the day-to-day activities of a full-time crypto trader. Let’s do a lightning round of Overrated Underrated.
Ari Nazir: This is my opportunity to be on Around the Horn on ESPN but with crypto. This is the closest I’m getting.
Clay Collins: Crypto-index funds, are they overrated or underrated?
Ari Nazir: Overrated if you’re starting from scratch, underrated if you have income and status.
Clay Collins: Oh interesting, income and status…
Ari Nazir: Coinbase.
Clay Collins: Okay.
Ari Nazir: Coinbase index fund is underrated, Bitwise or a number of other ones are slightly overrated.
Clay Collins: Why is that?
Ari Nazir: Just traction. I don’t really believe in first mover advantage, but I do when it comes down to managing an AUM of billions versus starting something from scratch. Something like a Bitwise or any other index fund is going to have trouble attracting customers when the customers have to bet on this relatively young team. Obviously, their investors are impressive, they could probably get institutional buy-in, but at the end of the day Coinbase is signing up retail investors. They’re most likely than not going to be the index target market for this space. Relative to the high net worth individuals that can buy and hold some cryptocurrency themselves, allocate some to funds, some to fund the funds, institutional players and then take a more passive approach. But the reasonable investor cares about authority, social proof, stability, trust, and that comes more from an established player that’s been around for a number of years that has infrastructure to support those customers and not necessarily a startup for the foreseeable future.
Clay Collins: Follow up question, indexing as an investing strategy vis-a-vis cryptoassets, underrated or overrated?
Ari Nazir: Great question. Over the last year, massively overrated because if you go looked at, if you went and invest in any one particular asset it would have outperformed an index of five to six assets. So you saw this with Modern Portfolio Theory. That tells you that a balanced portfolio of assets will outperform any one asset. That just flat out was not the case over the last year. Like Ethereum would have outperformed any basket of asset you possibly could have put together, with relative weight.
Clay Collins: Yeah Bitcoin.
Ari Nazir: Yeah exactly. So it’s been overrated I think, now it’s underrated, and as I say that I realize I’m probably not playing this game correctly.
Clay Collins: Security tokens, overrated or underrated?
Ari Nazir: Infrastructure for security tokens is underrated, security tokens themselves are overrated.
Clay Collins: Like the existing ones that are out there right now?
Ari Nazir: Mmhmm.
Clay Collins: Okay, the Fat Protocol Thesis, overrated or underrated?
Ari Nazir: It’s a fallacy, next question.
Clay Collins: Proprietary ICO deal flow, overrated or underrated?
Ari Nazir: More overrated than proprietary deal flow in Venture Capital.
Clay Collins: Alright that’s really funny.
Ari Nazir: Seriously, no, when I see anybody pitch proprietary deal flow, in any context but particularly in the ICO space, I just.. I’m like, so what you’re saying is you’re able to get in at like 180 percent bonus and then go resell it to somebody else and you think that is going to be a sustainable strategy over two years. How do I short you and your entire fund? Because I don’t think that will work over a long enough period of time.
Clay Collins: This is Clay cutting in here from the editor’s booth to do a little native advertising for this podcast. We’ve been approached by a number of ICO’s, some of them scammy some of them not, who want to sponsor this show. While we’d love to get our hands on some of that sweet sweet ICO money, we’ve decided not to. Instead of fronting an ICO add I want to pitch you on sponsoring one of our shows, here it goes. Making the kind of podcast content we create isn’t cheap. We have the episodes transcribed, we often send mics to our guests, we have high end hosting and server costs, and we work with an audio journalist to produce and edit these episodes. So each episode costs about 2,000 dollars to make. Here’s our pitch. When you go to flippening.com/donate you can cover the cost of one or more of our episodes. We’ll thank you by name at the beginning and end of the episodes you sponsor unless you’d rather go anonymous. It’s not uncommon for Flippening episodes to get over 50,000 downloads, so a lot of folks would hear us thank you. Okay, that’s it, we’re going to keep producing these episodes regardless, but if you enjoy this content and want to contribute we’d love it if you went to flippening.com/donate and contributed some of your crypto-wealth, thanks. Now back to the show. On-chain governance, overrated or underrated?
