Ep. 557 How Hedge Funds Are Invested in the Crypto Markets with Space Whale Capital

Ep. 557 How Hedge Funds Are Invested in the Crypto Markets with Space Whale Capital

August 1, 2023 #CRYPTO101

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In this episode of Crypto 101 we have the team from Space Whale Capital led by CEO Nick Garcia. This Space Whale Capital is a sample of our Crypto Hedge Fund Summit which we hosted last week for FREE so keep a look out this fall for our next summit. But we wanted to share this interview because Space Whale is a leader in the hedge fund space who has successfully navigated the waters of the bear market and made it to the other side. We breakdown how they operated in the bear and what their outlook is as we all look towards greener pastures in the crypto markets

— TRANSCRIPT —

SPEAKERS

Bryce Paul

Bryce Paul 00:02

All right, everybody. Welcome back to the crypto hedge funds Summit. It’s been an awesome one. So far, we’ve had a ton of awesome insights from asset allocators and managers, exchanges. And now we’re going to take a look with a team over here at a real

00:20

just really intense crypto hedge fund. These guys are born and bred in the crypto markets. We you know, we’ve talked to guys in the traditional hedge fund world, but these guys are crypto in their veins through and through, that’s all they focus on. Defy real world assets has been a big theme we’ve been talking about and these guys are going to be able to speak to this is space, whale capital. And I’m joined by three gentlemen from space whale. I’ll introduce them each here in just a moment. First up, we’ve got Nick Garcia, who is really heading up the fund as their general partner and CIO. So Nick, thanks for joining us at the hedge fund Summit. How’s it going? Thanks, Bryce. Nice to be here. Thanks for having us, man. You bet. We got Kevin Kolb, who’s who’s really running the operations over there everything that maybe isn’t going on in the front of the house, but going on the back of the house, Kevin, make sure it gets done. So, Kevin, reporting for duty. How are you doing, sir?

01:15

are doing Bryce, thanks for having us on again. Man. It was nice meeting in Austin, by the way. Yeah, that was a ton of fun. I love always, you know, we do the podcast virtually. And you can always meet people but getting out having a drink together, shooting the shit, nothing better than that. And we got one of the newer members here. spacefill capital, Jordan, who is an analyst and a researcher. Jordan, how are you doing my friend? I’m doing good. Do good. Thanks. Thanks for having us back. And good to be here. Ya know, I just want to get get your guys’s pulse here. You guys. Are Are we on the other side of the bear market? Did you guys navigate the ship? I mean, there was countless hedge funds that blew up, there was countless exchanges that blew up. Now here we are July of 2023. Are we firmly on the other side of the bear market? Nick, why don’t we start with you? Yeah, I mean, look, I think, you know, looking back at what happened over the last 12 plus months, it’s it’s incredible to look at, like what the actions of few have done in terms of repercussions across the entire ecosystem? You know, in my in my opinion, I think we have past the worst of it, for sure. I think on a price basis, you know, we’ve definitely bottomed? Well, definitely is a difficult term to say. But so I feel highly confident that we spot something new here.

02:32

You know, I am certainly on on the positive side that we’ve, you know, past the bottom there. And I think on the narrative side, you know, there’s a certain aspect to like, honestly, how much worse can it get the SEC has come after, like pretty much every major player across the space, and now really not looking so great for it. So I think, from a narrative perspective, from a price perspective, I think we’ve passed the bottom, you know, I don’t think it’s going to be straight up only from here, obviously, although we’d love that, I think, you know, it will have its trials and tribulations. But you know, on a long term timeframe basis, I think we are past the bottom and headed towards sort of the new motherland here, which, you know, hopefully, I think over the next sort of 12 to 24 months should play out pretty strongly. And, Nick, just to follow back up on one point, you know, like now that we kind of are shifting the market environment, if you will, from really just kind of a dreadful

03:24

bear market to kind of this transition. How do you, you know, how were you thinking about managing risk during that period? How are you trying to, you know, create the best returns during that down market? And then kind of how does that shift as we turn back up into what looks to be more of an upward trending market? Yeah, I mean, I think, you know, unlike most funds, we truly, you know, do a majority of our strategies on chain, our allocations on chain. And so, you know, we really avoided a lot of the headaches that happened last year, in terms of some of these, like centralized blow ups that happened, you know, we never did, you know, lending on on a centralized basis, all that stuff we really did on chain. So, we were able to sort of navigate that pretty well, all in all, you know, it wasn’t easy for everyone, but I think compared to most, I think we were able to navigate that variable, primarily because we do a lot of things on chain. But also because we, you know, as it was pretty clear that the topics sort of passed, then sort of things were starting to crumble, we, you know, took a majority of our portfolio over to stables and concentrated those across, you know, non directional yields Delta neutral yields, both in defi. And particularly in real world assets. It’s something we’ve really scaled into heavily at that time. So we’re able to avoid a lot of the volatility on the price action side and a lot of sort of the blow ups on the on the custodial and sort of centralized lending side of things. Which honestly, risk management and that perspective really helped us outperform on the downside and on that so, you know, looking back, I think we’ll see a lot more of that going forward. I think we’ll see a lot more of these products available.

