The Derivative - Algorithmic Sports Betting, Trading Metals to Trending Commodities, & Crypto’s Future with Charlie McGarraugh of Blockchain.com

Episode Date: June 9, 2022

We're taking flight and zooming over to the big bend for a cheerio chat with Charlie McGarraugh, an ex-midwesterner turned londonite. Charlie is the Chief Strategy Officer at Blockchain.com and has an impressive resume as a former mortgage-backed securities trader, head of metals at Goldman, founder of an algo sports betting company, and more. In this episode, Charlie dives into living across the pond (in the metals and commodities space), starting the world's LARGEST Bitcoin wallet (and selling it to blockchain.com), what's going on in the Crypto space and what's to come, and rebuilding and retooling a robust trend following CTA like Altis. This episode is hotter than your favorite Fish'N'Chips — SEND IT! Chapters: 00:00-02:07 = Intro 02:08-16:26 = Is Goldman a Vampire Squid?  Living across the pond in the metals & commodities space 16:27-28:50 = Starting the world's largest Bitcoin wallet, selling to and joining Blockchain.com 28:51-46:22 = Crypto Carnage? What's going on in the Crypto space and what's to come 46:23-01:03:50 = Atlis: Rebuilding & Retooling a robust trend following CTA 01:03:51-01:08:08 = Hottest Take: Ether on the highs ---- Follow along with Charlie on Twitter @CMcgarraugh and for more information check out blockchain.com  Watch & Listen to Part II of What happens in Vegas... Gets dished on this pod. Overheard at a Derivatives Conference on the Mutiny Funds podcast and if you haven't yet, check out Part 1 Don't forget to subscribe to The Derivative, and follow us on Twitter at @rcmAlts and our host Jeff at @AttainCap2, or LinkedIn , and Facebook, and sign-up for our blog digest. Disclaimer: This podcast is provided for informational purposes only and should not be relied upon as legal, business, or tax advice. All opinions expressed by podcast participants are solely their own opinions and do not necessarily reflect the opinions of RCM Alternatives, their affiliates, or companies featured. Due to industry regulations, participants on this podcast are instructed not to make specific trade recommendations, nor reference past or potential profits. And listeners are reminded that managed futures, commodity trading, and other alternative investments are complex and carry a risk of substantial losses. As such, they are not suitable for all investors. For more information, visit www.rcmalternatives.com/disclaimer

Welcome to The Derivative by RCM Alternatives, where we dive into what makes alternative investments go, analyze the strategies of unique hedge fund managers, and chat with interesting guests from across the investment world. Happy, well, you know what? I had a tough one deciding here. It's both National Strawberry Rhubarb Pie Day and National Donald Duck Day. I do a pretty good Donald Duck, but also love me a good strawberry rhubarb pie. So maybe we say happy strawberry duck pie day. And speaking of random, make sure to go check out me on the Mutiny Investing Podcast and our

part two breakdown of the EQ Derivatives Conference. And back on this channel, we've got a bunch of good guests coming up here. Ben Eifert, Nancy Davis, Vincent Deluard, some energy folks to talk $120 oil and more. So go subscribe so you don't miss a beat. On to this episode where I got to zoom over to Cheerio, England and chat with Charlie Magara, the Chief Strategy Officer at Blockchain.com, but also a former mortgage-backed securities trader, head of metals at Goldman, founder of an algo sports betting company, and oh yeah, buying into trend follower Altus Partners a few years ago before trend was the hottest thing in town. What a CV and what a chat. Send it. This episode is brought to you by RCM's

Managed Futures Group and their newest white paper titled Your Guide to Trend Following. Today's guest is a sub-advisor to a trend following fund. How do they do it? Why do they do it? When does it work? When doesn't it? Ping the team at RCM to dig in. Check out everything RCM does and download that trend white paper at www.rcmalts.com. And now back to the show. All right. Hello, everyone. We're here with Charlie Magara. Did I get the pronunciation right? You did. Welcome. Hey, thanks for having me. And you're there in sunny London, it looks like. Sunny, delightful London. We've been trying to compete with you for, it feels London-ish here.

We hadn't had much sun in the last like 40 days. So you guys probably outbid us here in Chicago. Oh, yeah. Well, it's a pretty low bar to beat. It's a pretty low bar. So you've got some great entries in the old CV there. So I wanted to dig into some of them. Sure.

So got to start with 16 years at Goldman, was it? you've got some great entries in the old CV there. So I wanted to dig into some of them. So got to start with 16 years at Goldman, wasn't it? Yeah. I joined Goldman Sachs right out of undergrad and was a trader there for quite a long time in many different markets. So the cynics would say you must not have a soul after being there at 16 years. So what's the reality of being there for that long, being a partner, finally being made a partner there versus like the vampire squid perception that the outsiders seem to have? Well, I loved it. Trading floor was my happy place. As a little kid, actually, once my mother brought me on a trip to a trip to Chicago for the weekend. Uh, and we got there, I think on a Thursday or Friday, and I saw, uh, stood in the gallery above the pit and,

you know, with my face pressed up on the glass and I pointed down at the guys in the blazers and said, that's what I want to be. I want to do that. I want to be where the action is. And, um, you know, living on a trading floor, uh, you know, it turned out I was going to end up part of the Manhattan School of Trading rather than the Chicago School of Trading. But life on a trading floor really suited me. I just really always enjoyed the intellectual challenge of it, the excitement, the fast pace,

the quick feedback loops of pain and learning and occasional wins. And yeah, I just, I had a great time. Were you ever tempted to go try your own hand to be your own, trade your own money in one of the pits? No. Yeah, I joined Goldman right out of undergrad. I think I had this kind of revelation as a student,

which was in a mathematical economics class. It was like, wow, there are people who use calculus and statistics to make money. And I was like, I know some calculus and statistics and make money and i was like i know some calculus and statistics and i don't have any money so maybe i could do that that'd be cool where was undergrad uh yale yeah and where was your mom bringing you to chicago from uh from saint paul minnesota where i'm originally from paul all right another midwesterner yeah um so i always tell people that's the scene like in ferris bueller, right? Where they're mocking the hand signals and doing all that stuff.

So you remember where you're at the board of trade or the mark? I think it was the board of trade. Got it. Yeah. Just all gone now. Mostly. Yeah. Just a bunch of servers now.

