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Evolution or Revolution: Putting Crypto in Context

Meltem
July 22, 2019

Evolution or Revolution: Putting Crypto in Context

This talk was presented by Meltem Demirors at the CFA Institute Global Investor Conference in at the University of Chicago Gleacher Center on July 22, 2019.

The topic of the talk is the digitization and disintermediation introduced by bitcoin, which is changing the way markets operate, and what this means for asset management and corporate finance.

Meltem

July 22, 2019
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  1. Evolution or Revolution
    Putting Crypto in Context
    July 2019
    Meltem Demirors | CoinShares
    @Melt_Dem

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  2. Evolution or Revolution? Putting Crypto in Context
    This document, which is provided for informational purposes only, is intended to provide a high level overview of the CoinShares investment
    philosophy adopted by certain investment products promoted by the CoinShares Group only. Nothing in this document should be interpreted as
    constituting an offer of (or any solicitation in connection with) any investment products or services by any member of the CoinShares Group (and
    nothing herein constitutes, or should be construed as being, advice relating thereto). Access to any investment products or services of the
    CoinShares Group is in all cases subject to the applicable laws and regulations relating thereto.
    CoinShares General Partner Limited and CoinShares GP II Limited, who are the joint issuers of this document, have their offices at 28 Esplanade, St
    Helier, Jersey JE2 3QA. References in this document to ‘CS Strategies’ should be interpreted as being a reference to a common investment philosophy
    adopted by a family of investment products promoted by the CoinShares Group. ‘CS Strategies, CS1, or CS2’ is not a reference to any particular
    investment product or structure. The specific application of the ‘CS Strategies’ investment philosophy, and the actual investments held by products
    pursuing it, will differ on a product-by-product basis. Each ‘CS Strategies’ investment product may have a distinct structure, including (without
    limitation) in respect of fee arrangements applicable thereto, and regulatory treatment in the jurisdiction in which it is domiciled.
    The information presented in this document has been developed internally and / or obtained from sources believed to be reliable; however, no
    representation or warranty, express or implied, is made as to the accuracy, reliability, or completeness of such information.
    Predictions, opinions and other information contained in this document are subject to change continually and without notice of any kind and may no
    longer be true after the date indicated. Any forward-looking statements speak only as of the date they are made, and the CoinShares Group has no
    responsibility, and does not undertake, to update forward-looking statements. Forward-looking statements are subject to numerous assumptions,
    risks and uncertainties, which change over time.
    The CoinShares Astronaut is a trademark and service mark of CoinShares (Holdings) Limited.
    © 2019 CoinShares Group. All rights reserved.
    Note Ms. Demirors herself is an investor in cryptocurrencies and companies, some of which are referenced in this deck for informational purposes
    only. You can find her disclosures and investments at meltemdemirors.com under “disclosure” and “investments”.
    Important Disclaimer

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  3. Evolution or Revolution? Putting Crypto in Context
    Copyright © 2019 CoinShares Group. All rights reserved. 3
    Source: Dilbert, by Scott Adams
    Today’s Talk

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  4. Evolution or Revolution? Putting Crypto in Context
    Copyright © 2019 CoinShares Group. All rights reserved. 4
    Scott Adams Says…

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  5. Evolution or Revolution? Putting Crypto in Context
    Copyright © 2019 CoinShares Group. All rights reserved. 5
    The CoinShares Group
    The CoinShares Group manages approximately $1 billion of assets on behalf of a global
    investor base, with offices in London, Jersey, and New York.
    PASSIVE TRACKERS ACTIVE STRATEGIES EXECUTION / FICC
    XBT Provider issues publicly
    listed crypto exchange traded
    products (ETPs)
    Top quartile digital asset hedge
    fund; diversifying into new
    strategies continually
    Supports asset management
    and services clients, portfolio
    companies, and institutions
    $916M AUM(1) $11M AUM(2) $125M Monthly Volume(5)
    Ø
    Trade up to $40M per day in
    Europe
    Ø
    CS1 – actively traded crypto(3)
    Ø
    GABI Bitcoin Strategy(4)
    Ø
    Fixed income
    Ø
    Derivatives
    Ø
    OTC
    Notes: (1) AUM amounts as of 30 June 2019. (2) Conversion from ETH to USD (3) Closed to new investment. (4) GABI Bitcoin Strategy was closed in 2018. (5) FICC volume reported based on 2018
    average volumes covering 24M individual orders filled. This information appears as a matter of record only and is not intended to be an offer or solicitation of an investment in any jurisdiction where
    it may be illegal to do so.