05:00

On chain, I think we’ll see a lot more of these products available on a noncustodial basis. You know, as people are legitimately traumatized from what happened, I mean, even though we did a lot of things on chain, it’s not like we expected every single thing to happen that did. I mean, there was some things that were a bit more obvious than others, but you know it. I do think it legitimately traumatized people. And through the bear market, we’ve seen a lot of developments on, you know, products, option products, noncustodial exchanges coming out and sort of different solutions that that, you know, will hopefully solve some of these issues that we saw. Yeah, no, it was it was kind of incredible to watch. I mean, as I mean, incredible, like, horrifyingly incredible to watch as these things were unwinding. You know, a lot of these people got stuck with a bunch of bad debt right now. There’s bankruptcies being filed, and people who thought that, you know, they were lending money to somebody who was good for it. Now, it’s, you know, it’s all a Fugazi. But guess what, all the center, the decentralized lenders, like maker and Ave like, you know, they all kept working. You know, they were actually the senior tranche of, of creditors, they were getting paid back first. And I thought that that was really, you know, a cool, dynamic to watch unfold in real time as like, you know, people were paying back their defy protocols before really their centralized, you know, counterparties, if you will, and why do you think that is? Like, I don’t know, if you guys have a thought of why that actually was occurring? Did they fear actually the total loss of their collateral? And, you know, versus like, maybe that, you know, in the meat space, they’ll be able to like, kind of, you know, work it out? Or what do you think the was really driving those decisions?

06:42

I mean, I can do to take a quick stab, and you know, guys feel free to jump in. But I think, you know, the short answer of it is that like most of these things on chain are all done and over collateralized basis, right, the protocols don’t really care who you are, they care that they have enough collateral, they can liquidate, you doesn’t matter what you choose to do, right. So naturally, like, creditors aren’t incentivized, you know, those that are specifically acting in the best interest of their clients to get the most value out of the liquidation as possible. And so naturally, you’re trying to get these over collateralized loans paid back first, because that means more money that you have on hand to optimize sort of the credit liquidation process. Yeah, makes makes a ton of sense. And kind of going back to one of the earlier things you were mentioning, you know, things are looking up. You know, we’ve got a new kind of narrative that’s going on, like we’ve got some of the bad guys behind us. We’ve cleaned up the act. And it feels like to me again, we’re here at the end of July, things like the crypto market just got spanked with a bunch of good news, like we had the Bitcoin ETF that, you know, 10, you know, institutions just tried to roll out. A few of them are like trillion dollar institutions, BlackRock, fidelity Invesco, we have what else the, you know, the Bitcoin halving coming up, we had XRP, come out with all this bullish news. So, Jordan, let me let me get your money. Pick your mind real quick. What what are we seeing just in terms of, you know, market? News? And does it actually match? What’s going on with kind of the flows are people, you know, are people buying this sort of good news? And do you think that there might be higher prices towards the end of this year? Well, there was like a weird little mismatch recently with the XRP news, right? Like, we got the great news flow come out. And then Bitcoin could even break the range of, between 29k to like 31k. And a lot of people, that was like a little bit confusing. But one thing that’s been going on across the board in the crypto markets is that if you look at like the, the cross section of assets across the space, most coins are up pretty big over the past, like 30 days. So there’s like a decent amount of profits to be taken off the table. And generally speaking, when here’s like, an example of like, a data point that like we look at internally, is if you look at like binance, perps and 90, whenever there’s 90% of coins that are in profit over the past 30 days, it’s generally not a great time to add risk. So before the XRP, news came out, a lot of coins that were like gear that 90% Like marker. So, you know, for us, if you want to talk about ways we manage risk as well, internally, we’re like, you know, maybe we’re wrong, right? Maybe the data point is wrong, and like this news flow just breaks through the data point. But you know, internally we had a discussion does this make a ton of sense to add it rained highs up here for Bitcoin? And then you know, we had the reversion and just back to more chop?

09:25

I generally think, you know, to Nick’s point that I think the the lows are in, if you look at historical context, like for example, the realized cap, which is the cost basis of Bitcoin holders, for example, usually once Bitcoin breaks above it, it rarely revisits the realized price once it breaks above it convincingly at least right? So you usually don’t even get a revisit of that once you break above the realized price.

09:48

And, you know, you see you saw these pickup on chain, some of that had to do with the ordinals action that was going on, it’s kind of ticked down a little bit recently, but generally speaking, I’m I’m pretty high conviction.

