Lots of volatility, you need to be prepared for losses. Don’t risk money that you can’t afford to lose. There is enormous volatility in the crypto markets. Recent selloffs are examples of how coin prices can move up or down significantly in what seems like an instant. It is important to know what your strategy is and stick to it. Some people would say buy on the dips, sell on the highs, unfortunately with crypto, it is not so easy. The markets move so fast that your opportunities can be lost and found in an instant. In September, the markets were rocked by the news out of China and the comments by the SEC chairman. Both added to the concern that many had about the market. That selloff was not easy for many to stomach. This is why you need to only put up capital that you can afford to lose into this asset class right now.
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 Daniel Strachman.
Daniel Strachman is a financial services expert with more than twenty years of Wall Street experience in all aspects of the investment management industry. He is managing partner of A&C Advisors LLC and is an independent trustee of the Arca US Treasury fund. Arca is an innovative, digital assets investment company that blends traditional finance with cutting-edge blockchain technology.
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?
I was born in Framingham, MA, and I went to Clark University and studied politics. I had the opportunity to intern at the Boston Globe where I met Greg Moore. When I told him I wanted to work on Wall Street, he provided me with the roadmap to do it. He gave me clear and concise advice: move to New York, work at a financial publication and use that experience to learn about the Street and make contacts. Then, leverage those contacts to get a job on the Street. This is exactly what I did, so I owe my career to him.
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?
There have been a couple of books that have been very important to me over the years. One is Catcher in the Rye and the other is One Up on Wall Street. The Catcher in the Rye is a timeless, coming-of-age story about a kid who has a lot of angst and anger and who is curious about a lot of things. This story gave me a good foundation to understand that a lot of people are going through a lot of the same things. All high school students should read this book; it prepares them for the things that can happen when you are on your own. And it gives people a view on parenting that is not what we have today: helicopter parents who do everything for their children. This book tells a good story that everyone can relate to regardless of their background. It gives people a great foundation for life.
In the other book, One Up on Wall Street, Peter Lynch explains how to go about finding investments and looking at things you wouldn’t necessarily look at. He thinks the way to find an investment, aside from research, is to look at products and services your spouse or kids use and start to evaluate based on that. Etsy is a good example, so are eBay and Apple. Poshmark is another one. Right now, Moderna or Pfizer may be companies people feel connected to for obvious reasons. It’s a fundamentals book. In my mind, technicals don’t work. They are based on the past, not the future. My apologies to technicals, they are all great people! Using fundamental analysis is something everyone can use.
Both of these books have provided me with many hours of entertainment and learning. And I tell everyone I know, that if there are two books to read to learn about life and the markets, these are the two to read. When it comes to movies, I have favorite scenes, not entire movies. Scenes are more interesting to me than entire films. I love the surfing scene in Apocalypse Now, I love the hospital scene in The Godfather, I love the ‘you can’t handle the truth’ scene in a Few Good Men, and of course there is nothing funnier than the Katz’s deli scene in When Harry Met Sally. I find films to be too long and I lose interest easily. However, if I had to name a favorite movie, it would be Chinatown. Nicholson, Dunaway, and Houston in one film — come on — there is nothing better. It may be a perfect movie. The score is great, and the scenes move quickly — in short, I don’t lose interest.
Is there a particular story that inspired you to pursue your particular career path? We’d love to hear it.
I think what inspired me to work on the Street was my interest in how money moves. My interest in hedge funds comes from writing about how Nick Leeson blew up Barings bank in 1995, the bank that financed the Louisiana Purchase. I couldn’t believe that one guy in Singapore could take down a company. Writing about it for the American Banker got me interested in risk and how markets move, how risk is managed, and the failures that lead to the bank blowing up. This led me to hedge funds and how managers are able to go long and short the market. And, of course, Alfred Winslow Jones, the creator of hedge funds who launched the first one in 1948. The line is a bit jagged but the dots connect. From there, I became obsessed with how hedge fund managers trade the markets and run their businesses. Think for a minute about why hedge funds are successful. It’s because markets don’t always rise. There is a need to find ways to make money — to hedge risk. Traditional managers can only make money when markets rise. Markets are fluid and based on all sorts of things. Hedge funds give people the ability to make money no matter how the markets move.
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 will tell you about a memorable mistake I made early in my career — I am quite sure there was no humor associated with it at the time. When I was a trainee at Cantor Fitzgerald, I was doing a rotation on the 10-year desk and was asked by the broker who I was shadowing to “check out” the days’ trades with a client. I said I knew how, and really didn’t, and in turn, mispriced a trade. The head of the desk and broker fixed my mistake but it taught me a good lesson: make sure you know what you are doing or ask for help. Being cavalier when dealing with significant sums of money is a mistake.