Ari Nazir: I would say it’s still underrated because nobody knows what the hell that actually means.
Clay Collins: It’s one of those things where you don’t need it until you need it and then you really need it, potentially.
Ari Nazir: Then you really need it and the need for it becomes exponentially more important than when you didn’t think you needed it. And nobody…to date there have been certain models that have worked better than others. Really the best one that’s worked is just forking. But I wouldn’t…I don’t know if that’s necessarily on-chain. And you’re seeing now some of these tokens that want to confer governance status, and so this goes back to the earlier point whereas you see more venture capitalists come in, and just more institutional investors, and even more intelligent investors that happen to be retail that can take more activist-like roles. They want some sort of governance structure for that token in place that then confirms some sort of seniority or right on them to actually make some stuff happen beyond just selling. Right, so if I don’t agree with some of the decisions that 0X, for example, is making I can sell the token and then I get… Even if I want I can…to take the extra go out and market and say “Oh, this is bad, that’s bad.” but that doesn’t actually cause any sort of change. It just means maybe I sold and maybe the price went down for a little bit but then maybe it went back up again. I think the pendulum swung a little too far in favor of the entrepreneur, and as much as I love supporting the entrepreneur in any given case it becomes ridiculous at a certain point. I think we’ve passed that absurdity threshold. Now on-chain governance score become more important
Ari Nazir: and hopefully swing the pendulum back a little bit more towards the investor but still skewed towards the entrepreneur.
Clay Collins: Prediction marketplaces like Augur and Gnosis, overrated or underrated?
Ari Nazir: Augur is the most overrated cryptocurrency I’ve seen thus far that hasn’t actually shipped a product. I understand it’s very difficult to ship a product. Don’t get me wrong I can recognize that it doesn’t happen right away, but they haven’t really shipped anything. As I say this I already realize I’m going to get crap from a lot of people for this. This might be a soundbite for you, but I don’t think they’re going to build anything that ends up being sustainable long-term. I actually really like the Gnosis team. So I had a chance to meet Martin recently and at least they’re moving towards shipping something. They actually just released a decentralized exchange. This will become public soon enough so, Martin please don’t hate me if I share this but I think it’ll be good for the system and the ecosystem generally, Gnosis is going to start allowing you to short ERC-20 tokens.
Clay Collins: Oh, very cool.
Ari Nazir: Right? Okay, at least it’s a product, right? So it might not be a prediction market in the truest sense. Like, I can’t bet on…I can’t use that mechanism right there to say Trump may or may not win the 2020 election. But at least I can start making speculative predictive bets on any particular token. That’s in the right direction. So Gnosis I would say is underrated. I know a lot of their ICO mechanisms were kind of unnecessarily complicated, to put it kindly. But at least they’re moving towards shipping. I might be wrong by the time this gets released Augur might end up releasing something that ends up being super cool and I will gladly take back what I just said and eat some humble pie. That’s fine, I’m happy to do that but as it currently stands Augur’s overrated, Gnosis’s underrated.
Clay Collins: NVT ratio, overrated or underrated?
Ari Nazir: NVT ratio, it’s been underrated recently because the average investor doesn’t care or doesn’t know what that is, and so they’re trading on speculative value. But you have Nick Carter and a couple other people like…I think Willy Woo, who runs a blog, they know what they’re doing, and it’s a great strategy to trade on, moving forward. I think hash rate’s another interesting one.
Clay Collins: Metcalfe’s Law and netoid functions.
Ari Nazir: I’m not a math PHD, or the applied math kind of person so I don’t think I have the true appreciation of Metcalfe’s Law. So for that reason I’ll say slightly underrated.
Clay Collins: Okay.
Ari Nazir: I don’t want to insult something that I don’t have a 100 percent understanding of.
Clay Collins: Stablecoins, overrated or underrated.