So for you, it's like whatever the outworld, the inside world of Goldman is a good place. Like people are nice to each other and they're all trying to do the same thing. I do actually have complimentary things to say about my time at Goldman. It was a very good place to learn, to build a career, to really have a front row seat to the whole wide world. Travel, I was just a kid from the Midwest and it was a place that rewarded hard work and capability. wide world. You know, travel, I was, you know, just a kid from the Midwest. And, you know,

it was a place that rewarded hard work and capability. And, yeah, it was good. Now, obviously, like in like in any high end profession, there are times when you have to make judgment calls that and exercise personal integrity. And there are obviously many examples all over Wall Street, not just at Goldman, but everywhere of people making bad decisions. You know, I hope that over my time there and in my subsequent career, I've tried to, you know, act with high integrity and make good decisions. But yeah, no, I think it's pretty unfair to characterize an entire institution by, you know, worst moments yeah yeah yeah when i think they get they're like get the uh right all of wall street greed for lack of a better term seems to be like oh goldman they hold that up as the yeah it's a bit of like a caricature i suppose but i

think the reality is you know look it's a competitive place i'm not gonna you know beat around the bush on that obviously but, but I found it to be a tremendous, tremendous resource for learning and really growing as a professional. Did you know Michael Cow there? I think he was on the commodities desk. Nope. I spent the first 13 years of my career in fixed income trading. First as I was one of the first default swap traders at Goldman actually. And then yeah. And then I moved into mortgages in 08 to, to clean up messes of which there were many.

And then they sent me over to London in 09 to clean up other people's messes in the European banking system, which was an even bigger mess. And what did that look like? You were actually figuring out which mortgages were good, which tranches were good, which were bad. Yeah. Yeah. It was really interesting. It was very different than commodity trading because mortgage-backed securities in 2008 and 2009, it was extremely complicated product, but pretty simple market structure. It was like a bunch of banks bought these things and now they can't own them anymore. Whereas commodities, it's like, look, at the end of the day, it's a lump of molecules,

pretty simple product. But man, the market structure is so complex and there's so many different folks with so many different agendas and information flows. It's like, it's a totally different challenge. And then that was one of the best trades coming out of like 2009 forward, right? Of reowning all those. For sure. Yeah. I mean, we, you know, we, because the American banks sorted out their problems before the European banks did, they were able to act rationally within the opportunity set.

And you know, we built a really great client business and distressed European asset backs basically, and built a whole client business there. Who's buying those? Institutional investors? Or they get hedge funds? It went in waves. So it started with super distressed hedge funds.

And then as the market sort of realized that securitization wasn't like a flawed instrument on first principles. It had just had some misalignments in the market structure. There were successive waves of basically different participants coming back into the market structure. So it started with the distressed guys. Then there were some crossover real money and asset manager types. And then there were some more sort of liquid markets, hedge funds. And then finally the banks themselves and the insurers finally got back in. But that

process took like five years to unfold. Trey Lockerbie Trey Lockerbie Do you keep any tabs on that market? Like what's its size versus the peak coming into the 08 mess? Jason Lowery I don't know, actually. It's been a while. I've been out of it since 2013. But I would say this, which is when you think about the size of the European banking system as total balance sheet as a multiple of GDP, it's like 4X. Whereas in America, the banks are like 1X GDP in terms of their balance sheet. And that difference is because the American capital markets are just so much more robust and mature.

If you don't have good capital markets, you just put everything in a box and centrally control it, and that's a bank, right? And every European country has its national champion, and it's a totally different kettle of fish in terms of how the financial system works when it's just a banking-dominated model as opposed to a capital markets-dominated model. And that's pretty interesting. And that was pretty interesting. And that would speak to why those banks needed to be saved, perhaps, right? With the even more so than in the US during the financial crisis and all that of why they got propped up and why Europe was the first to have negative rates and all that. Yeah. And I think that's why it just took so much longer and is continuing to take a long time

to normalize the European banking system post-crisis. Does that have a good ending, do you think like, can they ever even get out of that? That's the existential question of like, is the Eurozone sustainable? I'm going to punt on that one, you know, over the years, it's funny as an American expat in Europe, your sort of first reaction, you kind of, you're like, this will never work. Right. And then you kind of actually get into it and see how it all happens and everything you're kind of like okay they just have a different system and then another year or two goes by and you're like this will never work and that's cycling back yeah but you know here we are with the euro still still trucking along so you know we'll see uh just along those lines where it was when you went through brexit and

all that were you going around in circles with that too of like was when you went through brexit and all that were you going around in circles with that too of like this is the end well brexit was interesting i'd say like um at the time i you know i moved into commodity trading um in 2014 um i was a class of 2012 partner at goldman largely on the back of the success and the sort of distressed trade in fixed income. They moved me into metals, which was a totally different kind of market. And one where I, you know, I had to be a quick study and I wouldn't say like I covered myself in glory at the beginning. But yeah, by the time Brexit came around, you know, it was pretty interesting to see in the market, including internally at the bank where I work, but I'd say this is true everywhere.

There was a sort of failure to conceive that the dissenting view versus the elite consensus could actually carry the day. And so that was a tremendous trading opportunity. It strikes me as that Goldman Sachs is likeids like hey you've been doing all this mortgage stuff go run metals right was it like it seems like a a weird switch right no i think you know look i think um i liked interacting with clients they they wanted to you know somebody who's a franchise builder and and um and a quick study and you know i i was always you know asking for more opportunities to learn uh so i guess i just sort of was so annoying that they had to give me something interesting um and i'd say definitely

bit off a little bit more than i could chew at least at the beginning um but you know it's a it's it was a good journey and who are those uh customers you're talking to like glencore's and alcoa's of the world like the biggest metal producers and traders? Yeah. Well, I think it's really interesting because in these commodity businesses, they're quite different than most of the other businesses in the client bases that the big financial institutions face. Mostly in big institutional trading businesses, you're facing other financial institutions. In commodity world, you're facing operating businesses in the supply chain. And so I'd say one of the most interesting things, and I think a creator big opportunity actually, and that continues probably to be a creative opportunity is the people who are commodity specialists, they grow up learning

about supply chains and inventory and storage and freight netbacks and all the good stuff and supply and demand and surplus and deficit, all those great things. But the understanding of financial conditions and balance sheet conditions, I think, is generally and CapEx cycles, I think, and how cost of capital relates to that, I'd say is like less than in fixed income world. And then the, you know, the fixed income and equity, you guys, I don't think really understand, you know, all the nuances of what it takes to deal with, you know, physically settled stuff and, and, and stuff. In other words, like most of financial world is focused on the balance sheet, commodity world's focused on the income statement. And and i think um i think that's a really you know really interesting uh learning curve uh and the extent that you can navigate both i do think it can create some uh some trading opportunity and just to dig into that more

you're talking like if i'm a producer i'm trying to hedge i can have a duration mismatch i can have a cash flow problem right if i get a margin call on my hedge where's that yeah or even just like i mean at the time right in 2014 or whatever it was sort of like what do you do as a mortgage person looking at the metal market you're like okay i'm going to think about this the way i think about trading you know value and credit which is like which is like okay um pull apart the models that people use, try to understand where the bad assumption might be. And what I found in 2014 was when people underwrite the supply and demand and base metals, they only had a Chinese demand growth assumption. They didn't have a Chinese demand assumption, which reminded me a lot of when I sat down in mortgages in 2008 to unpack the housing models.

