Should You Manage Crypto Differently from the Rest of Your Portfolio?

And the real reason why college is so expensive

Ric Edelman: It's Friday, August 25th. Ever wonder why college is so expensive? It's because pretty much every one of the best known public universities has been spending massive amounts of money for decades on new academic buildings and dorms, sports programs, and massive numbers of new administrative staff. A big analysis was just released by the Wall Street Journal. Over the past 20 years, the average flagship university has increased spending by 38%. The University of Kentucky has been spending $800,000 a day every day for the past ten years. We're talking $3.7 billion over the past 12 years. That included a student center, a 900 slot parking garage, a theater for video game competitions, dorms that feature full size Tempur-Pedic mattresses, granite countertops and washer dryers in every unit. Tuition there is $20,000 now for students who live in one of the poorest states in the country.  

The University of Oklahoma spent $14 million to buy and renovate 32,000 square foot monastery in Italy for its study abroad program. That monastery now has a landscaped garden, faculty apartments and the classrooms have painted frescoes and the school raised tuition for all of its students to cover that cost. Penn State has spent so much money, it's in a budget crisis. I'll tell you more about that in a minute.  

Only one school, The Wall Street Journal reviewed, has spent less in the past 20 years. State schools get money from two places, state budgets and student tuition.  Over the past 20 years, states have been cutting education budgets. But for every dollar that the schools have lost in state support, they raise tuition and fees by $2.40. And it's not always for improving education that money goes to. Colleges have expanded intramural sports. They built new dorms and stadiums. And during all this, the number of faculty is unchanged, but the number of administrators has skyrocketed.  

At the University of Florida, they have more than 50 directors of communications, associate directors of communications and assistant directors of communications, twice as many as they had in 2017. They also have more than 160 deans. The University of Connecticut's athletic department gets $55 million a year in student fees. James Koch, he's an economist and former president at Old Dominion University in Virginia, his research found that boards of public universities approved 98% of all proposals to increase tuition around the country.  

So, let's go back to Penn State. Their spending is up 36% since 2002, but its tuition is up 72%. They're now the most expensive flagship university in the country, $27,000 for tuition fees, room and board. The university is now spending $140 million a year more than it collects in revenue. So, you know what they're doing. They're raising tuition again. So, sure, it's now common for private colleges to charge 80 grand a year. But do state colleges have to cost $25 grand? I'm not saying don't go to college. I'm saying you have to be very careful about which college you attend.  

College can be remarkably affordable if you do it right. Have your student take AP classes in high school.  Colleges will accept them. That means your kid gets credits for free instead of paying for the classes at college. They also graduate faster and the faster they graduate, the less the total cost of the degree. Second, go to community college for the first two years. It's a fraction of the cost of college, and most students haven't chosen their majors as freshmen anyway. The classes are usually remedial and introductory freshman year. Think about it. It's really just 13th grade at many colleges. The student, after they go to community college, they can then transfer to the four-year school for their final years.-No employer will care that they did that  - and then go to an in-state school, but not Penn State, Kentucky or Oklahoma, where they're going to be gouging students. You need to approach the college selection process very carefully with an eye on ROI, return on investment.  

Hey, let me change subjects. Do you believe in portfolio diversification? How much of your portfolio is in stocks? 40, 50, 60, 70% of your assets? Of that, how much is in foreign stocks? For too many investors, the equity allocation is 100% US. But if you're a long term investor, international equities could be an attractive opportunity. So I want to tell you about a fund from one of my sponsors, the Invesco Developing Markets Fund. It's one thing to invest in Europe, but that's not really enough for true diversification. In stocks, you do the big established companies, you know, the S&P 500, but you also do small cap stocks, the younger companies that have greater growth potential. It's the same with international investing. You invest in the major economies of the world, but you also need to invest in the smaller countries where returns have more potential. You've got to be a bit careful when you do this. You've got to avoid countries that are not supportive of capitalism, where there are stable governments and fair operating economies. Some of the countries where the Invesco Developing Markets Fund invests include Belgium, Portugal, South Africa, Chile, Peru, Philippines, Brazil, Taiwan, Mexico, India. The fund is highly diversified, not only by country but by the market sectors of the companies that invest in those countries. Financial stocks. Consumer discretionary stocks. Information technology stocks, consumer staples, materials, communication services, health care, energy stocks and more.  