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  6. Evolution or Revolution? Putting Crypto in Context
    • A Brief Walk through History
    • Macro Context: Economic, Political, and Social Drivers
    • Market Evolution or Financial Revolution?
    • What is “crypto”?
    • Exploring Allocation Strategies and Performance
    • Closing Thoughts
    Copyright © 2019 CoinShares Group. All rights reserved. 6
    What We’ll Cover

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  7. Evolution or Revolution? Putting Crypto in Context
    Blast from the Past
    A Long History of Trusted Intermediaries
    Copyright © 2019 CoinShares Group. All rights reserved. 7

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  8. Evolution or Revolution? Putting Crypto in Context
    Copyright © 2019 CoinShares Group. All rights reserved. 8
    The Silk Road and the Qirad

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  9. Evolution or Revolution? Putting Crypto in Context
    Copyright © 2019 CoinShares Group. All rights reserved. 9
    The Venetians and the Commenda

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  10. Evolution or Revolution? Putting Crypto in Context
    Copyright © 2019 CoinShares Group. All rights reserved. 10
    The Dutch and the First Mutual Fund

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  11. Evolution or Revolution? Putting Crypto in Context
    Copyright © 2019 CoinShares Group. All rights reserved. 11
    Trust: Greasing the Capitalism Flywheel
    “Our financial lives trend towards convenience, and as a
    result, dependence on intermediaries. It unrealistic to
    expect that to change anytime soon.”
    - Ryan Radloff, CoinShares

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  12. Evolution or Revolution? Putting Crypto in Context
    Macro Context
    Economic, Political, and Social Drivers
    Copyright © 2019 CoinShares Group. All rights reserved. 12

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  13. Evolution or Revolution? Putting Crypto in Context
    Copyright © 2019 CoinShares Group. All rights reserved. 13
    MISTRUST GENERATIONAL SHIFT DISRUPTION
    • Rising populist tendencies
    and trade wars
    • Increasing balkanization
    of society via the web
    • Constant revelations of
    abuses of power
    • Largest generational
    wealth transfer under
    way – or maybe not?
    • Failing entitlements
    • Millennials facing life-
    long indebtedness
    • Fundamental shift in
    trust models
    • Drastic reduction in
    friction and barriers
    • Fractional, tokenized
    ownership models
    The preference for crypto is driven by social, political, and economic factors
    The Backdrop for Crypto

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  14. Evolution or Revolution? Putting Crypto in Context
    Copyright © 2019 CoinShares Group. All rights reserved. 14
    Massive Failures of Trust

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  15. Evolution or Revolution? Putting Crypto in Context
    Copyright © 2019 CoinShares Group. All rights reserved. 15
    And Massive Failures of Markets
    Source: Bank of England, Eurobarometer, Gallup, Bank of Japan

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  16. Evolution or Revolution? Putting Crypto in Context
    Copyright © 2019 CoinShares Group. All rights reserved. 16
    A Paradigm Shift
    Evolution
    Early adoption fits the existing regulated structure
    Revolution
    Experimentation phase takes time…
    Decentralized
    Financial
    System
    Centralized
    Blockchain
    Applications
    DENIAL ANGER DEPRESSION
    BARGAINING ACCEPTANCE
    *The Kübler-Ross grief model serves as a good index of how incumbents and stakeholders alike will react as we progress through the parallel paths
    VALUE TO BE CAPTURED

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  17. Evolution or Revolution? Putting Crypto in Context
    Copyright © 2019 CoinShares Group. All rights reserved. 17
    A Paradigm Shift
    Physical World
    Digital World
    Price of Physical Things = pp
    Price of Digital Things = pd
    Today – the digital world is valued at nearly nothing
    In the Future – an increasingly digital world means pd
    > pp
    , creating massive
    arbitrage opportunities
    VALUE TO BE CAPTURED

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  18. Evolution or Revolution? Putting Crypto in Context
    Market Evolution or Financial Revolution
    The Forces Driving Change
    Copyright © 2019 CoinShares Group. All rights reserved. 18

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  19. Evolution or Revolution? Putting Crypto in Context
    Copyright © 2019 CoinShares Group. All rights reserved. 19
    What Does a World Without Trust Look Like?
    Source: Original Artwork by Cryptograffiti