And it was like, we didn't have a house price assumption. We only had a house price appreciation assumption and it was like oh you know history doesn't repeat but it rhymes and then um and then starting to dig deeper into the understanding of the way that um uh supply chains and working capital was financed uh with wealth management products on short in China and kind of digging into an understanding of the Chinese banking system better uh did definitely give us some some edge trading base metals from the short side. Yeah. And what percent of your life became China just as metals and their economy driving all that? Well, it's an interesting one. I think there was an opportunity in those days to kind of be focused on rest of world and go uh hey you know china's a big place

full of many many human beings yeah competing incentives and all kinds of different things and i think there's a tendency uh on wall street to kind of be focused on a sort of causal model of the world where it's like the fed decides and everything follows through um in a sort of chain of causation and so when you say, here's this whole like completely orthogonal thing that's massive and matters, you know, I think there was an opportunity to be valuable to the clients, basically telling that story, helping them understand and then having the ground game to a degree on shore and really having some insight there. Because that information was not able to flow that easily between the systems. What we've seen in other markets,

though, they tend to game their purchases. So the Chinese trading houses are probably killing it a lot of times of working with the government to say, all right, we're going to pull back on our hog purchases. No comment. No comment. No comment. Yeah. That seems like a good trade if you can pull it off. Moving on. Then you went to Stratagem after all this Goldman time, which was a, sounds like a job I'd want to have.

What is an algorithmic sports trading company? What'd you do? So, so at Goldman, I, you know, I was sort of like, Ooh, you know, my long-term goal in life is to be the best speculator. Sorry, from a professional perspective, of course, my long-term professional goal in life is to be the best speculator and trader and student of the market that I can possibly be. And I started to see

kind of in this sort of manual trading mode that a lot of what was going on in levered liquid stuff like FX and commodity futures and stuff was really systematic. And I needed a better education in systematic trading. At the time, also, there was a lot of hype around machine learning and AI, and people didn't really know what that meant. And I wasn't really going to have an opportunity to get tooled up on that skill set, you know, running a big franchise business like Goldman. There were people who did that far better than me. in my own personal kind of journey and do something a little crazy. So I quit and became, and I had backed this, my friend had founded the company and was convinced that machine learning could be used to predict sports events, which is true. It can be. Like sports betting, we're talking. Sports betting, yeah. And we were like, cool, we're going to build like a sports betting,

electronic AI driven sports betting syndicate. And, you know, that was really attractive idea because a sports bet is like a 90 minute duration asset, right? So if you're good at it, the business is all income statement and no balance sheet, right? Because it's just high velocity, right? Like any other kind of higher. And for the machine learning, a quick, quick feedback. Yeah. So we were like, cool. And, you know, it's hard to hire data scientists, but if you tell them they can wear jeans and like look at soccer matches all day, you know, then they're probably cheaper. Right. And so that was kind of the theory. Um, and I think it was a good theory. Um, the problem is we turned out that like, is that, and there are some people who do a really good job at this. It's just, they'd all gotten there a little bit earlier. Um, and, um, there were a couple of

problems with that idea. One, one. One issue is sports don't change. So seasonally, the uncertainties, the entropy increases and decreases as you get more data points over the season, right? But the science of sports prediction, because sports never change, it's a totally stationary problem, just continues to sort of get ever more efficient. The second problem is like any data scientist, the second they learn Python, like a huge portion of the first thing they do is build a sports prediction model. And so the barrier to entry is quite low and there's no advantage to having balance sheet.

Right. It's just like it's just like, you know, anybody can show up. And then so the market never gets dumber and anybody can show up and it's basically no barrier to entry. And then most importantly, it's not really a financial market, right? It's an entertainment product. And so the vast majority of the flow is B2C flow that just never sees the light of day, right? In secondary trading, it just sort of gets internalized by the people who are good at aggregating the flow. And so it's just, there are some people who've made it work, but for me, it was just, it wasn't going to be the greatest business model. And so I decided to pivot it to crypto because this was like 2017 now. And it was like, well, we have all these guys who are good at building, you know, engineers and data scientists who are good at building integrations with dodgy people on the internet. So we might as well pivot it into crypto. And crypto is anything but a stationary problem. The market structure is constantly changing. Super dynamic market,

a lot of nonsense in the space, but also a lot of intellectual depth in the space. Ben Felix, And so I was like, cool, i built the you know the the right tracker maybe on the right farm maybe not but like this other farm is also probably pretty productive and so uh so we began the process of pivoting in early 2018 and then um and then i ended up selling the company to blockchain.com uh in late 2018 um and so it was doing this analytics, basically? Microstructure analytics? What was it? The sports company?

We were doing sports analytics. Well, when it became into crypto, yeah. No. Oh, yeah. I mean, we, like, blockchain.com was, yeah, we were going to do sort of, like, medium latency and low latency and high latency trading basically. And yeah, so when we sold it to blockchain, blockchain needed engineers and data scientists. And blockchain.com at the time was pretty small, London based, but it was the world's

largest Bitcoin wallet and had the early vintages of people who bought crypto back in like 2011, 2012, 2013 in their ecosystem. I was like, well, cool. Like crypto is a disintermediation machine. And, and, and like, this is the business that has the private key endpoints and it's, you know, in the relationship with the private key endpoints. So probably that's a valuable platform to be able to build on. Yeah. And, and so we, we consummated that merger in 2018 and now I am the chief strategy officer of blockchain.com and have helped build up a big institutional trading business here. In addition to being the chief investment officer of Altus Partners, which is my regulated futures manager. Yeah, yeah. I'll come back in a sec.

So you said not many people understood ML and AI. Do you think they're there yet? I do. I do. I think it's a much more widely understood toolkit now. It gets thrown around in the hedge fund space quite a bit, which in my experience, a lot of times when it gets used, they're just using it as a tool. I call it a replace a thousand humans tool, right? Instead of actual AI that's out searching new inputs, per se.

They're giving it the inputs and it's just doing the work. Yeah. I'd say there's a wide range of ways to deploy the technology. And I think the key to being successful with it is understanding an appropriate divisional labor between human and machine for the job at hand. So it really depends on your, for trading, it depends on your style of trading and how you're thinking about risk management and what kinds of alphas you're looking to discover and exploit. And there's different ways, but at the end of the day, I do think it's a much more widely understood toolkit than it was back in 2012 or 2014 or 2016. Yet we still don't see that basically rent tech of AI, right? Of the new super huge hedge fund that's all AI and has these models that figure out everything.

