To investors,
The new capital flowing in the crypto industry from Wall Street and traditional investors will not behave like the capital that has been here for years.
Let me explain.
These new investors have different goals. They are not luddites. While the memes and narratives may be fun, these investors are more likely to manage their portfolio based on spreadsheets and academic theories.
One good example is portfolio rebalancing. If a financial advisor allocates 1% of their client’s assets to bitcoin, and then bitcoin triples in price, many times the advisor will sell some of the client’s bitcoin to bring the portfolio allocation back to 1%.
This activity would be blasphemous to hardcore bitcoin holders.
They believe you should never sell your bitcoin. It doesn’t matter how large of a percentage the bitcoin position becomes. Hold what you have and then buy more.
That is not how professional money managers operate though. Rebalancing is a core strategy that they use, regardless of whether you agree with it or not.
This is important to understand because the new segment of investors will introduce net new selling pressure to the market as bitcoin’s price rises. There will also be cyclical times of year where rebalancing is more popular than others.
Rebalancing is not the only behavioral difference either.
Many of the sophisticated investors who will begin allocating to bitcoin or cryptocurrencies will choose to use derivatives instead of spot bitcoin. This introduces a new avenue for capital to enter the market without actually purchasing real bitcoin on a dollar-for-dollar basis.
It also introduces new ways for large pools of capital to short the market as well.
Lastly, many of the investors from the traditional world have morphed into passive indexers. They want to make market selection decisions, not asset selection decisions. This rise of passive investing is highly debated, but the numbers show that it is becoming a dominant approach to capital allocation.
As those investors begin allocating to the new world, many of them will want a carbon copy of their traditional strategy. They want an index of the market, which will put some capital into bitcoin — just not all of it.
The arrival of Wall Street and traditional investors should be celebrated. Tens of billions of dollars will flow into the industry that was previously on the sidelines. Just don’t buy the story that 100% of that capital is going to plow into bitcoin, nor will it all be investors going long.
When the ground shifts beneath an industry, you have to pay attention. The more you understand the new players, the better you will be positioned to understand the future.
Hope you all have a great day. I’ll talk to everyone tomorrow.
-Anthony Pompliano
Juan Meisel is the Founder & CEO of Grip Shipping.
In this conversation, we talk about how he took his business from 0 to 8 figures in revenue, attacking an incumbent industry using innovation & technology, hiring, processes, and how the world is changing.
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The New Players Won't Act Like The Old Players