None of us are able to achieve success without some help along the way. Is there a particular person who you are grateful towards who helped get you to where you are? Can you share a story about that?
There are two people — one is Greg Moore who I mentioned gave me the roadmap to get to Wall Street. The second is Steve Dimino, the guy who gave me the opportunity to get on the Street. He suggested me for the training program at Cantor Fitzgerald. Without his introduction, I would not have gotten my shot. He died in the 9/11 attacks on New York City. There is nothing else to say but, thanks, Steve.
Are you working on any exciting new projects now? How do you think that will help people?
Right now, I am working with some colleagues to launch a fund of funds focused on cryptocurrencies and blockchain. I am very excited about the project, I think it is going to be a great product and provide investors with access to an asset class that is growing, expanding, and here to stay.
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.
I am excited about the excitement around the industry. There are more than three great things happening, but I’ll try to keep them concise. I like what I am seeing out of El Salvador — it is absolutely fascinating to see what the government there is doing. It is also fascinating to watch what is happening with the Federal Reserve. Clearly, people across the financial spectrum are paying attention to this asset class and realize the power of cryptocurrencies in shaping the future of finance around the globe. I am excited about how Main Street has embraced trading coins and how Wall Street is playing catch up. It is wild to watch big banks like JPM, Fido and others try to figure out how to get into the crypto space in a meaningful way. They will get there soon, and it won’t be too late, but there will be some egg on their faces before all is said and done. I also really like the 24-hour market — this is something that is truly wild to see, as someone who remembers when decimalization came into the equity markets and the heartburn this brought on to many brokers. To see crypto markets trade in decimals, 24/7 x 365 is truly amazing.
What are the 3 things that concern you about the industry? Can you explain? What can be done to address those concerns?
The thing that concerns me the most is the lack of education. Many people just don’t have the knowledge they need to trade these markets and are getting in because people like Elon Musk say they should. This is a mistake. Investing regardless of asset class requires knowledge. People need to learn about what they are doing and not just simply buy or sell something because a billionaire Tweets about it. There is a fundamental lack of understanding about the power of cryptocurrencies and the ability of these instruments to democratize the global financial markets. However, to truly make this work, we need education. We need people to start thinking about crypto as an asset class like gold, oil, equities, and fixed income. They need to stop thinking about it as a fad that a bunch of computer geeks and tech weenies are manipulating for a profit.
What are the “myths” that you would like to dispel about cryptocurrency? Can you explain what you mean?
The biggest myth is that crypto is a fraud. Jamie Dimond had said crypt was a fraud, and now three years later, he is spending millions of dollars at JP Morgan to figure out a way to get into this business. Banks like State Street are getting into this market — all globally recognized financial institutions are focused on accessing the cryptocurrency market. The head of the SEC right now is a guy who is a proponent of crypto, but he is working to regulate the market which is great. That also tells you that it is not a fraud. The second myth is that it is used exclusively by drug dealers and organized crime. The popular press loves to publish that crypto is the currency of choice on the dark web — that was the argument two years ago. The reality is that very smart people across many multi-national companies are focused on this asset class. The notion that this is an underworld is just silly. And the third myth is that everyone in the space is a millionaire. On one hand, we see young people with Lamborghinis while there are people trading it who realize it’s an asset class. Not everyone is super successful — the bloom is not off the rose, though. It’s the first inning of a nine-inning ballgame. There are a lot of myths and mistruths spread about crypto, mostly by people who feel threatened by the industry. There is also a lot of self-promotion, which is just noise. The reality is, there is an opportunity in crypto and people need to realize it.
How do you think cryptocurrency has the potential to help society in the future?
Cryptocurrency may or may not help society in the future. Clearly, blockchain has the ability to help society and has many applications such as in supply chain management and medicine, but it is still unclear what crypto offers other than being a new asset class, a store of wealth, and a way to make payments more efficiently.
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?
The cryptocurrency industry is just beginning to gain widespread acceptance throughout the globe. Mining is something that is on all people’s minds.
From your perspective what can be done to address or correct these concerns?
The most important thing we can do, as this asset class matures, is to pay attention to this issue. As with any new industry, there will be things that emerge that may need to be watched and either validated as a true concern or dismissed as a non-issue.
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?