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  20. Evolution or Revolution? Putting Crypto in Context
    Copyright © 2019 CoinShares Group. All rights reserved. 20
    Digitization Requires Intermediaries

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  21. Evolution or Revolution? Putting Crypto in Context
    Copyright © 2019 CoinShares Group. All rights reserved. 21

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  22. Evolution or Revolution? Putting Crypto in Context
    Copyright © 2019 CoinShares Group. All rights reserved. 22

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  23. Evolution or Revolution? Putting Crypto in Context
    Copyright © 2019 CoinShares Group. All rights reserved. 23

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  24. Evolution or Revolution? Putting Crypto in Context
    Copyright © 2019 CoinShares Group. All rights reserved. 24

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  25. Evolution or Revolution? Putting Crypto in Context
    Copyright © 2019 CoinShares Group. All rights reserved. 25
    “Financial institutions make people feel safe by hiding risk
    behind layers of complexity. Crypto brings risk front and
    center and brags about it on the internet.”
    - Elaine Ou, Global Financial Access

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  26. Evolution or Revolution? Putting Crypto in Context
    Copyright © 2019 CoinShares Group. All rights reserved. 26
    Bitcoin Still Has Intermediaries
    Source: CoinShares Research

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  27. Evolution or Revolution? Putting Crypto in Context
    Copyright © 2019 CoinShares Group. All rights reserved. 27
    Debt & Equities
    Gold
    Oil
    Real Estate
    Wine
    Bitcoin
    Digital
    Independent
    Physical
    Dependent
    “Tokenized" Equity
    “Tokenized" Debt
    Precious Metals
    Mutual Funds
    Bonds
    $80T
    $288B
    “Tokenized" Commodities
    But A New Model is Emerging
    Source: CoinShares Research

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  28. Evolution or Revolution? Putting Crypto in Context
    Categorizing “Crypto”
    The Challenge of Categorically Breaking Down Assets
    Copyright © 2019 CoinShares Group. All rights reserved. 28

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  29. Evolution or Revolution? Putting Crypto in Context
    Time
    EMERGENCE
    FRENZY
    SYNERGY
    MATURITY
    Big bang Crash Institutional Adjustment Next big bang
    Degree of Diffusion of the Technological Revolution
    INSTALLATION PERIOD DEPLOYMENT PERIOD
    Intense funding
    Decoupling of paper
    value and real value
    Rampant
    speculation
    Focus on
    production
    Recoupling of paper
    value and real value
    Decreasing growth
    opportunities
    Source: Carlota Perez, Technological Revolutions and Financial Capital. Bitcoin price sourced from Coinmetrics.io
    Bitcoin price
    Markets Operate in Cycles
    Copyright © 2019 CoinShares Group. All rights reserved.
    Apr-13 Apr-15 Apr-17

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  30. Evolution or Revolution? Putting Crypto in Context
    $0
    $1,000
    $2,000
    May-97 May-02 May-07 May-12 May-17
    BOOKSTORE EVERYTHING STORE COMMERCE ECOSYSTEM
    Source: Bloomberg Amazon daily ticker data. Logos sourced from Google images.
    Copyright © 2019 CoinShares Group. All rights reserved.
    Cyclical v Secular Trends

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  31. Evolution or Revolution? Putting Crypto in Context
    Copyright © 2019 CoinShares Group. All rights reserved. 31
    BITCOIN ETHEREUM XRP (FKA RIPPLE)
    $-
    $11
    $21
    1/1/17 1/1/18 1/1/19
    Thousands
    $-
    $800
    $1,600
    1/1/17 1/1/18 1/1/19
    $-
    $1.80
    $3.60
    1/1/17 1/1/18 1/1/19
    As of 7/2019
    Up 4780%
    As of 7/2019
    Up 2488%
    As of 7/2019
    Up 871%
    Cyclical v Secular Trends, Part Two
    Source: CoinMetrics.io
    The siren song of the secular trend is very seductive, indeed

