Stay steady and patient. Often, newcomers think that they’ve already missed the train on Bitcoin and Ethereum and are looking for the next coin to go x100. Rarely do they take into consideration the fact that these ‘altcoins’ with low trading volume and low market capitalization can as easily lose 99% of their value in few days leaving the person trapped. Even if you feel like you can’t resist and need to buy a small-cap coin, then allocate only a small part (up to 10%) of your whole investment portfolio to it.
Over the past few years, the Cryptocurrency industry has been making headlines nearly every week. Many people have gotten very wealthy investing or leading the cryptocurrency industry. At the same time, many people have lost a lot investing in the industry. In addition, more people have been scrutinizing the ecological impact of crypto mining, as well as its potential facilitation of illegal activity. What is being done and what can be done to address these concerns?
In this interview series called “5 Things You Need To Understand In Order To Successfully Invest In Cryptocurrency” we are talking to leaders in the cryptocurrency industry, as well as successful investors, who share insights from their experience about how to successfully invest in Cryptocurrency.
As a part of this series, I had the pleasure of interviewing Laurent Bourquin.
Laurent Bourquin is Asset Manager at MEV Capital, an EU-registered fund focused on Decentralized Finance. Laurent has a background in investment banking but in 2017 he pivoted to crypto and has been applying his expertise in this emerging market since. Mainly Laurent was doing Market-Making on custodian crypto exchanges before switching his activity and area of focus to Decentralized Finance (DeFi).
Thank you so much for doing this with us! Before we dig in, our readers would like to get to know you a bit. Can you tell us a little about your backstory and how you grew up?
Hi, thanks for having me here. Sure! To begin with, I come from the traditional financial world, for several years I was employed at a French bank — Société Générale — where I held different positions inside the investment department. In 2016, alongside a few colleagues of mine at that time, we discovered Bitcoin. At first, we were taken aback by the price dynamics of this previously unseen UFO. We dug down deep in the ecosystem and discovered a whole new technology behind it. In late 2017, I decided to leave the investment banking field and go fully into the cryptocurrency and blockchain markets.
Is there a particular book, film, or podcast that made a significant impact on you? Can you share a story or explain why it resonated with you so much?
“Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets” from N. Nicholas Taleb is one of these books that echoes a lot in the financial world. We, as human beings, are really bad at quantifying long-tail events. When the probability of an occurrence of an event is very low, we tend to ignore it as impossible, but history clearly shows that these events happen. Taleb’s books helped me to (re)consider with more seriousness the occurrence of blackswan events and the importance of always having a proper hedge. Usually in the aftermath of such events, one can find very lucrative opportunities with the highest upside.
Is there a particular story that inspired you to pursue your particular career path? We’d love to hear it.
I’m afraid not. It was more the excitement and the lurking potential of what could happen if crypto enters into mainstream. In 2017, it was still very early, the risk-reward ratio and the whole decentralized and permissionless nature of the blockchain economy was something very new and tempting compared to my bank job at the time. I could not stay way. Now, 4 years later, I think that was the best decision I made.
Can you share a story about the funniest mistake you made when you were first starting? Can you tell us what lesson you learned from that?
I am not the one to judge how funny it is, but one that is engraved into my brain is my experience with the notorious Elon Musk-propelled Shiba Inu DOGE coin. Once, I started taking a more in-depth look into Bitcoin, I stumbled upon this meme coin created by the internet’s forum. I then bought some DOGE just for fun to have some exposure to it, partly as a joke. I think at the time I bought it, the price of1 DOGE was around $0.0002 USD.
Sad thing is, once the 2017 bull run started to fade, I sold my DOGE position, figured it won’t amount to much in the future, as more sophisticated and advanced blockchain projects will start entering the market. If I would have held the position to this day, that would be a seven-figure sum. But I didn’t.
The lesson learned here for me was to not underestimate the effects of holding assets for the long term. Even a small investment in some early-stage venture, technology, cryptocurrency or other project can reap insane returns if one just never sells. That’s my main advice to anyone trying to put some money into the crypto market: Do not trade, do not try to outsmart or time the market, that’s extremely difficult to do. But what you can do is to find an asset you like, buy small amounts of it periodically and just never sell. If you average it out, BTC has made an average of 200% year-on-year returns for the past 10 years.That should be enough for most people.
Are you working on any exciting new projects now? How do you think that will help people?
As a new exciting project, Im now working on the deployment of MEV Capital, a crypto-asset hedge fund focused on decentralized finance, registered in the European Union. It’s is like my comeback to the world of traditional finance after all these years playing around with crypto. Now crypto has become so big that no financial institution can have the luxury to ignore it.