The key to investing is diversification. That doesn't mean just investing in big companies and small companies. It means big countries and small countries. And the Invesco Developing Markets Fund gives you access to this so you can improve the global diversification of your clients’ portfolios. Talk to your contacts at Invesco about their Developing Markets Fund. If you're an investor, learn about this by asking your financial advisor or visit Invesco.Com.

You know, a lot of people call it the Holy Grail of Crypto, a Bitcoin ETF. Bitcoin's been around since 2009, and we don't have a Bitcoin ETF, at least not yet. But there are now nine new applications in front of the SEC. And the rumor is any day now, the SEC may very well approve one or more of these Bitcoin ETF applications. What does this mean for you as a financial advisor? What does it mean for you as an investor? You need to read my new whitepaper -  It's free. You can read it online or download it - What You Need to Know About Spot Bitcoin ETFs. It's a quick easy read and it'll help you understand what this is, why it matters and why you need to understand what's going on. Download it today, just go to DACFP.com.

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Exclusive Interview: Bitwise Asset Management’s Jeff Park answers the question, “Should You Manage Crypto Differently From the Rest of Your Portfolio?” 

In June, I hosted the fifth Annual Vision Conference. It was in Austin presented by my company, the Digital Assets Council of Financial Professionals. DACFP Vision is the longest running Digital Assets Investment Conference that's specifically for financial advisors and accredited investors. And at this year's conference, it was our biggest ever, attended by more than 125 financial advisors and investment professionals from all over the country. One of our sessions featured Jeff Park, Portfolio Manager and Head of Alpha Strategies for Bitwise Asset Management. He answers the question, “Should you manage crypto differently from the rest of your portfolio?” I wanted to share our entire conversation with you here today, and here it is unabridged and uncensored. And so, let's bring on Jeff right now.  

Jeff Park: Happy to be here. Thanks for having me. 

Ric Edelman: Jeff and I have done some events together. He's been on my podcast. He has been in this space for quite some time. And did that conversation leave you optimistic about crypto? 

Jeff Park: I think the final words of the fact that the US wants to be in this industry and play a role in it is an inevitable conclusion and I think that is an alignment that we share. So yeah, I think there's some optimism there in the long-term eventuality. 

Ric Edelman: Bitwise of course, one of the many firms that has attempted to obtain SEC registration for a Bitcoin ETF and so, you know, David's not your favorite person. 

Jeff Park: Yeah, but I mean, you touched upon it. If you look at May in particular, I think there was such an incredible divergence of regulatory climates observable as an American. While the US is increasing its regulatory activities, you've seen almost every other jurisdiction embrace the chance to take upon this. The UK announced their MiCA legislation. It's part of the reason why Gemini is considering an office in London. As you mentioned, Coinbase is going offshore to Bermuda for its derivatives platform. They've also partnered with the UAE, the second largest sovereign wealth fund Mubadala, to potentially open a platform there. Hong Kong has embraced retail crypto trading once more, and Singapore and Thailand also just issued new licenses. So that all happened in May, in the exact period when the US is turning the other way. And it's as an American, very hard not to notice that divergence. But one of the things I think we also have to understand is this plays an incredible role in the impacts of what the dollar hegemony means. We'll figure it out, but we are exceptional in that this is a unique, unique situation for our country. And I do think when you look at the others, the path is inevitable. 

Ric Edelman: So, let's shift to a little more of a tactical conversation rather than the big picture of what's going to happen in the future of crypto. On a macro level, let's talk about it more tactically from an investment advisor's strategy. You know, we all know, of course, that the most basic decision we all make as investment advisors is whether the portfolio ought to be passive or active. What's your view when it comes to crypto? Which approach should an advisor take? 