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  32. Evolution or Revolution? Putting Crypto in Context
    Copyright © 2019 CoinShares Group. All rights reserved. 32
    US INVESTMENT RETURNS
    LAST 5 YRS
    CHANGING INVESTOR SENTIMENT
    STRATEGY RETURN
    Debt 6%
    Fund of Funds 11%
    Hedge Fund 11%
    Real Assets 11%
    Secondaries 13%
    VC 16%
    PE 18%
    IPO 21%
    ICO 179%
    • Global macro uncertainty and sky-high
    valuations across asset classes
    • Venture investors increasingly concerned
    with valuations, exit environment, and
    performance
    • Hedge fund performance has been subpar
    – in 2017, 43% of funds fell short of
    performance expectations
    • Exits less frequent – IPO valuation
    premium is low, staying private often
    better for juicing valuation
    • For investors who missed BTC and ETH
    1,000x returns, ICO investing looks good
    Source: Majority of return data from PitchBook 2018 Global PE & VC Fund Performance Report. IPO data from Renaissance Capital research, referencing Fidelity Investments data. ICO data from Benedetti, Kostovetsky, “Digital Tulips? Returns to Investors in Initial
    Coin Offerings.”
    Placing Crypto in Context

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  33. Evolution or Revolution? Putting Crypto in Context
    Copyright © 2019 CoinShares Group. All rights reserved. 33
    Source: Global Alternatives Survey, CoinShares estimates.
    A New Investing Paradigm
    The Internet The Blockchain
    Innovation in Information Transfer Innovation in Value Transfer
    Application Universe:
    Data storage and distribution, streaming video and
    music, cloud computing, and information processing
    Store of value, smart contracts, asset digitization,
    distributed computing, verification, and data management
    Capital Deployed from 1995 to 2000 Capital Deployed from 2013 to July 2019
    Network:
    ISPs Miners, Full Nodes, Staking Pools
    Protocols:
    TCP/IP, HTTP, DNS, FTP Bitcoin, Ethereum, many others
    Capital Deployed from 1995 to 2000 Capital Deployed from 2013 to 2018
    $
    180
    BILLION
    = $10B Invest
    Source: CoinShares Research
    $
    6.2
    BILLION
    = $10B Invest
    <$
    1
    BILLION
    = $10B Invest
    $
    30
    BILLION
    = $10B Invest

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  34. Evolution or Revolution? Putting Crypto in Context
    Copyright © 2019 CoinShares Group. All rights reserved. 34
    Where Value Capture Will Happen
    Phase 1 Phase 2 Phase 3: Manage & Use Phase 4
    CREATE DISTRIBUTE RETIRE
    SPECIALIZATION
    APPLICAITON INVESTING
    $212 B
    10.5 Years
    $33 B
    3.9 Years
    $5 B
    2.0 Years
    $2 B
    4.9 Years
    $25B+
    in protocol
    investments
    SPECULATION SPECIFICATION
    Bitcoin
    Ethereum
    EOS
    Stellar
    $8 B
    5 Years
    $10 B
    4 Years
    $4 B
    5 Years
    $5 B
    2 Years
    • Power laws dictate a
    few protocols will
    capture the most value
    • Due to liquid markets,
    highly momentum and
    news driven
    • Market leaders will
    emerge by sector
    • First crypto “unicorns”
    across verticals

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  35. Evolution or Revolution? Putting Crypto in Context
    Copyright © 2019 CoinShares Group. All rights reserved. 35
    Going Beyond Cryptocurrency
    Initial Public
    Offering
    “Initial Coin
    Offerings”
    Tokenized
    Securities
    ???
    THE EVOLUTION OF CAPITAL FORMATION
    Crypto -
    currency
    COIN
    Source: CoinShares Research

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  36. Evolution or Revolution? Putting Crypto in Context
    Copyright © 2019 CoinShares Group. All rights reserved. 36
    Debt & Equities
    Gold
    Oil
    Real Estate
    Wine
    Bitcoin
    Digital
    Independent
    Physical
    Dependent
    “Tokenized" Equity
    “Tokenized" Debt
    Precious Metals
    Mutual Funds
    Bonds
    $80T
    $288B
    “Tokenized" Commodities
    The Digitization of Everything
    Source: CoinShares Research

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  37. Evolution or Revolution? Putting Crypto in Context
    Copyright © 2019 CoinShares Group. All rights reserved. 37
    DISINTERMEDIATION AND DIGITIZATION
    Legacy Asset Market Size Blockchain Asset Expression
    Gold $7 trillion Store of Value (SOV) Bitcoin
    Oil (Commodities) $1.7 trillion Digital Utility
    Ethereum &
    “Smart Contracts”
    VC $60 billion
    New blockchain protocols and
    early stage
    ICOs
    HF / PE growth
    investing
    $1.2 trillion
    Securitizing equity for private
    companies
    Tokenized
    Securities
    Real Estate $1.4 trillion
    Fractional ownership and
    tokenized REITs
    Tokenized
    Ownership
    Source: Global Alternatives Survey, CoinShares estimates.
    Liquidity, exchangeability, and efficiency are primary features - can crypto capture that premium?
    Psychological Anchoring