MEV Capital fund enables investors to get digital asset exposure in different strategies such as yield-seeking on fixed income products, market-making and arbitrage, which were not that accessible to individuals before.
Ok super. Thank you for all that. Let’s now shift to the main focus of our interview. The cryptocurrency industry seems extremely dynamic right now. What are the 3 things in particular that most excite you about the industry? If you can, please share a story or example for each.
- The pace of innovation in Blockchain is something of a wondrous phenomenon, rarely seen in other sectors. Even working full-time in the space and having assistance from the team, we have to focus on a specific sub-branch of the industry to be able to fully grasp it. There are multiple notable projects appearing every week that are bringing innovation and are worth studying. It is mostly due to the permission-less nature of blockchain protocols, they’re integratable can be built on top of each other. It gives anyone the right to innovate. This structure is also referred by a term ‘money legos’. Essentially, anyone can take building bricks (protocols) already available in the market and create something new and unique. And if someone starts using the newly built structure, it instantly gives it value. It’s a beautiful, self-correcting, resilient system.
- This new concept of DAO (Decentralized Autonomous Organization) truly fascinates me. Take decentralized exchanges or lending platforms for example where users pay fees for each transaction (trade) on the protocol which get redistributed back to core communities. Fact is that several crypto protocols succeeded in generating million of dollar weekly flows in a matter of months after the initial deployment. All the revenues made by such protocols were redistributed back to their respective communities through an automatic and transparent scripts, without any centralized authority or human interaction. All this done following a governance system voted in by the community and secured and enforced by the blockchain technology. This kind of organization can be independent, censorship-resistant and highly adaptable to market needs.
- The third thing I’m excited about is seeing how Decentralized Finance, or cryptocurrency as a whole, pushes authorities to rethink regulations and provide a frame for the future of monetary transactions. This new monetary technology called crypto has to be and will be regulated one way or another in order to both protect and educate consumers, and to have legal way for suing criminal and abusive operations or as the industry calls them — scams and rug pulls.
- Almost 12 years in existence, it is sure is that cryptocurrency, by its nature, won’t disappear either. Regulators should be extremely careful and I believe they’re trying very hard not to underpin this new concept of decentralization, in order to avoid a market fragmentation where the community refutes the regulation and the cryptocurrency market get marginalized from traditional finance.
What are the 3 things that concern you about the industry? Can you explain? What can be done to address those concerns?
One of my main concerns points toward regulations and how will the US Senate categorize cryptocurrencies. So far, if the Wyden-Lummis-Toomey amendment gets voted in as it is written currently, any US citizen operating with crypto will be identified to the equivalent of aprofessional broker-dealer, and will need to report exhaustive data to IRS, calculate their monthly NAV (Net Asset Value) based on US accounting standards and will be subject to a lot of really unnecessary and non-efficient bureaucratic processes. The Senate and the House should deliberate very carefully on what they are going to move into legislation as it will set a global precedent and may shock the market and its participants.
Then with crypto, there is always the trail of scams, hacks and money embezzlement news following the market that negatively affects it. The worst part, usually the new market participants are the ones getting burned. People hear hype and stories about crazy returns of crypto investments and want to get in on ther action themselves, but end up being an easy pray for con artists who are promising huge returns but deliver no results. What I’d like to see is more education and information in order for people to learn from mistakes of others without needing to repeat them.
The third thing that’s worrying me a bit, but just a bit is the NFT hype. Jpegs of rocks are literally selling for hundreds of thousands at the moment. It’s very lucrative for speculators and creators of these NFTs but once the market turns bearish I am afraid that a lot of people will be left holding illiquid assets. I really urge anyone who’s looking at the NFT market right now to tread with extreme caution. The NFT market is very young right now and there’s a very high likelihood that you’d end up burned.
What are the “myths” that you would like to dispel about cryptocurrency? Can you explain what you mean?
The Market capitalization of crypto-currency displayed on common crypto websites is a myth. The “Global market capitalization” of 2 Trillion dollars which is usually seen these days take into account a bunch of extremely illiquid cryptocurrencies which are not in circulation and shouldn’t be counted.
Some of these 2 Trillion includes minted (created), but locked cryptos, owned by core teams, early investors, or DAO treasuries. These essentially locked assets have a theoretical value of hundreds of millions of dollars, while are absolutely not liquid, nor in any case accessible. When the circulating supply is several times lower than the total supply of an asset, its total market capitalization in USD becomes biased and not factually correct, skewing the whole market data.
How do you think cryptocurrency has the potential to help society in the future?