10:00

We won’t revisit the lows. And I think, you know, that’s not even a country like not it’s not even to country and at this point. And, you know, the other point that I think I brought up on the last time we jumped on was the cost of borrow, which if you look at the purpose market, the funding rate, generally, if you look at if you look at funding rates, and you know how to parse through the data, you pay, there are no free rides in crypto you pay if you’re bullish funding rates go up, right. And in bear markets, it’s more expensive to short. And what we’ve seen is a consistent like move upwards in funding rates since like the beginning of this year, too. So I think and the general outlook, it’s kind of just like, you know, keep your head on a swivel but don’t get like too bearish and you know, look at like deep you know, drops in prices opportunities to just accumulate more but not to like you know, not blow up in the meantime right? So that way you know, when the bull comes around Bitcoin breaks all time highs everyone goes Max risk on your barbers cutting your hair, it’s on you, he made like a 10x on like Cardano or something like that, you know, you’re you’re ready to go and you have like some some, you know, cash to deploy and you know, bullets still left in the, in the holster. It’s such a funny thing that you mentioned the barber, literally, like if I would have taken a signal like that. In May of 2021. I was checking out of a hotel in Vegas, and my bellhop gets to the door and he recognizes me. He’s like, Hey, dude, your brace I listen to your podcast, I follow you on YouTube. And I was like, Oh my gosh, he’s like, let’s get a picture. Like you’re changing my life. Like I’m getting the house in the Ozarks. Like, all this crazy shit. I’m like, wow, that was so surreal. Like crypto is going mainstream. Like, that was literally like the top right before Luna collapsed. And I was like, man, if so everybody who’s watching if you guys take signals like that, in your life, use them. Right. They’re really strong indicators of sentiment in the market. And clearly things were overblown. But then on the flip side, you know, I’ll get people in the bear markets that happens every time who were like, Oh, I know, Bryce of the crypto guy. Let’s check on in him. You know, I got so many texts and FTX collapse, people always kind of morbid curiosity looking over, seeing if you blew up yet or anything like that. And so that was a great time to be a buyer, right? I mean, that’s right towards the bottom of the market. And so when, you know, always use those indicators, and I’m sure you guys have those people in your life, you know, when when mom texts you is everything, okay, with crypto or whatever, you know, that’s a good time to be buying. But is there is there any other indicators that you guys look at? or indications of, you know, how do you know when it’s a good time to be buying? Right? And like you said, like, you knew? Because, you know, certain things were overblown towards the high of the range, you couldn’t break out convincingly, you knew it wasn’t a good time to add risk. But do you guys look at anything else to say, hey, now’s a good time to go risk on.

12:41

Um, I would generally say like, it’s a combination of metrics, right? Like, generally speaking, like the best time to buy or when

12:49

multiple metrics like like three to five or six metrics, they all line up, and it’s like, alright, price has been price has been clobbered. But there’s a sign of a trend shift, basically. And that’s kind of like the stuff that we look for. When we get like very high conviction. That’s when we like to make our bigger bets. Generally speaking, though, when things kind of get towards the middle, like the middle in terms of conviction of like bullishness or at the top, or like, obviously, just like outright bears, or whatever, that’s like, when we kind of want to like, we tone down the level of exposure we’d like to have in the market, at least for the discretionary part of the book.

13:22

But we do, I’m trying to think of any other metrics that we have that we use.

13:28

I was gonna say one of the things that I just picked up on there that sounded you know, worth repeating is that like, whenever you might have a set of indicators that you’re looking at, look for confluence, right look for, like, hey, three, four, or five of them are all pointing in the same direction. And it’s just starting, like, you know, starting to rip above the 50, or whatever it is, and they’re all kind of starting to move in the same direction. And then you could kind of use that as a little bit of a confluence, as opposed to just looking at one indicator where you might just get faked out a little bit. Yeah, you could, like look at like, for example, let’s just list them off, right? Like some on chain data, something like the realized price, or you can want one thing we like to look at a lot is it’s on the glass net website on workbench. It’s called the market realized gradient, which it basically compares the performance of market cap versus the realized cap over like a 14 or 28 day period, right. So effectively, whenever realized cap has outperformed the market cap over 14 or 28 days, it’s a good time to get bearish because it’s telling you, the cost basis of holders has gone up more than the price has, right. So it’s starts to tell you things are getting a little top heavy, but other things you can look at, like for example on the XRP breakout at the top of the range, open interest on BTC and eath rip through the roof. Right so it’s a very purpose driven move. It wasn’t very

14:39

It wasn’t insanely spot driven by the looks of it. And then you can just like look at funding rates, like you can look at the average funding rate across multiple assets and see like alright, well, people are just really adding risk here as well.

14:50

So, you know, those are different ways you can like skin the cat, so to speak. Do you ever have, like, Oh, I’m gonna buy the 50 day break

15:00

Out of the, you know, by the retest of the 20 day moving average, do you not really look at like, technical indicators like that? Are you more just an on chain and kind of funding rates type strategies? No, I actually do like, like technicals. You know, back in the day, when you first get into crypto, it’s like, the only thing you know about like, I feel like, I got into space in 2016. And I remember the only thing people would talk about is Ta Kigoma. Q magazine was like very few data providers, right, like purps didn’t exist.

15:28

You know, the Glassnote didn’t exist. Point metrics, I don’t think came out to like late 2016 2017. So there wasn’t really any other way to look at stuff. So back then, it was actually relatively easy space, because there’s no other tools at your disposal. But yeah, I do, like,

15:43

technical analysis. And I think it’s useful to see like, you know, people respect horizontal levels, right, like, we’ve seen that in this range that’s been going on the top and bottom of the range has been horizontal.

15:53

So it’s a good way to just add another piece of confluence, and then, you know, depending on which metrics you prefer, you can weight them accordingly. Yeah, yeah. Yeah, I guess, open up the floor, this one will go for anybody. But I guess the question I get a lot is like, how do you know, in a sea of 25,000 different cryptocurrencies, like shit? How do you know which one is worth buying? Is there a fundamental analysis that you should do? Is it all just looking at liquidity? And like you said, all these indicators? Or is there actually a level of fundamental analysis that goes into the selection?