Jeff Park: Yeah, this is a great question and it's actually a nuanced and complex question beyond, I think, passive and active. So let me try to use a sports analogy to distill something that I think is a unique insight here. There's a well-known analogy in the investing world to thinking about indexing as something distinct from single stock picking and active security selection to drive alpha. And one of the sports analogies people use is, let's say you want to bet on the growth of the NBA in the US, and how might you go about doing that If you wanted to index yourself to the growth of this industry, you might say, I want a piece of the NBA and everything that happens within that ecosystem. Broadcast rights, ticket sales, merchandizing, all of that will accrue no matter potentially what team you might invest in. You might actually have a view that some teams might do better than others and choose to invest in a team, and that would denote some level of alpha and active security selection within the broader context of betting on the NBA. Right. Betting on basketball. In that sense, I think crypto is a little bit unique in one way. I would say crypto is almost like betting on a basketball team as an indexing passive strategy, and then the active component might be going one step deeper, which is betting on the specific players of that team. 

Jeff Park: So, let me take a step back and explain what I mean by that. Indexing is commonly thought through in the lens of factor models that were brought to market in the late 90s by MSCI and Bara. People know style factors. They think about macro factors. There's a variety of them. Two Sigma in fact considers there to be 18 factors that people can invest in. And over the studies they've conducted, when you look at crypto as the potential residual factor, they come to the same conclusion. Crypto is a new unexplainable variable that can't be explained by the 18 existing traditional frameworks that we have today. Meaning crypto itself is a new novel factor even in the construct of indexing. So, in some sense, even if you chose a passive approach to crypto, what I'm implying there, is that it's an active decision at the broader portfolio framework to the role that can play. If you go one step deeper into the role of actively traded crypto strategies, we're really going surgical to betting on something so nuanced, so specific and so unknown today in the way that the world is continuing to develop the strategies around it. But nonetheless, real monetizable, persistent and expandable where those opportunities are going to be fairly unique to betting on something very specific and worthwhile. 

Ric Edelman: And so, you like that idea or you don't. 

Jeff Park: Yeah, I think one of the things that make indexing and active security selection or active investing different is that there are some things that you have to assume is part of the premium that you're paying for. In my mind, there's two things. One is the complexity premium, right? It's complex to bet on single winners. And historically, you were paid a premium for that because there's some kind of information asymmetry, some kind of knowledge expertise that you're bringing to the market to have an opportunity to take advantage of an inefficient market. There's also a liquidity premium. So, if you thought, “Hey, I can invest over a longer timeframe and lock that capital up”, I should probably be compensated for that. And those are the two very obvious vectors of how to think about the difference in passive and active and historically in crypto. As early as five years ago, there was only two ways you can. Go long only and bet on crypto spot tokens in a diversified index basis and ride the wave of the crypto ecosystem at large as a beta play. Bitwise offers tremendous products to leverage this opportunity that may give you the most amount of liquidity, but it's probably not the most complex thing in terms of general accessibility of how people think about Bitcoin and Ethereum. 

Jeff Park: If you go on the venture path, that's the opposite. It's extremely illiquid. You've got to lock it up for ten years. But it is quite complex. Like the things that venture capitalists are betting on are not the things that are household names in the ways that we might not appreciate five years from now. The advent of actively traded strategies is somewhere in the middle. It's a little bit less liquid than trading spot crypto Bitcoin today in and out, but there is something harvestable there as a way to think about the unique alpha vectors that exist in a market that now trades billions, hundreds of billions of dollars, monthly. Even though crypto volume has decreased this year relative to last year, it's still very noteworthy to recall that $300 billion traded in spot volume alone in May. I mean, that's still a very large number. And the ways that I think gives you some sense for what that market could be considering that its global in nature. 

Ric Edelman: A lot of that sounds very similar to the stock market. Where are the distinctions or differences or are there any in this conversation of how we would evaluate all this for stocks compared to crypto? 