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  38. Evolution or Revolution? Putting Crypto in Context
    We’re Still at the Early Stages
    Copyright © 2019 CoinShares Group. All rights reserved. 38
    Speculation Utilization Specification
    Create Distribute Manage Retire
    t = 0 t = 1 t = 2 t = 3
    or Replace
    The market needs more robust
    infrastructure to manage the
    lifecycle of a crypto asset
    Source: CoinShares Research

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  39. Evolution or Revolution? Putting Crypto in Context
    But the Financial Industry isn’t Waiting
    Copyright © 2019 CoinShares Group. All rights reserved. 39
    COMPANY CRYPTO MOVE
    Buy and sell bitcoin in $cash app
    Bitcoin futures contracts
    Bitcoin custody, crypto mining
    Subsidiary backed for institutional
    trading, custody, and much more
    MARKET CAP
    $32B
    $63B
    n/a, $1.4T AUM
    $44B
    Source: CoinShares Research

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  40. Evolution or Revolution? Putting Crypto in Context
    Copyright © 2019 CoinShares Group. All rights reserved. 40
    2013 2018
    2014 2015 2016 2017
    CRYPTO
    LEGACY
    Everyone is Building “Infrastructure”
    Source: CoinShares Research

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  41. Evolution or Revolution? Putting Crypto in Context
    And Some Are Issuing Their Own “Crypto”
    Copyright © 2019 CoinShares Group. All rights reserved. 41
    Source: CoinShares Research
    Corporate Coin Type & Peg Description # Users
    1 Libra = 1 unit of
    stable basket
    Details are scarce, but assume in-app
    payments are first to be rolled out
    2,700M
    1 JPMCoin = 1 USD
    Internal use only, for now – used to
    settle “smart contract” bonds
    30,000 middle
    market, 1,700
    corporate
    1 Rakuten Coin =
    TBD
    The online giant’s $9B loyalty program
    will be rolled out on a blockchain
    102.6M
    1 S Coin = TBD
    Will allow for mobile phone payments,
    and also allows others to mint their
    own tokens
    Unknown
    1 TON = 1 TON
    Telegram’s TON token allows in
    application use
    250M

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  42. Evolution or Revolution? Putting Crypto in Context
    But the Results are Mixed
    Copyright © 2019 CoinShares Group. All rights reserved. 42
    Source: CNBC Coverage

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  43. Evolution or Revolution? Putting Crypto in Context
    Allocation Strategies & Performance
    An Emerging Asset Management Landscape
    Copyright © 2019 CoinShares Group. All rights reserved. 43

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  44. Evolution or Revolution? Putting Crypto in Context
    Copyright © 2019 CoinShares Group. All rights reserved. 44
    0
    10
    20
    1/1/17 1/1/18 1/1/19
    Bitcoin S&P 500 GLD MSCI EM
    Source: Yahoo! Finance
    Absolutely Speaking, Bitcoin Outperforms

    = Market rate
    pure
    Performance indexed to 1/1/2017

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  45. Evolution or Revolution? Putting Crypto in Context
    Copyright © 2019 CoinShares Group. All rights reserved. 45
    The Rise of the “Crypto Fund”
    0%
    30%
    60%
    < 10 10 - 50 50 - 100 > 100
    AUM, Millions of USD
    Source: Blue Sky Capital Management, April 2019 Post titled “Alpha for Beta”

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  46. Evolution or Revolution? Putting Crypto in Context
    Where is the Money?
    Copyright © 2019 CoinShares Group. All rights reserved. 46
    2013 2018
    2014 2015 2016 2017
    Source: CoinShares research

