Cryptocurrency Investing - Interview with Joe DiPasquale, CEO of BitBull Capital
I recently interviewed Joe DiPasquale, CEO of BitBull Capital, and came away from our discussion with a great deal of knowledge on cryptocurrency investing. In addition to the name of the company being on point, DiPasquale is very knowledgeable about the cryptocurrency and blockchain industry. He was able to break down concepts into easily understood components for beginners like myself. San Francisco based BitBull Capital manages cryptocurrency hedge funds and is also a resource for cryptocurrency research and resources.
Understanding the difference between blockchain and cryptocurrencies is critical to making any sense of the investments in this space. Briefly, blockchain is similar to an “unhackable” ledger that records transactions of value. The value transaction can be represented on the blockchain by a cryptocurrency such as bitcoin. The transaction on the blockchain is confirmed through a process of “mining”. Mining is open source so any miner has the ability to confirm the transaction through a complex computational problem and add a “block” to the blockchain. Once there, the block is permanent and can’t be changed. This is more or less the attraction of the entire system -- the inability for anyone to alter the block provides stability and permanency critical to countless applications. The miner is rewarded for the task through payment in a cryptocurrency utilized on that blockchain. Blockchain and cryptocurrencies are linked but are definitely different concepts. Cryptocurrencies are just one of the many potential uses of the blockchain system.
DiPasquale explains that bitcoin is one of 200 different cryptocurrencies that coexist alongside 600 different cryptocurrency funds. BitBull Capital runs two different types of crypto funds - the BitBull Fund which is a selected fund of 10 funds (like a hedge fund) out of the possible 600 different cryptocurrency funds existing and the other is the BitBull Opportunistic Fund which invests directly in crypto assets. A hedge fund is like a basket of investments but is given wider latitude than say a mutual fund to employ various investment tactics in its quest to maximize a return. It typically utilizes leverage such as borrowed money so is typically riskier than an average mutual fund as an example. The fund of funds approach mixes different hedge funds with other investments. One investment product which remains elusive at present is a bitcoin or cryptocurrency ETF product which would track one or more digital tokens. DiPasquale advises that the SEC is currently considering such an ETF but has yet to regulate and set out the parameters for such an investment product.
DiPasquale indicates that integral to understanding the investment side of cryptocurrencies is the ICO or Initial Coin Offering. This is like an IPO, Initial Public Offering, for a stock but instead, results in the issuance of a new cryptocurrency. As mentioned above, bitcoin is but one of 200 different cryptocurrencies. Each cryptocurrency is in a different vertical doing or solving a different problem or goal. “When you make a bet on a coin, you are making a bet on that vertical.” explains DiPasquale. To me, understanding that concept unlocks some of the mystery surrounding cryptocurrency and the blockchain. For example, Bitbull Capital invests in the following coins in its funds: TrustToken (exchange-independent stablecoin backed 1-1 with US dollars allowing you to buy and sell asset backed tokens worldwide), Polkadot (allows independent blockchains to exchange information) and Mythical Games (development of games on the blockchain). Each coin is working on a platform performing a different function.
So how do all of these cryptocurrencies work together or how will they work together? The future will decide, however, DiPasquale did mention Ethereum as one platform that has emerged as a leader given different cryptocurrencies can build upon Ethereum’s platform. Deciding where you think this technology will be most likely to “take off” is part of the risk and excitement surrounding investments in this space.
We touched on two final topics: energy usage for crypto mining and what DiPasquale feels are some of the more compelling blockchain and cryptocurrency uses right now. Energy usage is the Achilles heel of the industry given today’s climate and overall move to sustainable practices. Digiconomist reports that the country closest to Bitcoin in terms of energy consumption is Singapore. With so much power being used to mine for cryptocurrency and make blocks for the blockchain, DiPasquale says it is no surprise there is a transition from a Proof of Work validation to a Proof of Stake. With Proof of Work, the chain with the highest amount of work is deemed valid. This “work” translates to major energy consumption by the computers working away on the problem. With Proof of Stake, the validity of the block corresponds to the party who has the most at stake within that cryptocurrency. To build blocks in the Proof of Stake system, you must own that currency involved thus having a “stake” in that blockchain. It is reported that Ethereum is moving its platform to Proof of Stake to address the ecological concerns inherent in Proof of Work.
Finally, while I am sure he is interested in many crypto companies and platforms, DiPasquale mentioned STEEM and Filecoin as some of the more compelling uses at this stage. He refers to STEEM as a utility token which is based on the blockchain platform STEEMIT. This platform allows content creators to monetize their content by having it upvoted by other users and rewards people for curating great content. Filecoin, DiPasquale explains, was the largest ICO of 2017. Filecoin aims to work on data storage solutions by decentralizing it. A decentralized storage system for all the world’s vast and ever increasing amounts of data will help with security issues.
So many coins, so many verticals and so many platforms. My interest has been piqued and I will be watching with a more educated eye as to where things go in the near and long term.