Jeff Park: Yeah. So, I think if you've watched the growth of the investment management industry in the stock market, the rise of mutual funds, ETFs and of course hedge funds, they all have different levels of maturity in the infrastructure and system that is required to support those capital market activities. So, in the 90s, if you're investing in hedge funds, things like long or short equity or event driven, distressed credit, relative value arbitrage, those would have all sounded pretty, pretty strange. And there wasn't a way to conceptualize that in a way that benchmarks easily to people's expectations. But over time, the hedge fund industry matured, and people discovered there are new ways to bet on the equities market that may not just be a long-only exposure on taking security selection by the approach of a mutual fund. And that is one of the ways in which alternatives as an asset class came to rise. We're at that very early nascency for crypto. The same, which is you can bet on crypto for its price directionality for the role that it might play in the future. Whereas a store of value or whether it's the computational prowess of a network that is increasing its network activities. But there's also other things about the trading market itself that is really inefficient. So, one of these is most intuitively obvious to people, volatility. Crypto is incredibly volatile and volatility is actually a monetizable asset in its own right. That's why strategies like trend following and mean reversion and CTAs exist in the equities capital market. But here's the thing about crypto. It's even more volatile than those markets, which means that there's more persistent opportunities historically and the marketplace is much more fragmented. 

Jeff Park: So, whereas we're talking about the US equities market, crypto is really unique because we have hundreds of exchanges globally that traffic in this asset class, much I would almost consider like a commodity in some aspect of there being no regulated jurisdiction to own that as their sovereign asset. And in that sense, there's so many market structures that are existing and developing today that I think is worthwhile to notice as a student of history, because the SEC's history in itself also comes from a moment in time where before their existence was a world in which securities were governed by state laws. You know, part of the reason the SEC came to market under Roosevelt was because there was so much inefficiencies and friction that these were being done at a state level. They were called blue sky laws, and there was arbitrage there too, right? So, an issuer could say, hey, we're here in this state, but we're going to use mail. And by using mail, we're actually going to solicit investors and bypass their state law. It's insane to think about that now. But this is in the early 1900s. That same kind of technological disruption is what we're imagining today. But it's not a straight line anymore. It's a global line. And I think that's really important to understand. The framework is that it's a market, but it's not a US securities market and nonetheless is trading opportunities, arbitrage and high frequency trading, monetizing volatility, quant income generating strategies by leveraging derivatives. All of those things for risk management are coming to the marketplace for sophisticated and professional investors. 

Ric Edelman: And so that argues that. Passive equity investors may well choose an active crypto strategy. 

Jeff Park: Yeah, I think. Passive investing in crypto is important, and I think it's a fundamental bedrock for anyone to take a view on the role of this asset class, because the growth of the industry will have to be indexed to this exposure. But as we all know, it's incredibly volatile. It can experience very high drawdowns. There are times when Bitcoin is down 70% in an annual cycle, like last year where it's not going to fit in the portfolio construction of every person. As a professional investor, where active strategies can differ is by leveraging some of these trading strategies that don't take such passive directional but rather harness different inefficiencies that might exist in the marketplace. You can create a higher quality return stream, a higher Sharpe ratio, a higher risk and a higher reward per risk unit. And that is something that I think investors have wanted. And it makes sense because the bet that we're making in those alpha vectors is different from choosing whether Bitcoin or Ethereum or Solana is going to go up or down. We're betting on things like is the price of Bitcoin spot showing a differential versus its futures market as an arbitrage that shouldn't exist. Why does it exist? Well, the CME is a regulated futures market. People who trade on the CME are specific players versus those that might trade on different futures exchanges. 

Ric Edelman: So, this sounds like something that requires to call it what it truly is, active management. This is something that requires a lot of time, a lot of focus. You've got to be watching the prices on an ongoing basis. That's not the kind of time that advisors generally have because they're busy with client management. So, does that argue, therefore, that we need to delegate this to a fund manager that is operating a vehicle in this way? 