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  47. Evolution or Revolution? Putting Crypto in Context
    Copyright © 2019 CoinShares Group. All rights reserved. 47
    Smart Beta Fundamental Venture Opportunistic Quantitative
    Strategy
    Active
    Indexing
    Passive
    Indexing
    Long
    Only
    Long/
    Short
    Hybrid
    Seed /
    Early Stage
    Growth Credit
    Mining /
    Staking
    (Network
    Dilution)
    Direction-
    al
    Market
    Neutral
    Long Vol
    Fee
    2.5 – 3% per
    annum
    2% management + 20%
    performance, but as
    high as 4 + 40
    2 + 20 2 + 20 or higher 2 + 20 but often higher
    Duration
    Exchange traded,
    or monthly or
    quarterly liquidity
    12 months minimum, +
    side pockets for illiquid
    investments
    10 year lock up + 1
    to 2 year roll
    24 to 36 months,
    sometimes longer
    24 to 36 months,
    sometimes longer
    Bench
    mark?
    None
    None in most cases –
    some use BTC, ETH, or
    index
    None
    None in most cases –
    some may use rf
    None in most cases – some
    use BTC, ETH, or index
    Source: Vision Hill Research, Crypto Hedge Fund Benchmark Report
    A Variety of Approaches…

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  48. Evolution or Revolution? Putting Crypto in Context
    Copyright © 2019 CoinShares Group. All rights reserved. 48
    Performance Statistics Crypto Hedge Funds Bitcoin
    Mean Annual Return 148% 146%
    Vol Annual Return 184% 202%
    Sharpe Ratio 0.8 0.7
    Min Monthly Return -34% -37%
    Max Monthly Return 405% 453%
    Skewness 6.06 6.42
    Kurtosis 44.1 48.3
    Source: Blue Sky Capital Management, April 2019 Post titled “Alpha for Beta”
    The Upside Down - is and is

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  49. Evolution or Revolution? Putting Crypto in Context
    Copyright © 2019 CoinShares Group. All rights reserved. 49
    Q3 ’18 Q4 ‘18 Q1 ‘19
    Hedge Funds
    No. of Data Points 43 48 60
    Aggregate (All) - Average -8.5% -19.0% 7.7%
    Aggregate (All) – Median -9.2% -18.8% 6.0%
    Sub Strategies
    Fundamental – Median -14.5% -25.6% 9.6%
    Quantitative – Median 2.5% -2.9% 1.6%
    Opportunistic - Median -7.8% -24.6% 3.5%
    Smart Beta - Median -9.4% -45.5% 11.5%
    Market
    Bitcoin -9.9% -43.5% 9.7%
    Bitwise 10 Large Cap -2.5% -45.9% 10.6%
    Bitwise 20 Mid Cap -12.2% -49.8% 16.1%
    Bitwise 70 Small Cap 48.7%
    Bitwise 100 Total Cap 11.5%
    Bletchley 10 -5.4% -41.6% 4.7%
    Bletchley 20 -21.6% -48.2% 40.8%
    Bloomberg Galaxy Index n/a -11.1% 8.0%
    Alpha Alpha (Hedge Funds vs. Bitcoin) +5.6% -12.6% -3.7%
    Performance is Art and Science
    Source: Vision Hill Research, Crypto Hedge Fund Benchmark Report

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  50. Evolution or Revolution? Putting Crypto in Context
    Copyright © 2019 CoinShares Group. All rights reserved. 50
    IDIOSYNCRATIC RISK
    ”Asset” level risk
    SYSTEMIC RISK
    “Market” level risk
    STRATEGY RISK
    ”Manager” level risk
    • Operating strategy
    • Investment strategy
    • Financial policies and
    practices (i.e. “treasury”
    management)
    • Dependence on “benevolent
    dictator” founders
    • Lack of liquidity in most
    markets
    • Limited selection of assets
    (convergence on beta = 1)
    • Regulatory changes and tax
    reform risks
    • Failure of technology
    creates “bank runs”
    • Scalability (AUM growth)
    • Style drift (chasing every
    shiny new thing)
    • Benchmark selection and
    portfolio valuation
    practices
    • Risk management policies
    and limits on overall
    position exposure
    The most relevant risk today is really strategy or manager risk
    Understanding Risk

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  51. Evolution or Revolution? Putting Crypto in Context
    Copyright © 2019 CoinShares Group. All rights reserved. 51
    $0 $10 $20 $30
    Pensions
    Family Office
    Endowments
    Foundations
    Crypto Market Cap
    Trillions
    There is $28 trillion of US institutional capital
    searching for an investment thesis and value
    It will take (a long) time to flow to bitcoin…
    Source: Global Family Office Report, Foundation Center, NCES, Willis Towers Watson.
    About Those Herds