16:29

Yeah.

16:31

You guys, I mean, I can jump in with a quick stab at that. I mean, I think it’s almost it’s like an extension of the last question you guys were talking about. But, you know, to me, it largely comes down to this, you know, blend of like fundamental factors and narrative factors. Right. So you know, so like, there are, you know, profitability factors, token value accrual factors, you know, supply release schedule factors, like they’re actually fundamental data points that are really helpful and understanding like, what direction the price is gonna go in. But there’s also narrative points, you know, where like, there have been a lot of scenarios where, like, fundamentally things make sense, but like narrative, Lee, you know, there, there are things that that may be going against it. And so it takes time, I think the biggest beauty of things is actually when you get an alignment of these, like fundamental and narrative driven things, especially when those things sort of crossed against multiple protocols and chains. So like one example that I’ll sort of specify as sort of this, like, growth of RW a and what that means, right, so when we started, you know, 14, OSI back in 2020, RDA was not a thing, right? This is like not an industry, this is like not a growing trend at the time, that was definitely something that was, you know, for all intensive purposes a bit early. I mean, even in 2018, there was an original push for RW eight, which is way too early, even if like, fundamentally, you know, some of it makes sense. What we’re seeing today is Rw is hyper scaling, right, we’re seeing demand on chain from different protocols, we’re seeing, you know, all these large public institutions from Bank of America city to, you know, literally alliancebernstein I mean, BCG, everyone that are putting out, you know, legitimate projections of, you know, the total market opportunity of these things, you know, like 16 trillion, you know, by 2030, we’re doing a significant, you know, projection from the markets today. And it doesn’t come into account a lot of, you know, sort of the integrations with permissionless networks that we’re seeing, and that we’re enabling through Fortuna phi. So I think this number can be significantly larger. So the beauty here of bringing this together, is that fundamentally, right, our view is makes a lot of sense. narratively, they now make a lot of sense. And what we’re seeing is that these things are now getting integrated across different layer ones and layer twos and different defy protocols. Right. So why has maker been doing pretty well? Well, they, you know, turn profitable, they have a buyback mechanism, which is, you know, taking 15 million and buying back maker dye LPs, which, you know, is a pretty sizable supply chunk, as that continues to grow, which will have a positive impact on price. And I’m assuming, I think that’s a fair assumption.

19:10

You know, and you know, compound has seen some pretty big success there, right? We’ve seen Lesnar spin out and spin up a, you know, money market fund, that will be open to on chain investors, supposedly, and so I think there is like, an expectation that this will be integrated into compound, you know, we’ve seen Ave integrating real world assets with centrifuge. And so both of those are doing really well, you know, we have our acids from fortify on both centrifuge and out here today and maker as well, actually. So this integration of things is sort of like getting an empowerment across the defy layer one protocols, which we’re now seeing that sort of translate into price action for those. So that’s just you know, an example that I’ll point out of stars aligning in a pretty supreme way which have not been priced in, in my opinion to the markets yet.

19:57

Yeah, that’s incredible. And it’s funny because as your

20:00

Talking about RW A’s I was thinking, oh, yeah, I’m gonna ask him like, you know, what are some good protocols that are crushing it, and then bam, you followed it up right there with, you know, the Ave is the makers, the compounds of the world. To me, it really feels like a renaissance, or rebirth of, you know, eath, d phi, the OG synthetics is getting new front ends and fixing up all their crummy user interface and all that kind of stuff. So, yeah, now, we’re going into maybe the age of, you know, more usability and just better apps and stuff. But I think for people at home who are watching this, they might be curious, like, hey, like, you know, are Who is it sounds good in theory. And I, you know, maybe people have credit cards that work wherever they want, and they have, you know, the ability to get mortgages and loans and small business, you know, help and stuff. And so they might not see the outset, but people in like, you know, the developing world, like need access to a lot of these technologies that all you need to get loan is, you know, your, your wallet address, you don’t need certain levels of, you know, identification or credit checks and all that stuff that, you know, developing world can’t really do. So I think the technology is, you know, on the long tail going to be super, super beneficial to help in like, just GDP across the world. But is there a way? And this might sound short minded, but I know a lot of people are thinking it, is there a way to make money in the short term by using these protocols? Like RP like I know, there was yield farming and liquidity mining and everybody was making buku bucks. Is there a new way to do that with RW there was yield farming? So here’s what happened, right? Like there was yield farming, what happened? Well, like what happened is that like a majority of the underlying yields associated with these yield farms were like highly inflationary base yields, right. And so as the market collapse, those yields collapse, because the underlying inflation is worth less effectively. And so you get this diluted selling sort of cycle, which like crashes these yields. One of the beauties of RW a REIT is that by introducing a high quality base yield to these protocols, I call it the politicalization of RW a REIT, you now have an actual, you know, what we before used to look at for high quality protocols like, you know, revenue, profitability, how can they drive values, their token, you know, now, by introducing our viewers to these protocols, there is a real underlying underlying source of yield, which means there’s a lot more users that come to the platform to get there get attracted to it. And then that sort of compounds into a lot of other things, right. So this politicalization of RGBA means that like, with an underlying high quality yield, you can have different, you know, incentives on top of that, which get to a much higher yield, but you still have this high quality base underlying yield, which, you know, maybe back in the day was like profitability of a protocol, you know, these days, it could be profitability, plus RW A plus incentives. And so you have a much more legitimate stack of yields, if you will, that is, you know, what I think is sort of creating a renaissance here for DD fi 1.0. At least, ya know, I’m excited about it.