Cryptocurrencies or more accurately — crypto assets as well as blockchain technology enable the creation of trustless value systems. To me, that’s a phenomenon that’s new and completely underestimated. In time, this nascent technology will change not only the money people use, but also voting systems, ownership rights of digital and real-life assets, and elected governance.
We have seen millions of examples when greed and lust for power corrupt people, institutions, and whole nations. People with influence, monetary or otherwise, tend to do everything in their power to maintain it and that’s natural. When you put your trust in smart contracts and programming code — the same rules apply to everyone, no matter how much money or power you have.
I believe that people are OK to have fewer assets or less wealth if they’re given the same opportunities and if their vote counts as much as the person’s next to them, but they start having problems when they see that power buys more power — a system like that leads them nowhere. Blockchain gives a way out and I think we will see a tremendous transformation of society thanks to this technology. We are still early.
Recently, more people have been scrutinizing the ecological impact of crypto mining. From your perspective, can you explain to our readers why the cryptocurrency industry is creating an environmental challenge?
I would say that the talk about the environmental challenges regarding cryptocurrency, is misleading and shows a poor understanding from the environmentalists.
First of all, Blockchain is one of the few sectors where energy consumption is transparent, updated in real-time, and accessible by anyone in the matter of a few mouse clicks. Therefore, it is easy to focus the talk on Cryptocurrency consumption as it is one of the only sectors providing this type of data. I would be curious to get and evaluate the datasets for the automobile or the banking sector.
Also, there is no time-perspective. If you think that you just spend a lot of power to generate some cryptocurrency is one thing, but if you consider that the blockchain and cryptocurrency are building a fair, censorship-free and inclusive world’s monetary system that will last thousands of years — then the argument has more weight, doesn’t it?
It’s like trying to convince a horse rider in the 1850s, that we need to dedicate resources to manufacture steel to build airplanes and automobiles because that’ll make the world more efficient and better. It is very hard to extrapolate the efficiency of technology into the future.
That’s why it’s so hard to get funding for RnD projects in corporate structures, too.
Having said that, because of the harsh competition in the crypto-mining industry most of the miners are already looking for sustainable energy sources (geothermal, hydro dams, oil torches..), or for energy sources that allow them to have extremely low-cost.
For example, in Center Africa or Kazakhstan, there are several powerplants under construction, where the production of electricity will be higher than the demand during the first years until the powerplant gets connected to the electricity network of the region, or the time that cities and villages around get big enough to use the majority of the electricity offered.
We now see miners dealing with those early-stage powerplants so they can buy the electricity surplus at low price, which would otherwise be lost in vain.
Furthermore, the switch of consensus algorithms on dominant blockchains, upgrading their Proof of Work to Proof of Stake will, in the near future, minimize the ecological impact of the crypto-mining industry.
I would be happy that other sectors would be as transparent in terms of electricity consumption and reporting, and be as innovative as cryptocurrency minders in finding long-lasting energy consumption models.
From your perspective what can be done to address or correct these concerns?
Answered in part above.
Recently, more people have been scrutinizing cryptocurrency’s impact on illegal activity. From your perspective, can you explain to our readers why cryptocurrency, more than fiat currency, is seen as an attractive choice for criminals?
This misconception has been following crypto assets from the early days of 2013 when Bitcoin was the preferred payment method on dark net’s marketplaces, but the situation has changed a lot since those days.
First of all, an outrageously bigger amount is laundered in dollars and euros than cryptocurrencies. If you’re following the news, virtually every bank has been proven to launder money. The whole premise, that crypto is for criminals and terrorists is wrong. They are and always have been using dollars and other national currencies for decades to finance their illicit activities.
Another parameter of blockchain transfers is that they’re all logged and inscribed permanently to the blockchain database. Actually, you can track all the flows that are happening on-chain, the data is available to everyone, crime authorities included. It could be argued, that blockchain offers more tools to track dirty money than the traditional banking system.
Chainalysis and CipherTrace — the two leading blockchain forensics agencies estimate that the number of illicit crypto activities accounts for 0.5% and 0.34%, respectively.
From your perspective what can be done to address or correct these concerns?
We just need people to do their research before crying wolf. There is a vast selection of reports, research, and data analysis disproving this myth. Most of the time, people who have not even the vaguest idea of how the blockchain works are the ones saying nonsense like that. We just need to call their bluff and dig a bit deeper to find out that it’s all smoker and mirrors.
Ok, fantastic. Here is the main question of our interview. What are “The 5 Things You Need To Understand In Order To Successfully Invest In Cryptocurrency?” (Please share a story or example for each.)