Ari Nazir: Overrated, I think over a long enough period of time, and I might be alone on this, but I think over a long enough period of time Bitcoin becomes stable enough to become a stable currency or store value and you don’t necessarily need a stablecoin. If an ICO platform is the majority of the market share for most of the projects not named Bitcoin or Monero then that ICO token should theoretically over time become a stable enough asset and a stablecoin for that ecosystem. Stable coins are…some of them are actively going after the government. As much as I see the United States government as a pro business entity, I think it ends up at some point coming down to being a libertarian dream. Where it will be able to have a startup or an entrepreneur build a new Fed. I think it’s a similar type of mantra to the type of person that keeps saying audit the Fed. At some point I’m not necessarily sure that we’ll see that. I think we’ll see an algorithmic approach adopted by a central bank, but I don’t think that’s going to be a stablecoin.
Clay Collins: Pure play privacy coins.
Ari Nazir: Still underrated.
Clay Collins: Interesting, I hear that a lot.
Ari Nazir: Yeah, still underrated.
Clay Collins: There’s a group of hedge fund investors in the cryptocurrency space that are on all the podcasts, and some of these podcasts become highly correlated. One of the reasons I wanted to talk with you is that to my knowledge you haven’t been on a podcast yet.
Ari Nazir: I have not.
Clay Collins: I had reason to believe you would have really interesting things to say and that’s been a really good formula for winning episodes. What are your thoughts on the role of thought leadership for cryptocurrency investors? Why do people do it? Why do people not do it? Is it helpful for distribution or attracting LP’s? You’ve managed to do pretty well without it at all. What are your thoughts in general on that topic?
Ari Nazir: Any time I hear the word thought leadership used in a serious context by a person whose trying to say they’re a thought leader… I try not to laugh and puke at the same time. But that ends up being my reflexive reaction to anything of that caliber. I think there are certain people that because of the quality of their research and their intellectual rigor as they approach problems, end up becoming thought leaders with the explicit goal of being a thought leader. I think Naval Ravikant’s a great example. I know he’s revered by most Silicon Valley now, but he’s one of the few people that’s actually… Intellectually I wish I thought like him. I wish I approached problems like him. He’s one of the few people I wouldn’t say is overrated, I think he’s still relatively underappreciated because he just knows how to think through problems in the right way and he’s very intellectually honest. Where he’ll say, “I’m doing this for the ego.”, and he’ll admit things like that. So that person evolves into being a thought leader. Then there are some people that hit the conference circuit. I’m not going to name any names, off the record I would be happy to name names but I don’t want to start something on a podcast that’s there forever out of context. But there are some people that just hit the conference circuit and so you’ll see them at every single conference talking about “Oh, this trend is really interesting, that’s really interesting.” But when you go look at the substance, they’re trying to fundraise. They don’t actually have capital.
Ari Nazir: It ends up becoming a net negative for the space because then you have interesting entrepreneurs that approach them as quote-unquote subject thought leaders or subject matter experts. The fund managers or whoever’s the person hitting the circuit can’t actually add value, and then it ends up becoming a waste of the time for the entrepreneur. Which over a long enough period of time accrues to debt on how much execution can actually happen. So me personally, I try to stay in the background and I’d rather let our results do most of the talking for us. To date it’s been helpful to have that approach when everybody else is out there trying to build a brand. I think a lot of the reason why you’re seeing this is because people see an opportunity, that there isn’t necessarily a thought leader, or there isn’t somebody that they look at in the space and go “Oh wow, I really know that firm, and I know that firm stands for x, y, and z”. So you see a lot of people go out there and start doing podcasts, start doing press interviews. They’re trying to build a brand and then that brand attracts a certain type of LP. Then that LP then invests which then helps build the brand. Then entrepreneurs go to them, and then you start seeing hopefully more successes from those firms because those entrepreneurs succeeded and those projects succeeded, which then attracts more LP’s and then starts creating a more defensible long-term brand and then thesis. Our approach is we’d like to be the best fund you’ve never heard of. Over time that starts going away
Ari Nazir: but I’m modeling ourselves after Jane Street Capital. Because the founder doesn’t really do too many interviews but what you do know is if you were to work with them they’re going to be of value and they’re going to crush it. So personally I’d rather be known for that than be out there peacocking.
Clay Collins: They’ve also made a lot of really cool contributions to open source programming languages like OCaml.