It seems like the promise of finding the clockwork machine, right? Of figuring out the market is still out there in the in the future yeah i mean who knows if it'll ever be yeah they're right the problem is markets are not stationary and the eyes are really good in their current capability of optimizing for stationary problems got it so that's uh that's the kind of the fundamental challenge and then did you ever run across mark cuban when you're doing strategy because he was talking that was like 10 years ago i'm going to launch a hedge fund to do sports betting and basically um i heard his name bandied around a bit but yeah business yeah i still think there's an opportunity now that all these online sports

books and local sports books all this stuff as that grows right for like a institutional market to offload their risk right like you were saying they're internalizing the flows which basically means right that they're they're just setting their spreads they have equal number on both sides of the trade but surely there's overage every now and then so there should be some market where they can there should be right but at the end of the day like if you're retaining the customer do you even care if they win on any given bet as long as they just come back and bet again if they're betting with negative edge as long as you retain the customer you kind of don't care right all right yeah i mean there's obviously tall trees of risk that need to be clipped because it's just too

much volatility but i don't think it's like you know other people may have a different opinion it's not a billion dollar business who knows I'll stick it back in the drawer. So now still at blockchain.com, head of strategy. Give us the elevator pitch on what that entails. What's the head of strategy do? Blockchain.com is one of the largest crypto services platforms in the world. I guess my job is to help articulate the firm's strategy. And in practice, that means I focus mostly on the institutional side of the business.

So I work very closely with the rest of the C-suite on all kinds of different initiatives in the company, M&A, capital, product, risk management, people, all those things. What sort of institutional interest is starting to come in? For a long time, that was like, oh, once the institutions start trading and start investing, it's going to be huge. I actually think this is the least reported story in the crypto market, which is that sometime in the last two years, the idea that crypto is converging with macro went from a completely fringe theory to basically common knowledge in the upper quartile of professionals in both sides of the spectrum. Right. Like three years ago, if you'd said like, cool, I sit with Bloomberg on one screen and like all the crypto stuff on the other, people have been like, you're crazy. Yeah. Now it's like, that seems entirely natural. Right. And that's a huge change. Right. I think it all kicked off with Paul Tudor Jones, kind of, I'm backing the fastest horse. I'm worried about inflation. I'm backing the fastest horse, and that's Bitcoin. I think that just had a sort of inflection in the sort of

psychology of at least the Western traders. Now, crypto is a big market. It's not just a bunch of people in Chicago and New York. It's a big global market. But I do think it had a pretty important impact on kind of professional traders in the States at the very least. But you still see, like we had a fund that trades not even Bitcoin futures that was getting put through Schwab private fund. They wouldn't onboard it because in the offering docs, it said crypto derivatives, right? So there's still some legacy things of like, oh, crypto scary. We're not going to take it. Oh yeah. I mean, there's still a lot of wood to chop i would say in the climbing the mountain of institutional um institutional adoption but i don't think many people question the premise anymore right and i think it's really for two reasons i think for one reason it's sort of like wow people have made a lot of money on this stuff and so i think a

healthy portion of the street you know the traditional street says like okay it's just another widget to trade we know how to trade widgets right it's an fx it's a commodity it's it's a it's a it's an equity whatever pack it up and go make go make the fees that are on offer right which is like totally a viable business proposition for what it's worth. But the thing is, while it is just another widget, it's not just another widget. It's also a set of financial technologies that portend a transformation of the market structure to be more disintermediated, reduce the cost of instantiating new markets and new things, and ultimately expand the scope of what's tradable and has price discovery.

It's sort of like what new things are going to trade in a world where peer-to-peer value transfer, frictionless, is a ubiquitous feature in all software. It's like, wow, there's probably going to be a lot of new markets to trade. You'll need a lot of software to do it. But I think that's true of trading in anything these days. So yeah, so I think it's a pretty exciting time. And I think we see a variety of levels of kind of sophistication of an understanding of it. But if for no other reason than just the pure profit incentive, I'd say a lot of people are taking it quite seriously these days.

We see it every day. Ben Felix My pet theory is that it was a couple of Chicago prop trading firms that just were at a bar and were like, I'm a better trader, I'm a better trader. And like, well, let's create some digital thing that we can trade and prove who's the better trader. We're recording here on May 10th. What is it? May 10th. Amid some crypto carnage, the UST broke its stableness.

I don't know how you say that. So give us kind of your view on what's happening over the last week or so in crypto. What's happening today? Opportunity threat. What are your thoughts? Yeah. So I think that it's a crazy world out there. It's red in tooth and claw in crypto, that's for sure. The volatility is high. The leverage that's on offer to certain segments of the market is also high. And unsurprisingly, you get extremely volatile price action now i think that happens in conjunction with a space that is rapidly innovating lots and lots of new experimental models right and

and and churning through them kind of going like maybe this will work maybe this will work maybe this will work and and it's sort of like build something put it to the test of the market find out what happens uh and depending on what level of community adoption there is, you know, some of these things work and some of them don't. Now I think it's pretty interesting. Like when you're printing your own working capital layer out of thin air, right. There's kind of like two stable equilibrium. One equilibrium is nobody finds it that useful and it just sort of collapses

down to net asset value of whatever's backing it. And then the other stable equilibrium is everybody finds it that useful and it just sort of collapses down to net asset value of whatever's backing it. And then the other stable equilibrium is everybody finds it useful and then it just has a bid on its own. Like that's happened with Bitcoin. It's happened with Ethereum. I'd argue that there's certain Web3 projects where that's happened as well. and um and so in the process of people attempting to bootstrap adoption and make the tool useful it's not surprising that there's a sort of like competing pull between these two equilibrium sometimes you just get a big move from one to the other um and i i'd expect to see a lot more of that but it's all part of the sort of beautiful process of iterating through

a lot of experimentation um while the kids are making up super interesting things on crypto Twitter. And, you know, it's pretty great. But it seems at odds with like the theme of institutions want to get involved, right? Because they don't want that huge variance. They don't want all that. I don't know. I think of it more like this.

It's like a two front war, right? Like in crypto, like one front is the push of the crypto industry to be backward compatible to TradFi. And that ultimately involves taking this organic consumer led retail led phenomena, this round peg and sticking it in the square hole of like regulated packaging and distribution channels and governance. Right? Yeah, it's expensive, it's capital intensive. It requires experienced people. It's a lot of work, but it's totally viable as a business model. And at the same time, the street sees the excess returns on offer in crypto because there's so much growth in the space.