- Dollar-cost average. Given the past record, the overall majority of daily crypto-traders lose money while long-term investors earn it all. Both Bitcoin and Ethereum made multiples of x10s within this last year , but also went through major drawdowns of more than 50% within a matter of weeks. Yes, Cryptocurrencies are volatile, but usually to the upside. Therefore, as for new investors to the field, a DCA approach (Dollar-cost averaging) is the optimal approach: the investor puts away a fixed amoun of dollars each month, that he/she will invest in crypto disregarding the price at that time and keep a long-term towards his crypto-assets. This method has been proven to be quite efficient for non-active traders in terms of returns over the years, and it allows them not to care about the current state of the market.
- Bet on the winners. Although there are about 2500+ different cryptocurrencies available on the market, only a few dozen are backed by strong fundamentals, well-thought tokenomics, reliable team, active community, and interesting/applicable use-case. Most of the cryptocurrencies can be seen as a medium of exchange, yet we can draw 2 main categories: utility-tokens which hold a specific use-case in an ecosystem (i.e to access the right to a service), and security-tokens which rewards investors in a form of additional tokens (“dividend”), generated from the revenue made by the underlying ecosystem. Nowadays we can say that not even 10% of all the available crypto-currencies propose a long-lasting business model. Therefore, even though in traditional finance diversification can be seen as a risk mitigator towards portfolio’s volatility, in crypto-currencies, this assumption is less true: concentrating capital on Bitcoin, Ethereum, and a handful of security-tokens with lower weights is actually less risky than deploying the capital amongst 100+ cryptocurrencies since the large majority of them will underperform the main one’s overtime.
- Hold your keys in your wallet, not on an exchange. Nowadays there are multiple investment vehicles to have exposure to crypto, without holding any. One could be an ETF, ETN (Exchange Traded Note), paper trading through some brokers, or derivative products via custodian crypto exchanges. All of them are synthetic representations of crypto and does not oblige the counterparty to hold crypto at any point of time, hence disabling you to actually own crypto on a private wallet, but a representation of it, kept in books of her a private entity. As long as crypto is not on your personal wallet, you actually don’t own any.
Furthermore, the multiplication of synthetic products issued on-top of crypto increases the derivatives market size of it, which is not a bad thing per se, but the crypto-market can avoid the current ratio that traditional finance has, where the derivative market is around 8 times bigger than the underlying assets, which increases counterparty risk, daily volatility and potential manipulation towards the end-users in case of crypto. Therefore, for individual investors, the safest way to be exposed to crypto is to invest on the spot market and keep crypto assets on a private crypto-wallet.
- Do your own research. Given that the transfer of cryptocurrencies is final and there are so many of them, you have to keep in mind that fraudsters are always lingering in the shadows. Many of them claim to have superior trading strategies or the power to predict which coin will ‘pump’ next, but in reality, they’re just trying to steal funds from unsophisticated people entering the market. The core value in crypto is to take one’s time and do enough research before investing any money into a crypto asset.
- Stay steady and patient. Often, newcomers think that they’ve already missed the train on Bitcoin and Ethereum and are looking for the next coin to go x100. Rarely do they take into consideration the fact that these ‘altcoins’ with low trading volume and low market capitalization can as easily lose 99% of their value in few days leaving the person trapped. Even if you feel like you can’t resist and need to buy a small-cap coin, then allocate only a small part (up to 10%) of your whole investment portfolio to it.
What are the most common mistakes you have seen people make when they enter the industry? What can be done to avoid that?
The industry uses the term ‘to ape in’. It refers to people not doing any research, but rather getting hyped on social media and throwing their money into some random crypto assets like apes, hoping to get a 300% return in 2 days. Financial markets traditional or crypto, are a patient investor’s game. You earn in years not days.
Do you have a particular type of cryptocurrency that you are excited about? We’d love to hear why.
I try to be crypto-agnostic and do not bet too much on any one asset. I look at what the market is thinking of at a specific moment. I also try to stay up to date with the rate of innovation and keep an eye on what’s going to move the market forward. At the moment, I am particularly interested in FIRPs (Fixed Income Rate Protocols) such as Pendle Finance, Element Finance and a few others.
You are a person of great influence. If you could inspire a movement that would bring the most amount of good to the greatest amount of people, what would that be? You never know what your idea can trigger. 🙂
I’d really love to see more effort on the side of traditional media to actually understand what crypto is and how can it benefit society at various levels. As for now, it sometimes feels that they tend to pay attention only if the price shoots up or down. The potential is truly endless, this type of invention comes once in a thousand years. Sadly, few people understands this yet.
Thank you so much for these excellent stories and insights. We wish you continued success and good health!