Mexican Bulls; Liquid Venture

April 27, 2022

Conviction is a funny thing. It is required for success. Great entrepreneurs have it. One can agree or disagree with the platforms and ventures of the likes of Elon Musk, Steve Jobs, Walt Disney, Bill Gates, Henry Ford and many others, but one thing is for sure, they had conviction. We’re now seeing that in a big way in the world of crypto. Allow me to unpack this…

There are Bulls… and then there are Bulls!

I’ve mentioned a few times that bitcoin acceptance shifted massively last year when top investors like Paul Tudor Jones and Stanley Druckenmiller advocated allocating. We’ve seen Michael Saylor make a huge investment via MicroStrategy and Block (formerly Square) CEO Jack Dorsey push into mining. I noted in a recent blog that BlackRock is now filing for a bitcoin ETF and going to allow crypto trading and lending. All of these things are huge endorsements.

But I’m not sure anything is as huge as this. Mexican billionaire Ricardo Salinas Pliego, whose net worth is approximately $13 billion, spoke at the Bitcoin Miami event this month. This in and of itself was notable, but while there he dropped a bomb and disclosed that bitcoin comprised 60% of his liquid portfolio. That bears repeating. Sixty. 60! 

He was already a huge advocate when he noted last year that crypto occupied about 10% of his liquid portfolio, but this demonstrates a whole other level that is beyond hedging and speculation, and bucks the now generally-accepted notion that crypto should occupy between 1% and 5% of one’s portfolio depending on one’s risk tolerance. A Yale study noted that the right amount may be between 4% and 6% some advisors are now saying up to 10%. Whatever that number is, it’s a super minority that advisors and investors have warmed up to over the years and it falls into the “I can afford to lose it” category.

So why 60%?

Maybe it’s the realization that this is far more than speculation, but an actual opportunity given the current markets. Salinas Pliego in the same presentation trashes bonds and, let’s face it, with the CPI at 8.5%, interest rates on the rise, and the US dollar being challenged on multiple world fronts that makes sense. US Dollars that are staying static are actually worth less each and every year. So, this huge allocation as a hedge against the dollar. As interest rates rise and create downward pressure on most equities, other investors are increasingly looking to bitcoin in the same way.

This is one more indication that adoption does seems inevitable and most professional investors are noting that it will become mainstream. Last blog I noted the Russia-Ukraine war as being a catalyst for this, and this position was echoed last month by BlackRock CEO Larry Fink, who in his letter to BlackRock shareholders shared the same view. I take it as a complement that we’re sharing a unified position when just five years ago Fink stated that bitcoin was “an index of money laundering.” I’m going to log that with the many others who have done a 180 in their positioning. (I would consider writing a blog called “About Face” but there are so many it would likely way too long to be digestible.).

Importantly and, somewhat quietly, Goldman Sachs also recently executed an “over the counter” trade crypto options trade, which some believe will blow the institutional doors wide open.

Legal in Africa

Meanwhile, The Central African Republic recently announced that bitcoin will now be accepted as a payment currency. They follow El Salvador and are ahead of the pack of many others who are considering this same move. Importantly, this adoption will not just affect financial policy, but will completely transform the CAF’s digital infrastructure via the adoption of blockchain technology. I suspect that this is just the next in a long line of dominos and – importantly – with the adoption of blockchain technology, I believe were going to see these  countries who have arguably been behind the technology curve quickly leapfrog other nations if those nations are slow in adoption.

On a tangentially-related issue, since we’re talking about government I do want to throw in that the town of Fort Worth Texas voted just yesterday to become the first town in the USA to mine bitcoin. They will start with just three mining rigs and intend to grow in a bid to evolve into the bitcoin mining capital of Texas, will this happen? Who knows. I am noting this however, because it’s a play by government, not private enterprise, and shows that the public sector’s role may well be one much greater than regulation, even if only to align with and woo industry players.

Liquid Venture Capital?

So bitcoin is the current “Belle of the Ball”. Mega-investors are warming. Institutions are warming. Elon Musk and Jack Dorsey building a solar bitcoin mine (again in Texas!) is certainly warming. Governments are warming. In the midst of all of this warming, Salinas Pliego is clearly on fire (in a good way.)

This adoption was predicted by our CIO Jake Ryan in Crypto Asset Investing in the Age of Autonomy early on. If we step outside of the “crypto-as-money” conversation, however, there is a distinct series of events occurring. That is, we are in a technological revolution sparked by blockchain, and I don’t want us to lose sight of that. Bitcoin solves a financial problem via blockchain. Investors and institutions and even governments are waking up to that. But that’s just a start to the solutions that are going to be implemented with blockchain technology.

So, it would reason then that blockchain is the “Belle of the ball”. The beautiful part about crypto, is not only that it allows us to extract capital value from blockchains. It also allows investors to invest in blockchain type projects, just like venture investing, but in a liquid way.

I have a huge blog rattling in the back of my mind (probably for next month) so I’m just going to tease you and let this sit here. For those who are hardcore venture investors I ask you to consider that a sound crypto investment strategy may actually be much like venture but better. So much better. I’ll unpack this more next time.

In Closing

If we’ve been proud of being ahead of the curve, then we’re certainly flattered by Salinas Pliego’s endorsement of bitcoin. He’s clearly making a big and notable stand and, yes, it’s gotten attention. As institutions, banks and, even countries climb on the bitcoin bus I encourage everyone to remember that there is a technology behind bitcoin, and that is where the investment value is. Without blockchain, there could be no bitcoin, and there is much more coming in the world of blockchain.

Until next month take care, stay safe, and I’ll be sure to keep Decrypting:Crypto for you!

About the author James Diorio

James is a Principal and Chief Executive Officer of Tradecraft Capital.