Jeff Park: I think that's right. I think much like most of the endowment models have come to understanding the role of how external allocations to talented specialists can affect their portfolio in a positive way. The same will be true in crypto, and I think it's even more urgent and important because the landscape is also changing underneath very dynamically in ways that the traditional markets today are not. 

Ric Edelman: And so Bitwise, in particular, is the oldest and largest crypto fund company, and its products historically have all been passive and they are well known for the Bitwise 10 Crypto Index Fund, which is the, what they like to call, the S&P 500; a crypto with the top ten coins by market cap rebalanced monthly. But they recruited you to manage a fund that is operated very differently. Talk about the fund you're managing and how it works. 

Jeff Park: Sure. So, a fund that I manage is Bitwise inaugural flagship fund to harness these alpha opportunities that exist in the inefficient crypto market. And the number one goal is we want to deliver high quality, risk adjusted returns. The risk adjusted return is the key word here, which is that that there are ways to think about risk mitigation and capital preservation. If you deploy some actively managed strategies to diversify the investing strategies that don't have as much beta to the actual market. So, we leverage multiple strategies. We have systematic strategies for that. For example, looking at trend and momentum is a well-known factor that works in crypto because it is such a psychological and sentiment driven market, especially during peaks of euphoria, and that can be quantitatively traded more efficiently than I think a human could ever sit behind and click on their phone. And I think that is a worthwhile vector. But there's other things like, for example, opportunities in distressed investing. So, much like distressed investing, historically it was not the most popular institutional strategy. Now, with the advent of private credit and institutional investing in distressed assets, those types of things have shown to be resilient and uncorrelated to the rest of the market. And in light of the unfortunate situations in crypto where we have distressed claims and names like FTX or Voyager or Blockfi or Celsius, all of those things are opportunities to capitalize upon a restructuring outcome that's going to provide a different path to monetization. Then again, just betting on Bitcoin alone and that complexity premium, that's a little bit of a liquidity premium, but that's where you're going to get paid for doing some excess work that it's helpful to outsource to a specialist who lives and breathes and seeing these claims market, knowing exactly what the judicial process is unfolding for each of these select situations. 

Ric Edelman: So you're trading individual coins within the fund based on these alpha strategies. Are there any particular risks, regulatory tax that aren't prevalent in the passive strategy? 

Jeff Park: Yeah, so I hate the word passive for indexing because it sounds like it's lazy and there's nothing being done there. But that's absolutely not true. There's so much work that goes into bringing even passive indexing in crypto because security selection, even at the indexing level, is fairly judgment- requiring in ways that's not so rules-based like we take for granted in the equities market. When we talk about largest market cap weighted tokens, it's not that simple of clicking a sort button out of Bloomberg. There are some things that have different trading volume, things that need to be filtered out for different types of risks, and Bitwise brings that to the market to make indexing easy, but by no means is indexing simple. And I think there are a lot of folks out there who show a variety of ways to think about indexing in crypto, and everyone has their approach. It's a nascent market. The risks that come with active strategies that's a little bit more distinct from passive strategies is that some of the components that leverage frequent trading and the arbitrage opportunities means that you're touching some of those rails that might be irrelevant for just passively allocating to crypto. So for example, if you thought there was an opportunity that something on the price on Binance or FTX was really off relative to where it's trading everywhere else, and you want to close that gap, well now you've got to think about the fact that you have some custody risks to the exposure to counterparties like FTX or Binance, and you have to be thoughtful about, well, how do you measure that and how do you mitigate it? And here's the good news. 

Jeff Park: Our fund was not involved in FTX in terms of loss of capital, but it doesn't mean we didn't trade on FTX. And what I mean by that is there are sophisticated ways that people are constantly evolving, better ways to access this marketplace that I think are so bespoke to the professional investing class in crypto that you absolutely need a specialist. So things like Tri-party Agreement, which is a really well known concept in the traditional Wall Street world post '08, those are things that are now coming to crypto as well. So, I can in fact try it on Binance, but I don't need to post my collateral there. I can put it with Anchorage. Anchorage is a qualified custodian here in the United States. That tri-party agreement needs to be structured. It may cost a little bit more than having Binance as a counterparty, but it's absolutely critical for the risk management purpose of harvesting this alpha that we don't take those tail risks. There's different structures like that that are always arising in crypto modeling off of capital efficiency that we've grown up with in traditional markets. And leaning into those is where part of the alpha comes from, where if you partner with a sophisticated investor, you mitigate the opportunities and chances of those mishaps. 

