Today’s episode is from a 2018 conversation with Ari Nazir, founder and managing partner at Neural Capital, a hedge fund focused on cryptoassets. We discuss how a general lack of experience and sophistication among cryptocurrency investors makes it profitable to trade against popular opinion. For the full conversation, check out Flippening episode 13.
Links Relevant To This Episode
- Nomics on Twitter
- Clay Collins
- Nomics API
- Nomics’ Fully Customizable Daily Crypto Newsletter
- Ari Nazir
- Neural Capital
- Ethereum (ETH)
- Monero (XMR)
- Bitcoin (BTC)
- Stellar (XLM)
- Ripple (XRP)
Clay Collins: Welcome to Daily Wisdom from the Flippening Podcast. These episodes feature short, to the point clips from our full-length interviews. We talk to the men and women behind the trades, crypto exchanges, and regulations with the goal of helping you become a better, more informed investor.
Michael: Hi, I’m Michael Kaplan, editor of the Flippening Podcast. Today’s episode is taken from a 2018 conversation with Ari Nazir, founder and managing partner at Neural Capital, a hedge fund focused on cryptoassets. We discuss how a general lack of sophistication among crypto investors makes it profitable to trade against popular opinion. For the full conversation, [00:00:30] check out Flippening episode 13.
Now without further ado, our conversation with Ari Nazir, founder and managing partner at Neural Capital. Enjoy!
Ari Nazir: One of the rate-limiting steps in this entire ecosystem is there are only so many technical minds that actually understand what a blockchain is. There are even fewer minds that can build. If you are a long-term hedge fund, the average age of a manager is like 26 to 27. These are relatively young people [00:01:00] that haven’t actually gone through cycles. You know the most recent cycle that they remember is the great financial recession of 2007 to 2012. You need those more experienced hands and more experienced people playing to help you think through technical, long-term signals.
But there’s a massive opportunity if you’re qualified and competent to take it that without knowing the actual underlying technology of the project you can take long/short positions. Just based on the technical indicators.
Clay Collins: Can you describe [00:01:30] just maybe in a paragraph, I guess verbally what sentiment investing is?
Ari Nazir: I believe sentiment investing and sentiment trading is an amalgamation of signals, taking into account behavioral economics and market psychology over any given period of time to invest in a certain way.
Clay Collins: When you think about decisions you would make as a sentiment-driven investor, what are the indicators that are most [00:02:00] important to you? Can you do sentiment-based investing purely with market data or do you also incorporate a number of members in a Telegram group? Number of mentions on Twitter? Number of Reddit posts being mentioned on CNBC Fast Money. Et cetera.
Ari Nazir: Number of Telegram groups, I don’t know who to blame for this but I do think somebody needs to be held accountable. The number of Telegram users that you purportedly have is not an indicator of your community strength [00:02:30] in any way. Because at the end of the day I can buy those users and fake the volume. Ethereum isn’t used for ICOs because Vitalik was able to get 20,000 Telegram users in his Telegram in like a week. That’s not why people use these currencies.
Telegram users, we obviously monitor that. We monitor GitHub commits, but a lot of this still comes down to actual human research. Because you know the GitHub commit example just because I look at GitHub commits [00:03:00], that’s actually a pretty sophisticated way of potentially manipulating the price or quality of your token. Because just because I can see that you’re committing a certain period of time or a certain amount of time over a period of time, that doesn’t necessarily mean that your token or your coin is built on a blockchain that’s actually technically viable.
Examples of that would include me going on and seeing like there are 300 stars for a repository on GitHub and then seeing contributions from a number of engineers. But when you go dig into it, it’s like [00:03:30] they’re fixing grammatical errors. And then you see those same people go out and say, “Oh well I’m a core contributor to this particular blockchain.” But then being able to call BS on that is super important because yeah, I can use that as a sentiment trader, I can do well in a bull market, that is completely irrational.
But as like we mentioned earlier, we see this flight to quality, not just in terms of capital, financial capital but intellectual capital, you know having somebody on the team that can actually go in and review the code and then review the quality of the code and then say, “Okay this is actually pretty good.”
[00:04:00] The average contributor here is like they’re contributing lines of code. It’s the type of person that doesn’t understand that the number of lines of code that you have doesn’t actually mean that it’s higher quality or a more sophisticated project. To give you a fast example, we actually did a pretty interesting experiment where we automatically shorted anything that CNBC covered. We did really, really, really well.
A good example of this is Monero. Obviously, I believe in the long-term use case and technically our head of research is in love with Monero and advocates every single time [00:04:30] I talk to him, even put our portfolio into it. But when I saw the coverage on CNBC and I remember sending you an email about it and I was Tweeting about it too, we called it the Bitcoin Chad trade.
It’s that person that shows up on your Facebook four years after the last time you talked to them at college graduation or high school graduation or wherever, a wedding, and says “Oh hey bro, I bought Bitcoin, it’s up like 80% because I’m a genius.” Everybody’s a genius in that financial bull, rational market but you start seeing covered on CNBC.
[00:05:00] We did this with Monero, we ended up shorting it. We ended up making about 18% in 24 hours because they covered it. I did the same thing with Stellar. I believe this was earlier, maybe January or February, they were like “Oh, Stellar is the next Ripple.” I’m like, kind of forced my hand Brian Kelley, I guess I have to short this now. We ended up shorting that despite the fact that we are bullish on the longer-term prospects of Stellar and we think Jed McCaleb is probably the smartest person and most accomplished person in this space, we call him Crypto Bezos. [00:05:30] But still anytime you see something from a popular media outlet as the hysteria is taking off, and then the speculative bubble provides massive opportunity if you’re capturing the market psychology and being able to use behavioral economics in any given way.
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