And it's like, wow, there's excess returns on offer because there's new things being created and there's real growth. Is it actually that or just the, the growth of the price itself? I don't know. And I think, and I think we'll, we'll find out over,

over the years. I think crypto has a pretty big job in front of it to become useful. But like I said before, a toolkit that allows for like peer to peer value transfer, new markets and new things, disintermediated balance sheet models that are more atomized and solving too big to fail with software all packaged in like a packaging of super transparent open source code which which

delivers credible good governance seems like it'd be pretty useful right and i think and i think we are starting to see that but anyway that's the first front in the war it's like the push by tradfi to access the returns and the push by cryptofy to access dollar capital cheaper than its existing cost of capital right the second front of the war is way less capital intensive but it's also much higher velocity and there's a lot of uh a lot of experimentation and failure and success and that's just sort of like the expanding plasma of the universe expanding as like the kids make up new things and try new things out uh and you know i say the kids but i mean that respectfully it's like it's like people who are young at heart they may be older than yours but young at heart but innovating

uh in communities and um yeah and i think and i think you know some of some of the institutional people that we talk to seem to want you know of that magic fairy dust because it's interesting and it does harbor the possibility of true disruption to models of capital formation and price discovery. And I think it's a pretty cool thing. You think they need to look at it from a venture standpoint, right? Of like, make a thousand bets and the one that pays off is going to cover the rest we see we see every every flavor of a participant under the sun some people are like that you know lots of action bets some people with concentrated conviction um yeah i would say right now it seems like there's a lot more money into venture than there is into these liquid

products with the idea kind of it's sometimes hard to know whether, you know, liquidity and mark to market is a bug or a feature for a lot of these folks. But, you know, it's all just happening. And I'd say it's pretty cool. And what, and so say it all unravels, Bitcoin's at $2 in five years. What good is, do we get out of it? What are the pieces left over that we can use and move forward with and build something great on? I think that solving too big to fail with software is a worthwhile enterprise. I don't think it will unravel. I don't think Bitcoin is going to $2, but even if it does, even if it proves that all of the crypto world is just a test net for FedCoin

and we live in a surveillance state with programmable money controlled by some autocracy, even if that happens, it's still a better toolkit for reducing friction for capital formation and for atomizing the balance sheet of the banking system and solving too big to fail. Because at the end of the day, with private key self-custody, you can hold your own asset without any loss of the capability of doing things with it. And that's a much better, safer, more efficient, less credit risky, less intermediated model for matching savings and investment in the economy. And do you, in that model, have to sign off on fractionalized banking? I'm not sure. We'll see. But an asset-based pass-through system seems like a better model

than a hub-and-spoke, put-everybody's-money-in-a-pot-and-write regulated liability system. Just from first principles of capital efficiency and credit risk reduction. I just think about the financial crisis in a way. I had to keep making my mortgage payment, even though super senior mortgages, just like mine in tranche form, were trading at 60 cents on the dollar. I called my mortgage servicer and I was like, I'd pay 65 cents for my mortgage. And they were like, you're crazy. It'd be sweet to be able to find my mortgage and actually be able to go and pay it down if there's ever a liquidity crisis like that. Again, you can do the asset liability matching so much faster and match savings and investment much more efficiently with a better asset-based system.

And you're just talking pure plumbing. They're not even the political will to bail out too big to fail and those kinds of things. I'm saying solve too big to fail with better engineering. Right. But solve it because what's the downside of the too big to fail, I guess? Because we have to take on the debt because we have to bail out those who are irresponsible. Because the system is more resilient. Like if it's atomized, it's like, what's a more resilient model?

Like 10 mainframes or like, you know, a hundred million network smartphones, right? Like, like which one is going to result in a more stable internet? Like, I don't know. It seems pretty clear to me. What about NFTs? All that jazz is just another, what you said, the kids innovating. See what, see what comes out of it. I think it's really interesting, right?

Like again, and there's a lot of talk about how crypto is going to kind of eat the capital markets from the inside out. Right. But maybe they're going to eat it from the outside in. It's like new markets and new things where the cost of capital previously was not discoverable at all. Again, so this year's experimentation of a JPEG of, you know, Michael Jordan's Nike's maybe in 10 years time is like a Dow for tokenizing green capex to deal with localized community infrastructure to mitigate climate change. I think right now you have a bunch of mid-20s people kind of taking the piss. 10 years from now, they're going to have kids and they're going to feel really pro-social. And they're going to be crypto native and crypto rich and able to do things like crowdfund and

flash mob to build the willpower to do really interesting things really fast in communities. And that's really interesting and really important. Less crypto rich after this week or whatever, it's just a blip. You know, good question. Some of these are down 80, 90%, right? Now we're back on to macro trading. Yeah. Yeah, I think the uptick in the correlation between crypto and NASDAQ or just risk on risk off factor more generally is a function of the market structure professionalizing. And I still think that most trad five people,

even those who are participating in crypto don't really believe it's real. And so there's a last in first out mentality, which makes the beta higher until the market you know distributes the risk um do i think this diff is temporary i do but like you know i've been working on crypto full-time for four years like i'm pretty you know you're drinking the cooling yeah well hopefully some of your listeners will also be drinking the kool-aid after that big monologue i just gave you about crypto. For sure. And what do you think of like Paul Tudor Jones, who you mentioned of this, I want to back the fastest horse in case there's inflation. Hey, we got inflation and it's not right down 55% since June, whatever, as inflation has come up. Well, markets trade in anticipation, right? like let it not be lost that you know this

time two years ago bitcoin was at three thousand dollars right so you know it wasn't that long ago where we were like bitcoin at 30k we'd be popping the champagne corks now it feels like you know it's pretty pretty tough drawdown but but no i think i think it's just cycles within cycles of adoption and enthusiasm and they may be asynchronous asynchronous with the observed prints on inflation, but it doesn't mean it's a bad inflation hedge. It's a highly inelastically supplied bearer asset that has appreciated massively. And although it is clearly correlated to real yields, term real yields, and has therefore drawn down a bit, I still think that you're so early in the adoption curve that it can go quite a long ways. And I would also say that in a world of increasing structural

volatility in terms of institutional integrity globally, super hard money bearer asset is probably a pretty attractive thing and has a place in a portfolio. So I'm still quite constructive on Bitcoin. I think it makes a ton of sense portfolio. So I'm still quite constructive on Bitcoin. I think it makes a ton of sense here. I'm not at all convinced that it's a turbo equity. I think I'm still convinced it's digital gold. And I think if you really pull back the layers of the onion amongst professional traders all over the Western system,

a lot of people still think it's digital gold. Well, and that just digs into like, what is inflation, right? So if the fiat hasn't devalued, but your grocery bill is more expensive or things like that. So both things can be true, right? There can be inflation and it isn't hedging the type of inflation that it's kind of designed to hedge. For sure. It comes in many flavors. Yeah. And I think, you know, I think there's this open question, which is, is crypto just a rich man's play thing? Something you punt around when you're bored and locked up at home?