Ric Edelman: You mentioned a couple of times trading volume and by the way, you'll have an opportunity to ask questions of Jeff in just a moment. So get ready to do that. You mentioned trading volume a couple of times and that it's lower this year than it was last year. Is the trading volume sufficient for this to be really a real market? 

Jeff Park: Yeah, So I can throw some numbers out there. Most recently in May, the centralized exchange trading volume was around $300 billion, which is relatively small to the world of equities. For instance, I think the Nasdaq does about $100 billion a day, right? But if you give that some scope to the fact that Nasdaq is still a US market and crypto is a global market, the possibility for that exponential growth there for the market and the Tam that addresses is large. And that's why I think crypto volume fluctuates so much depending on cycles because this number is low, but trillions traded last year. So, there is some dynamic aspect to thinking about what is an appropriate amount of liquidity. But for $300 Billion in the way that it's a number that justifies the existence of an alts business., the high yield bond market, for example, was not very large when it first came to market. And of course, the securitization market at its advent was not very large. Both of those things were on the cusp of not really knowing its place at its time under the financial regulatory framework that we're comfortable with today. Same thing with CDX. The first credit default swap that was invented and traded...very nascent market now irreplaceable part of risk management in financial services. So, I think of the fact that most of these things start somewhere and grows, but the alpha exists when it's small too, and that's when folks like Michael Milken and others, whatever may come of that opportunity at it's time for thinking about monetizing those—it's a chance that is that is part of why I think the opportunity exists. 

Jeff Park: The other thing about trading volume is so unique in crypto is that these tokens also have its own liveness to its existence.  So you guys may be familiar with the concept of staking tokens and the burning mechanisms that exist behind some of these protocols where the tokens can actually decrease in quantity known to the market over time. And when you look at those types of activities, they continue to grow. So regardless of trading, which is just a transaction of assets moving around, things that are creating network value are also in the millions. Post shapella, I believe $7 billion worth of Ethereum have now been staked and it has become a deflationary asset where about $300 million was burned in May last month alone. So that's a really important metric too, because as we are skeptical about what inflation might be as a construct in the global monetary policy that we live in, here is something that's deflationary as an asset and continues to produce value for why it exists in the way that it is deflationary to keep a network alive. So even yesterday when Amazon Web Services went down and all of a sudden there was very little you could do for that moment in time, the Ethereum network hummed along. Right?  And I think those are the moments that it's just early. But these are the moments you realize why decentralization, why a decentralized computing power could be material and important for the future. And that's another metric relevant to trading volume to think about what kinds of activities are happening underneath the surface. 

Ric Edelman: Bitwise and others do annual surveys of the investment community about crypto, and one of the common survey results not just in Bitwise’s historic surveys but other organizations as well, is that correlation is always ranked the number one reason why financial advisors like Bitcoin. Advisors love diversified portfolios. We love the fact that adding a non-correlated asset lowers the overall risk of the portfolio, especially when that non-correlated asset is a volatile asset because it tends to zig when the others zag. And for most of Bitcoin's life as we know, it has had zero correlation, right as the only non correlated asset that we've seen in years. And it has made Bitcoin a wonderful addition to a diversified portfolio. But that story ended in 2021 and for about a year and a half the correlation became almost 1:1 with the Nasdaq 100. Talk about correlation. Is the correlation story dead? We have seen a return to the original approach of correlation here in 2023, but talk about correlation and its impact on the use of crypto in a diversified portfolio. 