Criminals will be criminals whether they use crypto, fiat, or some other measure of wealth. There is nothing that can be done about this other than for regulators to enforce KYC and AML rules and regulations. Unfortunately, there are bad people in this world who do bad things. Money is what corrupts, whether it is crypto, dollars, yen, euros, or gold bars — there is nothing that can erase this dynamic from the world, in any industry.
From your perspective what can be done to address or correct these concerns?
Diligent proactive KYC and AML procedures are what needs to be done. Banks, brokerages, and investment firms know how to do it. They are doing it. Putting these safeguards in place will deter the criminal element.
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?”
- Lots of volatility, you need to be prepared for losses. Don’t risk money that you can’t afford to lose. There is enormous volatility in the crypto markets. Recent selloffs are examples of how coin prices can move up or down significantly in what seems like an instant. It is important to know what your strategy is and stick to it. Some people would say buy on the dips, sell on the highs, unfortunately with crypto, it is not so easy. The markets move so fast that your opportunities can be lost and found in an instant. In September, the markets were rocked by the news out of China and the comments by the SEC chairman. Both added to the concern that many had about the market. That selloff was not easy for many to stomach. This is why you need to only put up capital that you can afford to lose into this asset class right now.
- Focus on security, make sure you trade with legitimate trading partners: It is very important to know who you are trading with. You need to trade with exchanges that are well known, have deep pools of liquidity, and don’t freeze up when the markets are hit with massive volatility.
- Learn about wallets, how to store your coins: This will ensure you have access when you need it and in a place where they can’t get hacked. Although in today’s day and age, this is next to impossible to insure against. Storing crypto assets is not something you should tread lightly on. Unlike, stocks, bonds, or mutual funds that are stored primarily at broker-dealers, most people use either a cold wallet or hot wallet, or a combination of both. A cold wallet is a device that is not connected to the Internet. It is thought by many to be more secure but it is also less convenient. Hot wallets are connected to the web and are considered to be less secure — however, all crypto wallets can be hacked. Whichever you choose, the most important thing to do is make sure you never lose the access keys. If you do, you will lose your assets as recovering lost keys is very difficult.
- Don’t believe the hype, this is an investment of due diligence: Learn about the coins, follow how they trade, and stay on top of the market. Just like one does research on a stock or a fund, one needs to do the same when one is investing in crypto. The biggest mistake people make is to simply get involved in the asset class because their friends are doing it or they heard about it on TV or read about it on the web. You need to do research; you need to be informed and you need knowledge. The ride can be wild — and will be wild, so you need to be prepared. Remember, education does not stop once the investment is made, it is an ongoing process that stops only after you exit the investment.
- Pay attention to regulation, stay constantly informed: It is not a question of if, but a question of when the SEC and the other financial regulators around put in place a framework for cryptocurrency regulation. It will be here before we know it and the only thing you can do to prepare for it is to stay on top of the news from world financial centers. There is nothing else to do but wait for it. It is going to happen — having knowledge about what is going on will prepare you for the inevitable.
What are the most common mistakes you have seen people make when they enter the industry? What can be done to avoid that?
The single biggest mistake is that people don’t understand the volatility of the markets and that they are open 24/7 x 365. The most important thing to do is educate yourself about the currencies, the markets, and the brokers/exchanges. You need to read, listen and learn. Get knowledge and then trade, don’t trade before having the knowledge.
Do you have a particular type of cryptocurrency that you are excited about? We’d love to hear why.
I am excited about the opportunities that both Etherum and Cardano offer — both have real utility and that is exciting to me. I am also anxious to see what happens in the XRP lawsuit, I think the outcome will be fascinating and that could be an interesting investment opportunity. The reality is there is a lot of opportunity in this asset class and one needs to avail themselves of it, no different than one would with equities, bonds, or commodities.
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 would tell everyone to be a Big Brother or Big Sister to a child of a single-parent home. I have been a Big Brother for more than 27 years and besides having children of my own, it is the single most important thing I have done with my life. It is easy to give money, it is hard to give time. Time is what is important and being someone who shows up for a kid who doesn’t have a mom or dad is something all of us should do.
We are very blessed that very prominent leaders read this column. Is there a person in the world, or in the US with whom you would like to have a private breakfast or lunch, and why? He or she might just see this if we tag them 🙂
I would love to have lunch with Charlie Munger, the vice-chairman of Berkshire Hathaway. I know that we don’t agree on crypto but I am in awe of his investment prowess and knowledge and would love to sit down for a meal with him. Mr. Munger if you read this, hit me up at [email protected] — I will be on the next flight to LA.
Thank you so much for these excellent stories and insights. We wish you continued success and good health!