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Steve's note: My friend and colleague Tama Churchouse is the one guy I trust to give you the full story on bitcoin and other cryptocurrencies. He understands both how they work AND how they can make you money... And not everyone can claim to do that. In this essay, he explains the opportunity – and why you have a chance to beat the big guys to the punch...
The Big Advantage You Have Over Institutional InvestorsBy
Tuesday, October 17, 2017
How can an individual compete against the big, institutional asset managers who dominate the financial markets?
These folks have trillions of dollars of assets under management, multimillion-dollar compensation packages for the world's best traders and analysts, and massive budgets for technology and trading systems. And their relationships with investment banks usually give them first pick for a hot initial public offering (IPO), along with access to all the research that Wall Street has to offer.
It's not often that individual investors get the upper hand on the big, institutional asset managers. But there's one frontier asset class where you truly hold the advantage over the bigger guys. And that's in cryptocurrencies.
Let me explain...
Recently, a friend of mine named Lewis Fellas launched a cryptocurrency hedge fund called Bletchley Park Asset Management. Anyone can launch a fund, but Lewis isn't just anyone. He's a world-class trader who's worked for top U.S. investment banks, one of Asia's most successful hedge funds, and, most recently, for the $35 billion Harvard University endowment.
When talking with Lewis recently, what I found particularly noteworthy was this: His fund has generated a massive amount of interest from institutional investors.
After an article mentioning the launch of his firm appeared in Bloomberg, he told me he was "blown away" by the number of institutional inquiries he received... from sovereign wealth funds, endowments, funds of funds, family offices... you name it.
This tells me a few things.
First, big institutions are obviously interested in cryptocurrencies as a new financial asset class. But right now, there aren't enough "bridges" between traditional asset managers and this new, less well-understood arena of cryptocurrencies.
People like Lewis create a credible "bridge" for these traditional asset managers to cross into the cryptocurrency realm.
Let's say you're the manager of a sovereign wealth fund, and you're interested in making a small allocation to cryptocurrencies. How do you go about it? Do you build an internal team and do it yourself?
Or do you look for people with strong backgrounds in asset management who have transitioned over to crypto, and who already know how to responsibly invest other people's money?
The latter, of course.
A few cryptocurrency funds already exist. Notables include MetaStable Capital (a San Francisco-based hedge fund) and Polychain Capital, run by 27-year-old Olaf Carlson-Wee with around $200 million in assets under management.
These funds, however, are usually backed mainly by big Silicon Valley venture-capital names like Sequoia Capital and Andreessen Horowitz... not traditional institutional asset managers, like pension funds, for example.
The institutional level of participation in cryptocurrencies is still very, very small by any measure... But it's increasing.
What does this mean?
This means there's every likelihood that over the next year or so, we will see much greater sums of money flow into cryptocurrencies. And bitcoin is likely to be the biggest beneficiary.
Right now, the current total market capitalization of the cryptocurrency space is approximately $175 billion. (Bitcoin accounts for around 54% of the total, followed by ethereum at around 18%.)
This is still extremely small, when you consider that it's about the same size as the tech company Intel (INTC).
The advantage you have as an individual is that right now, you have far fewer hurdles to overcome before you can put some money into cryptocurrencies... and get your money there first.
Sovereign wealth fund or endowment managers who want to buy cryptocurrencies need to jump through a lot of hoops. They have to comply with a slew of regulations, get legal opinions, and – not to mention – expand the scope of their investment mandate (which defines what assets they can invest in). This is no easy task.
But all you really need to do is open a cryptocurrency exchange account and allocate a little bit of money to bitcoin. You don't have to put a lot of capital at risk, either.
Now, you have the opportunity to get out in front of a tide of institutional capital that will likely pour into cryptocurrencies as the asset class becomes increasingly mainstream... and increasingly difficult for asset managers to ignore.
Good investing,
Tama Churchouse
Further Reading:
If you're new to bitcoin and cryptocurrencies, check out Tama's recent essays on this new asset class right here:
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Regular readers know one of our favorite ways to profit from any big trend is through "picks and shovels." These companies provide the tools, products, and services that fuel booming sectors. And right now, with the ongoing rally in homebuilding and renovation stocks, one leading supplier is skyrocketing...
SiteOne Landscape Supply (SITE) is the largest wholesale distributor of landscape supplies in the U.S. It has a huge selection of more than 100,000 products, including outdoor lighting, fertilizers, and grass seeds – all the materials that landscapers use to work their magic. Last quarter, SiteOne's sales jumped 19% from the previous year... And recent acquisitions will help the company expand in the Carolinas.
As you can see in the chart below, SiteOne's shares are up an incredible 80% this year... And they just hit an all-time high. It's more proof that investing in picks-and-shovels stocks could lead to your next big winner...
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