22:59

Now know what, you know, Kevin, maybe I’ll go to you real quick. In terms of just like the landscape for investor appetite, are you guys fielding a lot of calls inbound, are people scared, trying to, you know, maybe even, you know, withdraw their money from the fund or like, what’s, you know, the overall sentiment of investors that you’ve kind of been able to interact with in the past couple of months, at least?

23:21

Yeah, I mean, obviously, 2022 is tougher fundraising, you know, people were taking a hit, weren’t really looking to deploy, with the market kind of in shambles. From what we’ve seen recently, you know, a lot of investors are looking for a more stable kind of yield fund. So that’s kind of what we adapted to, you know, because investors, if they’re, if they’re looking for volatility, if they’re looking for exposure to the market, you know, they can always just buy Bitcoin or eath on their own.

23:52

Some things that they can’t do, you know, is participate in certain reward asset pools, for example, or different defi protocols. So that’s what we’re kind of trying to cater to right now. Delivering, you know, a low risk, base yield, uncorrelated to the market, and just delivering positive returns month over month. Yeah. And is, you know, I’m curious, like, how does a high government interest rate or a high like, you know,

24:22

benchmark, I guess, how does that affect

24:26

a credit fund or something that might be structured like that, because, or market neutral fund, because it’s so easy to get, you know, 4% yield from a government bond. If you go out the risk curve, I guess it makes it a lot harder to get a higher yield than that. And you take on a lot extra risk. Maybe

24:44

you guys find any difficulties, like in a rising rate environment for strategies like that?

24:52

Yeah, I mean, it’s a fair point and we have seen a lot of funds, you know, just electing the whole treasury and get that four or 5% base yield.

25:00

But you know, when it comes down to it, we’re still going to outperform that pretty, pretty massively.

25:06

And I’ll maybe Nick take take it from there on the industry front.

25:11

Yeah, I mean, I just think that right, if your base like risk rate of return obviously is increasing, because, you know, you can get treasuries, right like, you know, what do tokenized treasuries on chain enable, for example, right, we, you know, at 14 Nephi, just recently announced that we’re launching tokenized treasuries on Kanto. And Kanto has a whole stable coin market and money market, they have, you know, several different defy sort of applications there. And, and this sort of same concept exists, you know, across sort of the crypto sector, right. And so being able to take a treasury, for example, and borrow a yielding stable coin against that and create a low leverage.

25:51

But still hotline, Treasury, you know, you can get to like a double digit yield, with the same underlying risk, simply by, you know, managing sort of the on chain risks associated with accessing these things, which we’ve set up a good infrastructure to do here at the fund. And so we’ve been able to significantly outperform, I mean, it’s not just our to view a strategies, either, right, there are different cross chain emerging defy protocols that have really unique opportunities that, you know, I think a lot of the folks in the market just are not aware of, but we do a lot on the venture side as well, which, you know, has given us access to insights to a lot of these different early stage, emerging defy protocol yields. Obviously, we do a lot of research as well in the market to find alpha. But we found a lot of great opportunities, allocating stable coins, in some cases spot that will hedge as well to these protocols. And, you know, doing some cross protocol operations, some, you know, within protocol optimizations of these yields, to achieve, you know, much higher double digit yields than for example, holding treasuries with the idea of, you know, capturing alpha in crypto, but managing that downside risk as well, and offering investors sort of an alternative place to park capital. So that’s, you know, what Kevin was mentioning, like one of the newer strategies we actually just launched, which, you know, we have been, in fact able to raise capital from a couple of funding funds this year in terms of bringing them into that that vehicle. So, you know, it’s not been easy broadly to raise capital. You know, but but we’ve seen demand there. Awesome. Jordan, let me pick your brain real quick on just some tools that you use to analyze the market. I know you guys have a lot of paid premium tools, probably. But are there any that are maybe also free to use or have some lower level options that you know, all the good citizens of crip nation who are watching could go check out on their own?

27:38

I’ll be honest, so most of what I do is I operate out of API’s. So I use like the binance API, the Darebin API, the bybit API, you build everything yourself. Yeah, we build everything internally. And we have our own internal website, just hosting all these different metrics. It’s probably I don’t know, it’s like 20 tabs now or something like that. So we that we use defi llama. So all this stuff is free. And one thing I think that people don’t realize, especially if you’re like, pretty comfortable with, with XML, right, is that you can pick up Python coding to pull from these API’s, like pretty seamlessly. It’s not that difficult.

28:12

I know, that’s like a pretty lame answer that I think a lot of people probably don’t want to hear. But very good answer. Yeah. Well, a lot of don’t trust any other data. We do it all on ourselves. Just yeah. Well, you get more, you get more like customized stuff, right? Because it’s like the same thing. Like let’s say you buy a book and you buy like,

28:29

I don’t Hopefully, nobody gets mad at me for saying this. So many like how to make friends and what’s How to Win Friends and Influence People or something like that. Like, if everybody reads that book, you’re not getting a ton of alpha by being one of like a billion people that has read that book. Right? Right. So what’s nice about building out being able to pull the raw data directly from the source. And keep in mind all these exchanges, at a minimum, provide their API data for free, so that you can make some really custom stuff and get some really unique looks at the market.