Jeff Park: Yeah, absolutely. This is such an important question. I'm so glad you asked. It goes back to the research Two Sigma did as to finding out that crypto is that residual variable, that error that could not be adjusted for factors and the correlation of other things like style, growth, value and macro rates, credit, whatever it may be. Crypto is that 19th factor and it is because it is uncorrelated historically. As you've said, it's ranged around 0.25 and -0.25 and the great history of its prior a decade of existence. That changed for a moment during, I would argue, start of Covid. When the S&P dropped sharply at the rise in March of 2020, crypto also dropped pretty meaningfully then, and that's when the correlation went from maybe 0.2 to about 0.4 and it sustained itself in that environment. And what I think we all acknowledge was an incredibly historic time of all assets correlating to one in a particular direction. And this is something that as a tailwind was so large that it was almost inescapable. It also peaked a little bit at the advent of the Ukraine Russian war in 2022 also. And that's when I think it hit about 0.6 and it was one of the local highs. Since then, I would argue that it has come down pretty meaningfully as rates have started to normalize towards an environment that is repricing the opportunity cost for capital. And even in the trough of the banking financial crisis we experienced in March, Bitcoin's correlation then was about 0.1 to the S&P. So that's a 30-day average and 30 day and a 90 day average is the ones that I monitor most actively. And even as of May, the S&P correlation, the Nasdaq's correlation to Bitcoin is still about 0.2 today. So it is on a trend where I think we're normalizing back to something that is uncorrelated in that in that range that statistically 0.25 to -0.25 is zero. And I think that makes sense for a lot of people long term that this should be a fundamentally uncorrelated asset because the value proposition and its utility is at the core totally different. 

Ric Edelman: Any questions for Jeff? We have a question up here and over there. What fund do you manage?  

Jeff Park: Yeah, it's the Bitwise Multi-strategy Alpha fund. It is a multi-strategy, multi-manager fund. We have about nine different strategies in there. The strategies range from directional quantitative trading to directional macro trading to liquidity provisioning like high frequency trading strategy. That strategy in particular hasn't had a money-losing day since the beginning of the year because its role is basically market making. The same way Citadel does not lose money in the role of market making is a crypto strategy. We have fundamentally thesis driven liquid venture strategies in there as well. All of it is to target some ability to capture crypto's upside but also mitigate the downside and take a barbelled approach to. By having some alpha opportunities that lean in heavily on the liquid opportunities in moments of bull markets, but also leveraging things that are market neutral in nature, where there consistent yield generators as strategies that diversify the opportunity set at large. And so the beta is meant to be significantly less. The volatility is meant to be a third. It's realized actually a fifth since inception to date. And that's how we think about delivering that higher risk adjusted return. I think crypto vol is generally around 100 to 150 at peak. Today it's a lot lower. The index that traffics alpha strategies can be about 50 vol and our fund is about a fifth of that. It's about 10%. So it's more akin to how sophisticated investors think about allocating to a traditional asset class without having to think and worry about that drawdown. 

Ric Edelman: Is there an account minimum investment? 

Jeff Park: There is. We'd have to work with our sales team to get to those exact numbers. But we're happy to work with any investors who have the conviction in this opportunity for the long term. 

Ric Edelman: Bitwise is in the exhibit hall. You can talk to them and learn more about the fund if you'd like. Yes. So you've talked a bit about the risk of dealing with the various centralized exchanges, wondering if you find that you're able to carry out your strategies effectively from an investment perspective as well as a counterparty risk perspective with defi exchanges? 