You know, that's not a great thesis right now, I think, as the chart and certain consumer, you know, consumer day trading apps would show right um and if your view is if your view is crypto is a useful working capital layer for new systems that are going to be built to transform the structure of the economy then it's like you know maybe i could get behind this thing and maybe it's actually levered to real growth and not just not just like you know real yields uh maybe it's the other way around and i think and i think i think i think we'll be surprised at how commodity like cryptos begin to trade over the next call it five years right now again it's like oh it's turbo gold like i guess if real yields are higher bitcoin should be down it's like well maybe real yields are higher

because there's a lot of growth that's happening like In the economy right now, we have to relocalize the supply chain and shorten it and completely re-optimize and make it more robust. And that's going to be expensive. It's going to take a lot of capex. I think it's super notable when you look at the interest rate market over the last couple of weeks, rates are a lot higher, but inflation swaps are not that much higher. It's real yields that are moving. The market's saying the actual return, the marginal product of capital is going to be up. And that makes sense because there's a lot of CapEx that has to happen to fix the supply chain and do the big green retrofit that's going to happen over the next 20 years. And in that context, it's like, well, if crypto is just a place to park money and it's a boring thing that doesn't do anything then yeah it should trade down but if you're like hey crypto is an important component of a like

as a management tool and and and an important you know operating tool for matching all that capital aligning incentives and and sort of raising the velocity of money in the economy then it's like maybe that thing should trade up with the real yield. And I think that's the inflection then that correlation break is really what I'm looking for as a trader, at least with respect to the crypto sector. Robert Leonardus Yeah. And it might not even matter what the truth is, it's how it's acting now, right? Nick Huber Yeah. Robert Leonardus One thing you said in there,

I want to touch on real quick, the institutional integrity has been lost. But are you, what are you talking about there? Governments? We talked a lot about crypto and we talked a bit about how macro and crypto are beginning to converge, right? I think there's two other really big threads in the kind of market narrative, right?

One, the third thread is the fourth turning, broadly defined. It's just like people are questioning the integrity of institutions, all institutions. Personal freedoms with lockdown, what you can say, censorship. And I don't want to be political

about it because I try to stay agnostic about these things. I just want to be a student of the market. But I'd say from a trader's perspective like the dispersion impossible outcomes in terms of market structures institutional structures credit risk systemic risk is like just getting bigger right um so i think that's kind of the third stream which is like sorry inequality right like festering inequality and the drive to redistribute i mean i think right now in the, the market's kind of going like, ooh, I know the Fed wrote a put on the market for like the better part of 20 years.

Like maybe now the Fed has taken a call for zero from the market because they want financial conditions to be tighter. And maybe Fed is working for labor instead of capital because the cost of the inflation has got to come out of profit margins and not out of real wages. That scares the hell out of the market and puts the cost of capital higher. So I think the dispersion of potential outcomes is high. And I think that's the third thread, the fourth thread, basically. And then let's renegotiate everything. And then the fourth thread, which I think is equally important thinking about the markets, is the big job that's going to have to get done, which is climate change, because it can be super expensive. It's five to 6 trillion a year of CapEx for the energy retrofit and all the associated water and other systems that have

to be put in alongside it. And those are big, big money flows. And it's going to put the return on capital higher and put up interest rates and make it more volatile. And so I don't think people think about how crypto and macro are converging with the fourth turning and the green retrofit. But I think all these things are getting to the same place, which is we're going to need a really good toolkit with a lot of risk management for mobilizing giant piles of capital and giant piles of political willpower to go and do the job. And so, yeah, so that's kind of my big picture view of the world. The aforementioned Michael Cow, who was a Goldman trader, he was on the pot.

He was talking about you would need just to do the carbon capture in the US, you need four times the amount of pipeline that's in the US currently, which took 125 years to build. Sounds like a lot of metal. Yeah, right. Like, it's just mind blowing what you're saying of like the effort, willpower, not just the effort and willpower, but the actual physical resources and the money to build all this is staggering.

For sure. And I think it's pretty interesting. I think the markets until quite recently have been, you know, it's a little different now with a kinetic war in Europe and whatnot. But until until quite recently i think the markets have been really focused on digitization electronification virtualization especially with lockdown yeah yeah but like you know if my thesis of fourth turning plus green capex it turns out to be you know kind of how things play out then you know we're to all be focused on real molecules again. And these software systems

are going to be deployed to make supply chains, both upstream and downstream, including waste processing, much more heavily architected and better thought out. And then putting your metals trader hat back on, you're saying that's a 50-year

upside demand for metals for sure it's we're in a commodity super cycle i definitely i'm with i'm with my my former colleague jeff curry on that one in a big way which leads us to our favorite thing on this podcast trend following yeah um so you got mixed up with the Altus guys somehow in a good way. Tell us that story, what you're doing there. Yeah. So one of the board members of Stratagem was a partner at Altus and Altus was a trend following CTA, uh, started in the UK and then moved to Jersey, the Channel Islands, um, had a

really kind of unique approach intellectually to portfolio construction. You know, yes, you've got a bunch of trend signals. The question is, okay, you know, if you have a signal, what do you do with it? So their sort of strategy development layer was really, really interesting. And they were on the board. My partner, Steven, was on the board of Stratagem at the time. And then in 2019, Stephen's partner, Zvish Hermashevsky, who was the architect of the system,

tragically died in an accident. It was mountain climbing or something? Yeah, skiing, actually. It was an avalanche. But he was, you know, and I've met him a few times, but I didn't really know him that well. But Stephen asked me if I wanted to take his share and if I wanted to have a look at the IP that they had built for trading. And I was like, sure. And

readings, vicious writings, I was like, gosh, we're intellectual fellow travelers in terms of how to think about trading and sizing. And so I bought his stake in Altus and I've been basically redeveloping with the, with the quants there, the trading systems and expanding on the work that was started by, by a previous generation whose shoulders we stand on now. So it was one of the most interesting Cap Intro manager meetings I've ever had down in Miami with Emma, who's listening. And I think it was Steven, was it? But they started the meeting with, we have zero assets under management. I'm like, okay, that's a unique open. But then told the whole story of the partner

tragically died and rebuilding, retooling. So it was an interesting, it was memorable. It was a good open. Yeah. I mean, for me, it was like, why wouldn't I want to have access to tens of millions in R&D and CapEx at a fraction of the replacement cost and basically carte blanche to redevelop it? Having learned what I learned in almost two decades on a trading floor at Goldman, and then a lot of interesting tech entrepreneurial journeys and a lot of time to think about markets and risk management. And it's hard. Look, it's hard. I've managed a lot of software engineers.

It's hard to build good performance software that's robust. And these systems were really burned in and expansible because they were architected so thoughtfully from a kind of component level perspective. And had you ever done any personal investing into managed futures or trend following? Nick Neuman No, but I got quite an education of it, being a partner running the metals business at Goldman Sachs. Preston Pyshko Well, that was going to be my next question.

Nick Neuman And so we started going down the path of portfolio optimization stuff in the sports business. And yeah, I read a lot about it. I'd done a little bit, dabbled a little bit of systems on my own over the years. But yeah, the level of professionalism that the stack was built on was very high. Right. And to me, and correct me if I'm wrong, but on the Goldman's metals test, I'm thinking there's tons of customer information and flow and right you're thinking of like this production facility just got closed it's going to spike this yeah it's more of

a fundamentals and kind of flows based thing as opposed to a how do i think about signal exactly and this is like they could care less what the chinese producer is doing it's just once the price breaks through here we're buying it yeah i'd say it's more like i say it's more like, I actually think it's philosophically quite the same. Goldman is great at risk management, and they're really good at, as most of the banks are, at derivative pricing and thinking through risk and whatnot. But the kind of dynamic time series of stuff, as opposed scenarios. It was kind of a different skill set that I needed to develop on my own since in this sort of next leg of my career here. And so thinking about what do you do when you're long the option to be flat? Trading mortgage bonds, it's pretty hard to just take a billion dollar mortgage position and be

zero, right? In futures, you can be like, you know, I'm not feeling it today. I think I'm just gonna, you know, just like I'm gonna fold my cards and like, that's okay, right? Like that's part of the strategy. And so it took a long time to really think through that and how to do that.