28:54

But like, you know, honestly, like if you really want to keep it simple, you know, I like Glassnote a lot I used to I’m a little bit biased. I work there for a bit. But you know, Gladstone’s got a decent set of data for relatively affordable prices.

29:07

But in other words, you know, defi llama is something that we’re pretty fond of, as well, you know, they have a pretty robust data set. And I think if I’m not mistaken, we played around with it recently. I haven’t really, I haven’t dove in deep as much as I have, as I should have into the AI stuff. But I know they’ve got AI, open AI plugged in, if I’m not mistaken.

29:25

So that is probably the best if you want to do it. The best way in my opinion, is to just start pulling from the API’s and get the data raw yourself and start playing with it.

29:34

But yeah, yeah, very, I guess very nerdy hedge fund the answer. No. Hey, it makes sense. DIY. Do it yourself. Yeah, I think that’s, that’s the best. Yes. So we’ve covered a lot. There’s a lot a lot of different ways to look at the market right now. I think we could all kind of agree, you know, in the near term, definitely bullish. You know, maybe some slight room for breathing in the market.

30:01

But long term I mean especially when you consider just the the golden age period we’re moving into with with Blackrock right and all this you know, great stuff hopefully we don’t get shut down or else the markets gonna nuke on that filing, but we’ll see. But the Bitcoin having that’s the last thing I wanted to touch on Mali still have you guys because you know, every four years this thing happens in about you know 15 or 18 months after the halving happens, you’re like, you know, at the top of the market, everybody’s losing their minds. And so that’s just about, you know, the halving, I think is nine months away.

30:36

Did you guys have any general thoughts on on what’s what’s going on with the having? Or can you inform anybody about your guys’s view of how this moves the market?

30:49

Um, well, I think one thing that’s to be said about the having is that, you know, with each having, I think, you know, obviously, less and less coins are hitting the market for miners and I think the mining market, I think, keep in mind, I’m not an expert coin miners. Yeah, Bitcoin miners. Yeah, the Bitcoin mining market is not is much more efficient than it used to be right? You have all these different ways hedge exposure, the options market has exploded in terms of people using it. Now, I know, Dara bit, the open interest has almost surpassed like binance Total open interest for Bitcoin, or maybe it already has. So there’s all different all these different ways for miners to hedge out their exposure. So

31:23

I assume that,

31:26

that it doesn’t have as much of an impact as it has historically, just because there’s all these different ways to manage the risk reminders. And it’s not as much of a dumb market anymore in terms of like the miners, you know, they this does tend to happen. But like, if you look at historical data, for example, you know, the easiest way to check that if miners are getting squeezed or not, is how fast block times are coming in, right? The block times get really slow miners are getting squeezed really bad. And one thing that we’ve seen over time, outside of that large China ban that happened right after the Coinbase IPO when the market nuked Yeah, like 21. Yeah, yeah, you’ll notice though, if you like track block times, and you put like some sort of smooth moving average on it, the spikes don’t get as crazy anymore. And that I think is a testament to the fact that the market has just become substantially more efficient in that regard. Obviously, empirically, I don’t really have like the internal data from these miners to prove that.

32:17

But just from like, looking from a bird’s eye view. So that’s kind of my expectation. And I think we’re perfectly lined up for just another go have another bull run right around to having,

32:27

you know, just even expanding further outwards. But yeah, that’s kind of those are my thoughts on it. I’ll just add a couple, like, slightly bullish leaning thoughts on top of that, since that was a more at risk, risk managed perspective there, I would say,

32:44

answer what I’m about to give?

32:47

I would, I would say that like, I mean, if you keep it simple, right, this is all about supply and demand, like historically, and every other cycle we’ve ever been, we’re coming into a have any like, that was the one thing that got us out of the bear market. Right, it was the havening that was gonna get us out of the bear market. And like every bear market, like it was, you know, could have been the last one like until now. Right? So I think this supply and demand, you know, dynamics have shifted significantly where like the play, obviously, it’s just obviously continue to get more and more in favor, right. So we have a happening that supply. But, you know, demand, I think, has never had like a real chance of like hyper growing the way that it does going into this next cycle with these institutions taking a look at these ETF products coming out. I mean, like what GBTC did. And obviously, it is a little different than GBTC. But like in effect, these legitimately larger institutions that are going to offer this and now effectively create a global sales force to shill that coin and likely eath. You know, after that is, is, I think, like an unheard of growth and demand that like we haven’t seen going into previous happenings. So, you know, it wouldn’t surprise me if this one surprised us a little bit more than the other ones. Let’s go I love that one. surprise me if we’re all surprised.

34:08

I love it. That’s that’s the Bitcoin mantra.

34:12

So Kevin, let me wrap things up with you, man. How do people get involved with space whale capital? If they’re out there? Maybe they’re watching. They’re impressed by you guys. They want to learn more about either following you guys or maybe investing with you guys. Is that even possible?