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  52. Evolution or Revolution? Putting Crypto in Context
    Copyright © 2019 CoinShares Group. All rights reserved. 52
    Private
    Equity
    10%
    Hedge Fund
    20%
    Venture
    5%
    Real Estate
    30%
    Equities
    20%
    Bonds, MM
    15%
    SAMPLE ALLOCATION STRATEGY
    Crypto Asset Example
    Exchange Traded
    Product (passive beta)
    Venture Fund
    “Crypto Fund”
    Direct Investing
    IPOs
    Equities
    HOW THEY’RE PLAYING CRYPTO
    Source: Global Alternatives Survey, CoinShares estimates.
    For Now, Play the Old Way

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  53. Evolution or Revolution? Putting Crypto in Context
    Copyright © 2019 CoinShares Group. All rights reserved. 53
    Buy Side: Build Your Own Book?
    Key Function Competence Overview
    Capital Raising Fundraising Ability to raise capital for investments from aligned investors
    Banking and Custody
    Banking Services Strong relationships with transactional banks across multiple regions
    Storage and Custody Robust crypto custody opsec and infosec
    Risk Management
    Trade Execution Relationships with OTC desks and market makers, secondary buyers
    Portfolio Management Tracking positions across platforms and assets, potentially liquidity
    Re-balancing Programmatic trading, liquidating illiquid assets or investments
    Liquidity Management Ensuring positions can be sold over time and managing cash float
    Governance Network Participation
    Staking, bonding, delegation, and other types of governance activity –
    can be performance in-house but more likely outsourced
    Financial Planning and
    Reporting
    Allocation Strategy Quantitative and qualitative analysis of investment opportunities
    Performance Reporting Robust performance data and tracking
    Cash Management and Budgeting Accounts payable and receivables
    Accounting and Tax
    Valuation and NAV Marking positions, especially in PoS networks or after forks
    AUM Calculation Need to mark position values for fee calculation, must be defensible
    Tax and Audit Managing any and all tax and audit liabilities across operating regions
    Compliance and Legal
    Legal Review Ensuring full rights and covenants exercised, lawsuits where applicable
    Filings Regulatory filings and licenses where applicable

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  54. Evolution or Revolution? Putting Crypto in Context
    Copyright © 2019 CoinShares Group. All rights reserved. 54
    A FUTURE PORTFOLIO SO HOW DO WE MAKE THIS HAPPEN
    • Data Driven Research – Publishing rigorous,
    data-driven research reports and establishing
    frameworks for analysis
    • Products – Creating a broader range of products
    and services that feel more familiar (ie safe) to
    investors, with issuers they trust
    • Reporting Standards - Implementing more
    robust, descriptive, and specific metrics and
    reporting practices
    • Regulatory Clarity – Developing a more nuanced
    perspective on legality, tax implications, and
    liabilities
    Private Equity
    9%
    Hedge Fund
    18%
    Venture
    5%
    Crypto Assets
    5%
    Real Estate
    28%
    Equities
    20%
    Bonds, MM
    15%
    Source: CoinShares research
    Exposure without an Intermediary?

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  55. Evolution or Revolution? Putting Crypto in Context
    Closing Thoughts
    Crypto isn’t Going Anywhere
    Copyright © 2019 CoinShares Group. All rights reserved. 55

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  56. Evolution or Revolution? Putting Crypto in Context
    Copyright © 2019 CoinShares Group. All rights reserved. 56
    Binary, Asymmetric Bet
    Source: The Economist

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  57. Evolution or Revolution? Putting Crypto in Context
    Copyright © 2019 CoinShares Group. All rights reserved. 57
    Debt & Equities
    Gold
    Oil
    Real Estate
    Wine
    Bitcoin
    Digital
    Independent
    Physical
    Dependent
    “Tokenized" Equity
    “Tokenized" Debt
    Precious Metals
    Mutual Funds
    Bonds
    $80T
    $288B
    “Tokenized" Commodities
    The Digitization of Everything
    Source: CoinShares Research

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  58. Evolution or Revolution? Putting Crypto in Context
    Copyright © 2019 CoinShares Group. All rights reserved. 58
    Futures, Derivatives, and Synthetics Ahoy!
    Source: CoinShares Research
    0
    10
    20
    30
    1997 2001 2005 2009 2013 2017
    Futures Physical
    Gold Trade Volume Growth
    (normalized, 1997 = 1)

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  59. Evolution or Revolution? Putting Crypto in Context
    Get in Touch
    www.coinshares.co.uk
    [email protected]
    Copyright © 2019 CoinShares Group. All rights reserved. 59

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