And, you know, our guiding light is the Kelly criteria as always. And having kind of gone deep on that and sports side and thinking about how to do that over multiple time horizons in a world full of transaction costs and non-stationary predictions. It's like, you know, I'd had a lot of time to think about those things and, you know, Altus was built to do exactly that. So where do you land, right? All the Kelly fans will ask,

want me to ask you if you're full Kelly, quarter Kelly, half Kelly, whatever, right? Yeah. I would say we're always some fractional Kelly because there's always the risk that you've misspecified a distribution of outcomes. And the number one rule of trading has nothing to do with models and it's live to fight another day. You said something interesting there that could be a whole potting of itself, right? Of like, I'm a trader at a bank my job is to trade x i have to trade x that's what my comps based on everything like it just creates reverse incentives right of like yeah well i had it i had a boss tell me once upon a time it was like look you're a smart

guy but you start telling stories right and then you end up putting the same trade on five different ways because you're enamored of your own story instead of listening to all the stories in the market you know your story might be a good story you might be seeing around the corner like you know i did well right but it's like um but there's a lot of truth to that and so um again it comes down to understanding really thoughtfully and experientially what the appropriate divisional labor is um between the computer the human. And if you take the mindset, not like I have to build the Death Star, like, you know, I have sworn on all encompassing general AI, but instead it's sort of like technology is a force multiplier, right? I can think about,

you know, multiple dimensions of risk with the help of the computer and access, you know, using the free lunch of diversification as thoughtfully as possible and scale with that force multiplier. And the Kelly criteria is part of, not the whole thing, but part of a toolkit like that, which I think is very good for trading heavily defined, heavily parameterized sort of liquid,

well-burdened markets. It's not the right thing probably for trading private equity yeah um or you know or even mortgage securities but but for this kind of style of trading which is like liquid levered price discovery i think it is and then you must love right of like oh this looks really cool this would be great on metals like hey guess what we get to trade it across 85 different markets. 100%. 100%. Because it's like, okay, well, then you have to do some thinking about like, okay, I have the Kelly criteria, I have transaction cost models, and I have some sense of how to do dynamic programming and optimally,

you know, put down my trades, right? And risk matters. Okay. That's all strategy. Signal, that's a different animal, right? But what's really nice about the abstraction of signal away from strategy is like, okay, now you can just have a conversation about the predictive power of signal. And then later on, talk about how the signals interact and then go into the trading strategy. But first, start with sort of like, let's identify some phenomena in the market. Now, trend following, it kind of makes sense. It's the process by which markets ingest information. There's different wavelengths of trends, like headline hits the

tape, all the day traders press the button and all the bots press it first before they even get a chance to. But larger scale movements of capital that results in larger movements of prices, those take time because they have different operational processes to be approved and instantiated. So there is definitely something to trend following. Now, the problem that I find with trend following, and this maybe comes from my time as a sell side trader, is trend following works until it doesn't. And when it doesn't, if you're on the other side of it, like selling the top to the guy who's buying the top, you're always kind of sucker you're always kind of like this is kind of dumb like are you sure right and at the bottom you're like like why are trends followers max short at the bottom like it's pretty negatively convex now right yeah and so

but if you sit down with the data and try to say to yourself like okay when does trend falling work and when doesn't trend falling work you know it's not a simple thing like oh just like put a volatility filter on it or something like that. It's a lot to it. And so we kind of took the approach, again, simple-minded people that we are is sort of like, well, at some level, the market's a voting machine in the short run and a weighing machine in the long run. So valuation matters too. And the harder you push on the trend, the more you're pushing against the valuation, right? The question is like, how do you get a sense of like thinking

about valuation and liquid macro markets where it's not like pricing a PE ratio on an equity? It's like something else. And so we've thought a lot about kind of the interaction between valuation signals and trend. And in a way, that's actually pretty similar to how it worked back at Goldman Sachs, you know, circa 10 years ago. I don't know how it works now because I'm not there, but, you know, which is like, you know, Goldman was really good at listening to the market. So you're saying like, like, like, Hey, the market's telling you you're wrong time to stop out. Right. Hey, the market's telling you you're right. Maybe you should let it keep going. And a valuation system that's driven by market pricing and the interaction of market pricing and market narratives, I think is sort of how we think about it and it seems to be working

for us. An example of that would be like, hey, crude oil at $260 doesn't make sense from a valuation standpoint. Like even though that's the trend and that's going up, so you might lighten up positions for that. So you think about different, I think we think of it like kind of like a factor, like a cross-sectional factor thing. We're kind of like, okay, well,

like there's a dollar narrative and an inflation narrative and other narratives of the market. And then it's sort of like, how's this thing doing relative to that? And if it's like doing something very different than it did historically, you know, that might be a signal that it's time to go the other way. If it's doing something very different than it did historically really fast, that might actually be a signal that it's going to keep going and you shouldn't go with the value signal. You should go against it and like boost the trend of the breakout. Right. And so just thinking kind of thoughtfully about what the market's behavior is telling you about the ingestion of new information, the price formation is really

kind of the approach we've taken. And then again, that signal downstream into strategy, it's like, cool, let's use the software to basically make sure that we've spread that thought process thoughtfully across, you know maximizing the diversification benefit of what's on offer and if there's a theoretical trend following beta out there right would you say you're right at the more of those filters you add on the further you go yeah i'd say i'd say like 0.5 to 0.6 okay probably be Probably be us. Yeah. Beta to that, but non-stationary. Like there can be

very large breaks at certain times. Well, in a perfect world, you're 150 beta on the upside. Right. Exactly. Zero on the downside.

Yeah. So like if you look through the whole kind of comparative thing, but in the end, it's like the Sharpe ratio versus the trend index or something that's really

going to tell you what you need to know. And that's, I've been banging the drum here. Like a lot of trend followers over the last 10 years, it was a tough period. They started to add long equities. They lengthened out the time frame. They did all these tweaks that worked in the current environment, but those funds seem to be underperforming in this environment. I think that's all about

overfit, and I'm terrified of overfit. I don't want to build systems. I think this is a big challenge with AI as a side note, which is like the more degrees of freedom you give the AI to learn things, the more it just is going to memorize the data that you fed it. Right. So, so like for me,

it's more about like first principles being like, yeah, I guess trend is a real thing, except when it's not, when is it not? Well, when valuation, cause that makes sense from,

you know, it was against it makes sense from, you know, it was against it and sort of, you know, yeah, other signals matter too. And but trying to be robust with less degrees of freedom and then just let the magic of compounding and excess risk premium kind of do its magic through time. But the goal is to build systems that are really robust and well risk controlled from, for kind of every environment.

