Investment Thesis

Our thesis revolves around the evolution of trust leading to widespread adoption of a narrow class of digital assets, the proliferation of digital currencies and the creation of a new financial infrastructure.

Our investment strategy is dynamic and will evolve with the market as we move through each stage of maturity. We will happily discuss with you the history of the market to this point. The following is an outline of our thesis from this point forward.

 

Stage One: The Evolution of Trust and Education of the Masses

Over the next 12-18 months we believe that total market capitalization will continue to be dominated by Bitcoin (and a select few) as institutional investors make their early forays into both the asset and the provision of infrastructure. Price action and the advent of things like Libra Coin (Facebook) will bring increasing levels of media and investor interest and more and more people will come to understand the value that a non-sovereign, hard-cap supply, immutable, deflationary and portable store of value provides. Trust and understanding in both the technology and more specifically, digital currencies will become ubiquitous. The traditional investment community will continually see increasing value in the non-correlated, asymmetric return profile offered by the digital asset class. During this period, Cloudbreak will be focused on larger cap assets like BTC and ETH as well as occasional investments in smaller projects inline with stage two of our thesis. The objective of allocating a small portion of the portfolio into these smaller projects will be to provide a point of strong topside performance at multiples that will become rarer as the markets mature. We believe it is important to capture these opportunities over the coming 18 months and much time is devoted to sorting through the noise in this regard.

 

Stage Two: The Development of Broader Infrastructure for the New Financial System.

Cloudbreak sees digital currencies and distributed ledger technology more broadly as being the base from which new, freer and more inclusive markets will evolve. Just like the internet was the bedrock of the information age so too will DLT and digital currency be the bedrock of a new financial age. Projects providing progressive exchange infrastructure, digital asset collateralised lending, derivatives, fractional ownership issuance, stable unit of account and leverage will all be on our radar and we believe coming into their own as investments during this time. Interoperability or projects that allow different blockchains to interact with each other will also offer investment appeal during this time. These things already exist to some extent but we are looking to be early into these types of areas, not first, as the opportunity cost of holding such assets before the market is ready, in our eyes is enormous. We are looking at a three to five year time frame for this stage of the maturation cycle and expect stellar growth over this period.

 

Stage Three: Proliferation of Disintermediated Markets, Strong and Reliable Value Store and Programable Medium of Exchange

This is the utopian world we see where entities can seamlessly transfer value between each other in a border-less, cost-effective and efficient manner without any concerns with regard to counterparty risk or fraud. Rather than there being native digital currencies associated with thousands of business models we believe there will be several dozen strong, scalable, secure and programmable assets that will underpin these markets. Efficacy in relation to settlement and the removal of middlemen and hence cost will be major points of value beyond security and immutability. Many other types of business models perhaps in relation to things like identity management, proof of provenance, voting and healthcare management will also benefit greatly via the application of distributed ledger or blockchain technology. These types of projects are less likely to benefit form the existence of any native digital currency and as such are more likely to be become investment targets via publicly traded companies rather than a direct “crypto” investment. This final stage of maturation of the digital asset markets will, we believe, happen over the next five to 15 years; at which point we expect return on investment to fall in-line with more traditional asset classes.

Cloudbreak Asset Management lives and breathes these markets and understands them better than anyone. Please reach out to us to find out more.

An important point for consideration here is that digital asset markets provide a strong diversification benefit to traditional portfolios due to their non-correlation with other asset classes. Cloudbreak has quantified this benefit with strong research; the results are compelling. Please contact us if you’re interested in finding out more.