Ari Nazir: I think they actually have… Not a monopoly but they have a significant market share on a very vaunted technical language that I think only Tezos is using right now. I think that’s more impressive than a blog that you wrote on a certain topic. Don’t get me wrong, some people actually have really great Medium posts, but I would say the majority of people are just trying to get their name out there.
Clay Collins: Ari you’ve been incredibly generous with your time and your knowledge, thanks so much for being with us. Now before we get going, do you have any last words for our listeners?
Ari Nazir: There’s a lot of infighting happening in the crypto-space right now. One in particular is the Bitcoin, Bitcoin Cash debate. I wish things were more peaceful. I think there’s unnecessary hating on each side when the real potential adversary is institutional financial middle men and incumbents and not necessarily block-sizing. So I wish that was something that was solved.
Clay Collins: I completely agree. We should be keeping our eyes on the true north instead of infighting. Other crypto-projects, provided that they’re not scams, are not the enemy. Perhaps to close this out and tease the previous longer form episode with you. Could you tell us a little bit about the life of a crypto fund manager? What’s it like doing this full time?
Ari Nazir: A lot of people just think oh, well this is somebody that just charges fees to hold Bitcoin. I mean I can share at least a little bit about my average day, given that no day is the same. But I think it might be helpful for some of the listeners. So for example I usually get in… My co-founder gets in around 8am. He’s a morning person, I stay up late at night working Asia hours so I get in a little bit later. First thing I get in, I review markets and current open positions on the way to the office. So net exposure to any particular asset or any particular sub-domain we’re looking at. I go through any trade reconciliation for the last 24 to 48 hours, and I typically do that with our head of back office. Then I go straight to Twitter, get caught up. Go to a couple of the news sources, read as much as I can, see what I’ve missed over the last eight to 10 hours. Then go back to monitoring the trades. Go look at Slack groups, Telegram groups. If I have any long-term research I’ve been putting off for a while I try to get at least some of that out. So if it’s reading books on the history of money, looking at what stablecoins could evolve to over a long enough period of time. Looking at any updates to hash rates or any high level news items that would impact my research, look at that and then, and this is probably the most fascinating part I think people would actually underestimate is I only spend maybe 30 minutes to an hour executing the actual trades that I’d like to look at. Cause I already have a preset criteria that I’m looking at
Ari Nazir: and I know what I want to buy or sell. Then it’s really just reaching out to over the counter desks, and then maybe executing on exchange or with trust third parties, and executing those trades. Then going back to reading research, and then e-mails. That’s the average day. If I’m at a conference or if I’m talking to LP’s then there’s just back to back to back meetings. So recently we had a quarterly update so that was scheduled calls with about 10 to 15 different LP’s. Not really pitching them but really just giving them an update on where we see the market, where we see it going etc.
Clay Collins: So if folks want to follow your thoughts on markets and on cryptoasset investing in general, what’s the best way to get a hold of you?
Ari Nazir: I’m Parabaric Ari, it’s a nod to Parabolic Trav who has been a luminary and a sacrifice in space I think moving forward. Yeah, if you want to follow my thoughts on the market it’ll probably just be my Twitter name. So right now it’s Parabaric Ari, it’s probably going to move into Distribution Ari pretty soon.
Clay Collins: So that concludes this two part series with Ari Nazir of Neuro Capital. I created this second episode from the interview in part because the content didn’t thematically fit into part one, but to also tease Ari and the first interview to folks who haven’t listened to it yet. So if you’ve made it this far and enjoyed Ari check out our previous episode. Also, heads up that our next episode will be on quantitative crypto-trading with Ateet Ahluwalia. Ateet is a former Goldman Sachs trader who’s now a managing director at CoVenture Crypto. It’s a fascinating interview, so please stay tuned for that. That’s it for this week. To sign up for our free crypto-investing newsletter, listen to other episodes, or get the show notes from this episode, please visit flippening.com. I also invite you to check out the startup that funds this podcast, Nomics, spelled N-O-M-I-C-S, at nomics.com. Finally, if you got value from this show, the biggest thing you can do to help us out is to leave a five star review with some comments and feedback on iTunes, Stitcher, or wherever you listen to podcasts. Thanks for listening and see you next week.