Jeff Park: Sure. It's a great question. You noted a really interesting point, which is that the crypto exchange marketplace is fairly unique too. We have centralized exchanges like the Coinbases of the world, and we also have traditional exchanges like the CME's who traffic in Bitcoin futures. And then we have the third, which is the on chain exchanges, the truly decentralized exchanges where the counterparty risk is actually self custodial in nature. Those strategies are ones where specific opportunities can exist, mainly arbitraging prices between on chain exchanges versus centralized exchanges because the flows are unique and different. So the price on Ethereum, on Coinbase might not be the price on Ethereum, on Uniswap. Uniswap being a decentralized protocol that permits the largest decentralized trading activities on crypto. And Uniswap just is a different marketplace than the limit order system that we think about VWAP In traditional centralized exchanges. You can do much more clever things on Uniswap in terms of putting order types, you can put in different types of concentrated liquidity orders that harness different aspects of being paid for being a liquidity provider. You can arbitrage those things and we have certain elements of the fund that is looking to do it, but we also absolutely make sure we work with Tier one protocols that have the ability to be completely transparent in its governance to ensure that the risks to hack would be minimized. We also utilize some level of on chain insurance that have historically demonstrated their ability for payouts if there were adverse events. So things like Nexus Mutual is a decentralized insurance protocol that exists that pay customers based on some of these tail risk events. And historically, they have also demonstrated their willingness and ability to pay for certain narrow scopes of events that, if it's worth insuring, then we'll find a way to actually do that as well. 

Ric Edelman: We're going to have to leave it there. That's Jeff Park, the portfolio manager and head of Alpha Strategies at Bitwise Asset Management with me at the fifth annual DACFP Vision Conference in Austin. Incoming weeks, I'll be presenting you with additional conversations from the conference. Right now, though, you can check out the photos and other highlights of Vision. It's all on my Facebook, Twitter and Instagram pages.    

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Why I Keep Talking About Blockchain? 

Ric Edelman: I want to make sure that you understand why I keep talking about blockchain technology. One of the most important technological innovations in the field of global commerce since the invention of the Internet itself. In fact, many people consider blockchain to be Internet 3.0.  

Well, if you're going to have Internet 3.0, that means you've got to have Internet 1.0 and 2.0, right? Well, the original Internet, Internet 1.0 that we used to communicate, we used the Internet back in the early days to send emails to each other. Facebook was Internet 1.0. The Internet of People is what I'm talking about. And then came along Internet 2.0. This was the Internet of things. You know, your phone talking to your coffee pot via Bluetooth. The Internet of Things was Web 2.0 and now we have Web 3.0, Internet 3.0. And where we had the Internet of People and the Internet of Things. Now we have the Internet of Money; moving money from one person to another, from one company to another, from one country to another.  

And blockchain technology is what makes all of that happen. The Internet of Money. One of the key features of all of this is that the blockchain is not part of the trust economy. Instead, it creates the authentication economy. Well, what do I mean by that? Well, think about it. We operate in a trust economy right now. When you buy a house, you are trusting the seller to sell you the house. You are trusting that they actually are the legal owner of the house, that they have free and clear access to the deed to that house. But do you really trust the seller? No, you don't. That's why you hire a title settlement attorney to do a title search. And then you still don't trust the results, so you buy title insurance. You do all this because we operate in a trust economy and trust only goes so far.  

So, we spend more money and more effort and more time to complete our transactions because, frankly, we really don't trust each other. All that's expensive. It's cumbersome, it's time consuming, and it doesn't really do all that much for us. I mean, the value of the house doesn't go up merely because you bought title insurance. All this means due to the trust economy, we hire lots of intermediaries like that settlement attorney, real estate broker, the stockbroker, anybody who is in between the buyer and the seller, people who are pushing paperwork to facilitate the transactions.  

Blockchain technology eliminates the need for all of that because instead of us having to trust each other, the transactions are cryptographically authenticated. It's proven valid that you do, in fact, own the deed to the property that you do, in fact, have the legal right to convey it to me because it's cryptographically proven. Trust is no longer a factor. I don't have to trust you because it's a fact. As a result, I can do the transaction with you immediately. And we don't need intermediaries. We don't need that title insurance or to do that title search. And as a result, transactions become faster, they become safer, they become more transparent, and they become cheaper.  

The notion of a trustless economy is revolutionary. And this is a big part of the reason why there's so much excitement about blockchain technology. The future is not one of trust, it's one of authentication. I'm Ric Edelman, and this is the Truth About Your Future. 

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