And again, you do leave some money on the table. Yeah. But like, yeah, I don't need to be Renaissance technology. I just need to build a really good liquid alts thing that can replace bonds in a world where real yields aren't going down anymore. And I think we built that. So that's great. Now you're talking my language, right?

40 should be trend, not bonds. Yeah, it should be trend and volatility. And it makes sense. When you think about alternative investments, a lot of alternative investments are illiquids that amount to really different versions of this highly quantitative arbitrage strategy called long. Yeah. Venture private equity. Exactly. And, you know, maybe there's an edge in originating the risk. Maybe there's an edge in re-leveraging it or distributing it, right? But they're optimized, heavily optimized. You know, the good managers are heavily optimized for a static set of institutional conditions, right? Positive GDP, mainly.

Yeah. Declining interest rates. Active managed futures is all about extraction of active risk premium, whether it's a trend premium or some other premium, right. It's designed for a dynamic environment. And the goal is to have as much certainty on the institutional thing by getting the box as small as possible. There's structural leverage, there's transparent pricing, you know, the order book is all that stuff. So strike the way in the only business is prediction and risk management.

Yeah. And it's like, that's suited to a world that's in flux because you're taking away all these other things. Hopefully, you know, trying to, it's always, it's impossible to totally get rid of it, but trying to reduce the dimensionality of other things that could surprise you and just be focused on, am I good at prediction and risk management in a robust way? And that's what we're trying to do. Yeah. I love it. We haven't seen that in this sell-off, right? Of like credit spreads widening and some hedge funds

having trouble because they need to access the credit to implement their strategy, which you're saying, like Trent Folling says, throw it all out the window. We're not dealing with any of those fund issues. Yeah. And I think in a world where you're like, cool, my job is active trading in highly efficient instruments for moving a lot of risk around really efficiently, that's adult swim only. It requires professional expertise to do it. But it's kind of the right thing for an environment where everything is in flux. And so this isn't 08. This isn't 2020. This is a different situation. Like my own view is what's happening in the macro narrative right now is the cost of capital is going up and the Fed is writing, you know, like, sorry, purchasing a call for zero from

the market instead of writing a put for zero to the market. And, you know, like that is a big change. And that's a change that has to do with the fact that the growth outlook is going to require is actually pretty positive, but it's going to require a lot of CapEx, a lot. And in line with the bunch of political turmoil. And so this kind of an approach, which is just reduce the dimensionality and be good at moving risk around, seems like the right thing for this kind of environment and likely to be for quite some time. Trey Lockerbie 00, 00, 00, 00, 00, have you run the models on all the different crypto coins?

It seems like highly directional volatility would work great. You know, that's a good question. And again, I think I'm going to evade the answer other than to cock an eyebrow and be like, hmm, that does seem like quite a logical thing to do. I wonder, right? But I would say that, again, it's now natural to be like, I've got crypto on one screen and Bloomberg on the other.

Yeah. Right? And sure enough, a lot of the trading toolkit is probably also quite portable, which may have also been one of the reasons that becoming involved with Altus and accessing this kind of an IP stack, you know, might be useful for a guy like me. And is Altus's main portfolio include like Bitcoin futures on the CME or whatnot? It does. Yeah. The Bitcoin and if I'm in the Bitcoin minis and the ETH are all,

are all part of, you know, a very expansive universe, including equity indices, FX rates. And come on. That always confused me when I talked to a trend follower. Like, eh, we don't want it.

If it's liquid enough, you should want every market that's liquid enough. And Altus has done, and I should also say, Altus has done a joint venture with blockchain.com to basically be the regulated manager for shipping some regulated crypto asset management product. Again, in that sort of business building thesis, which is like, let's build the bridge between TradFi and CryptoFi. And so we've launched kind of a standard one Delta Bitcoin tracker, but also Bitcoin smart beta and a DeFi sector fund. And there'll be more to come.

Preston Pyshko, CFO Alphabet and Google A lot of the IP is portable. Trey Lockerbie, I've been calling it TradFi this whole time. It's TradFi? I call it TradFi as in traditional finance. Ah, I thought it was like trade as in trade. It's, uh-huh. TradFi. Got it, got it.

TradFi. Yeah. All right, we'll let you go here. We'll finish it up. We do a little segment called your hottest take. You got a hottest take that could maybe get you in trouble or not? Yeah, I think Ether finishes the year on the highs. Ether finishes on the highs over Bitcoin.

Just added on return basis. I think the high take of the year on both Bitcoin and Ether has not been attained yet, but especially in Ether. What was the high? I don't know, like $3,500 or something? I don't know. Whatever it is, it's going to go higher. Yeah, yeah. That's an opinion. Past performance, non-digit results. Yeah, disclaimed appropriately, but that's my opinion.

Do you think we'll ever get like a third horse in that race? Seems like a two-horse race for much of the last three years. I do. I do. I think there is lots of innovation happening and there are likely to be many, many useful things built. I think the big question in my mind is, is the third horse in the race a central bank digital currency or is it another open blockchain? Who's the leader in the central bank race? Well, the Chinese are certainly doing their bit. But I'm optimistic that eventually the US will go last but biggest. And it could be really interesting.

How does that square with the freedom from government oppression? That would scare the heck out of me as a Chinese citizen and all my money is the government could hit a button. Which I guess they could do right now anyway. Yeah, I don't think that's any incremental delta in China. In terms of the rest of the system, I'd say the sort of trade-off between surveillance and freedom and bearer assets versus whitelisted and controlled systems, that's a super important discussion. It's a discussion that needs to be handled in the sort of political sphere. I'm just a

lowly markets guy. I just want to trade and solve interesting problems and share my findings with fellow intellectual markets geeks. Now that said, irrespective of where we come out politically on that, as an engineer or as a financial engineer, I strongly believe that an asset-based system is better than the hub and spoke institutional system. And you need a bearer Fed coin to do that in the old system or super awesome crypto rails to do it in the new system. And probably it'll be a hodgepodge of both. Preston Pysh, Jr.: And then the US seizing all Russia's dollars, that makes that even less appealing to hold your foreign currencies

in some sort of... Yeah. I mean, yeah. Who knows? We'll solve that on another pod. Exactly. Be on my pay grade. That's for sure. Exactly. All right, Charlie, it's been fun. Thanks so much. Thanks, Jeff. It's getting dark there. We started, it was light out your window, now it's dark. Yep. Have a good evening and we'll give you a ring next time we're in London. I appreciate the time. Thanks again. Thank you. You've been listening to The Derivative.

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