34:27

Yeah, sure. I mean, they can check out our website, space, whale dot capital. Kind of see some of our select portfolio companies. Learn a little bit more about what we’re doing over there. Learn a little bit more about the team. And you can just contact us through there. Incredible. Sounds good. Well, boys, thank you for joining us here at the crypto hedge fund Summit. We’ll have you back next year. And take care yourself.

34:51

Thanks Bryce. Awesome. Thanks, Bryce. Thank you

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In this episode of Crypto 101 we have the team from Space Whale Capital led by CEO Nick Garcia. This Space Whale Capital is a sample of our Crypto Hedge Fund Summit which we hosted last week for FREE so keep a look out this fall for our next summit. But we wanted to share this interview because Space Whale is a leader in the hedge fund space who has successfully navigated the waters of the bear market and made it to the other side. We breakdown how they operated in the bear and what their outlook is as we all look towards greener pastures in the crypto markets

— TRANSCRIPT —

SPEAKERS

Bryce Paul

Bryce Paul 00:02

All right, everybody. Welcome back to the crypto hedge funds Summit. It’s been an awesome one. So far, we’ve had a ton of awesome insights from asset allocators and managers, exchanges. And now we’re going to take a look with a team over here at a real

00:20

just really intense crypto hedge fund. These guys are born and bred in the crypto markets. We you know, we’ve talked to guys in the traditional hedge fund world, but these guys are crypto in their veins through and through, that’s all they focus on. Defy real world assets has been a big theme we’ve been talking about and these guys are going to be able to speak to this is space, whale capital. And I’m joined by three gentlemen from space whale. I’ll introduce them each here in just a moment. First up, we’ve got Nick Garcia, who is really heading up the fund as their general partner and CIO. So Nick, thanks for joining us at the hedge fund Summit. How’s it going? Thanks, Bryce. Nice to be here. Thanks for having us, man. You bet. We got Kevin Kolb, who’s who’s really running the operations over there everything that maybe isn’t going on in the front of the house, but going on the back of the house, Kevin, make sure it gets done. So, Kevin, reporting for duty. How are you doing, sir?

01:15

are doing Bryce, thanks for having us on again. Man. It was nice meeting in Austin, by the way. Yeah, that was a ton of fun. I love always, you know, we do the podcast virtually. And you can always meet people but getting out having a drink together, shooting the shit, nothing better than that. And we got one of the newer members here. spacefill capital, Jordan, who is an analyst and a researcher. Jordan, how are you doing my friend? I’m doing good. Do good. Thanks. Thanks for having us back. And good to be here. Ya know, I just want to get get your guys’s pulse here. You guys. Are Are we on the other side of the bear market? Did you guys navigate the ship? I mean, there was countless hedge funds that blew up, there was countless exchanges that blew up. Now here we are July of 2023. Are we firmly on the other side of the bear market? Nick, why don’t we start with you? Yeah, I mean, look, I think, you know, looking back at what happened over the last 12 plus months, it’s it’s incredible to look at, like what the actions of few have done in terms of repercussions across the entire ecosystem? You know, in my in my opinion, I think we have past the worst of it, for sure. I think on a price basis, you know, we’ve definitely bottomed? Well, definitely is a difficult term to say. But so I feel highly confident that we spot something new here.

02:32

You know, I am certainly on on the positive side that we’ve, you know, past the bottom there. And I think on the narrative side, you know, there’s a certain aspect to like, honestly, how much worse can it get the SEC has come after, like pretty much every major player across the space, and now really not looking so great for it. So I think, from a narrative perspective, from a price perspective, I think we’ve passed the bottom, you know, I don’t think it’s going to be straight up only from here, obviously, although we’d love that, I think, you know, it will have its trials and tribulations. But you know, on a long term timeframe basis, I think we are past the bottom and headed towards sort of the new motherland here, which, you know, hopefully, I think over the next sort of 12 to 24 months should play out pretty strongly. And, Nick, just to follow back up on one point, you know, like now that we kind of are shifting the market environment, if you will, from really just kind of a dreadful

03:24

bear market to kind of this transition. How do you, you know, how were you thinking about managing risk during that period? How are you trying to, you know, create the best returns during that down market? And then kind of how does that shift as we turn back up into what looks to be more of an upward trending market? Yeah, I mean, I think, you know, unlike most funds, we truly, you know, do a majority of our strategies on chain, our allocations on chain. And so, you know, we really avoided a lot of the headaches that happened last year, in terms of some of these, like centralized blow ups that happened, you know, we never did, you know, lending on on a centralized basis, all that stuff we really did on chain. So, we were able to sort of navigate that pretty well, all in all, you know, it wasn’t easy for everyone, but I think compared to most, I think we were able to navigate that variable, primarily because we do a lot of things on chain. But also because we, you know, as it was pretty clear that the topics sort of passed, then sort of things were starting to crumble, we, you know, took a majority of our portfolio over to stables and concentrated those across, you know, non directional yields Delta neutral yields, both in defi. And particularly in real world assets. It’s something we’ve really scaled into heavily at that time. So we’re able to avoid a lot of the volatility on the price action side and a lot of sort of the blow ups on the on the custodial and sort of centralized lending side of things. Which honestly, risk management and that perspective really helped us outperform on the downside and on that so, you know, looking back, I think we’ll see a lot more of that going forward. I think we’ll see a lot more of these products available.

05:00

On chain, I think we’ll see a lot more of these products available on a noncustodial basis. You know, as people are legitimately traumatized from what happened, I mean, even though we did a lot of things on chain, it’s not like we expected every single thing to happen that did. I mean, there was some things that were a bit more obvious than others, but you know it. I do think it legitimately traumatized people. And through the bear market, we’ve seen a lot of developments on, you know, products, option products, noncustodial exchanges coming out and sort of different solutions that that, you know, will hopefully solve some of these issues that we saw. Yeah, no, it was it was kind of incredible to watch. I mean, as I mean, incredible, like, horrifyingly incredible to watch as these things were unwinding. You know, a lot of these people got stuck with a bunch of bad debt right now. There’s bankruptcies being filed, and people who thought that, you know, they were lending money to somebody who was good for it. Now, it’s, you know, it’s all a Fugazi. But guess what, all the center, the decentralized lenders, like maker and Ave like, you know, they all kept working. You know, they were actually the senior tranche of, of creditors, they were getting paid back first. And I thought that that was really, you know, a cool, dynamic to watch unfold in real time as like, you know, people were paying back their defy protocols before really their centralized, you know, counterparties, if you will, and why do you think that is? Like, I don’t know, if you guys have a thought of why that actually was occurring? Did they fear actually the total loss of their collateral? And, you know, versus like, maybe that, you know, in the meat space, they’ll be able to like, kind of, you know, work it out? Or what do you think the was really driving those decisions?

06:42

I mean, I can do to take a quick stab, and you know, guys feel free to jump in. But I think, you know, the short answer of it is that like most of these things on chain are all done and over collateralized basis, right, the protocols don’t really care who you are, they care that they have enough collateral, they can liquidate, you doesn’t matter what you choose to do, right. So naturally, like, creditors aren’t incentivized, you know, those that are specifically acting in the best interest of their clients to get the most value out of the liquidation as possible. And so naturally, you’re trying to get these over collateralized loans paid back first, because that means more money that you have on hand to optimize sort of the credit liquidation process. Yeah, makes makes a ton of sense. And kind of going back to one of the earlier things you were mentioning, you know, things are looking up. You know, we’ve got a new kind of narrative that’s going on, like we’ve got some of the bad guys behind us. We’ve cleaned up the act. And it feels like to me again, we’re here at the end of July, things like the crypto market just got spanked with a bunch of good news, like we had the Bitcoin ETF that, you know, 10, you know, institutions just tried to roll out. A few of them are like trillion dollar institutions, BlackRock, fidelity Invesco, we have what else the, you know, the Bitcoin halving coming up, we had XRP, come out with all this bullish news. So, Jordan, let me let me get your money. Pick your mind real quick. What what are we seeing just in terms of, you know, market? News? And does it actually match? What’s going on with kind of the flows are people, you know, are people buying this sort of good news? And do you think that there might be higher prices towards the end of this year? Well, there was like a weird little mismatch recently with the XRP news, right? Like, we got the great news flow come out. And then Bitcoin could even break the range of, between 29k to like 31k. And a lot of people, that was like a little bit confusing. But one thing that’s been going on across the board in the crypto markets is that if you look at like the, the cross section of assets across the space, most coins are up pretty big over the past, like 30 days. So there’s like a decent amount of profits to be taken off the table. And generally speaking, when here’s like, an example of like, a data point that like we look at internally, is if you look at like binance, perps and 90, whenever there’s 90% of coins that are in profit over the past 30 days, it’s generally not a great time to add risk. So before the XRP, news came out, a lot of coins that were like gear that 90% Like marker. So, you know, for us, if you want to talk about ways we manage risk as well, internally, we’re like, you know, maybe we’re wrong, right? Maybe the data point is wrong, and like this news flow just breaks through the data point. But you know, internally we had a discussion does this make a ton of sense to add it rained highs up here for Bitcoin? And then you know, we had the reversion and just back to more chop?

09:25

I generally think, you know, to Nick’s point that I think the the lows are in, if you look at historical context, like for example, the realized cap, which is the cost basis of Bitcoin holders, for example, usually once Bitcoin breaks above it, it rarely revisits the realized price once it breaks above it convincingly at least right? So you usually don’t even get a revisit of that once you break above the realized price.

09:48

And, you know, you see you saw these pickup on chain, some of that had to do with the ordinals action that was going on, it’s kind of ticked down a little bit recently, but generally speaking, I’m I’m pretty high conviction.

10:00

We won’t revisit the lows. And I think, you know, that’s not even a country like not it’s not even to country and at this point. And, you know, the other point that I think I brought up on the last time we jumped on was the cost of borrow, which if you look at the purpose market, the funding rate, generally, if you look at if you look at funding rates, and you know how to parse through the data, you pay, there are no free rides in crypto you pay if you’re bullish funding rates go up, right. And in bear markets, it’s more expensive to short. And what we’ve seen is a consistent like move upwards in funding rates since like the beginning of this year, too. So I think and the general outlook, it’s kind of just like, you know, keep your head on a swivel but don’t get like too bearish and you know, look at like deep you know, drops in prices opportunities to just accumulate more but not to like you know, not blow up in the meantime right? So that way you know, when the bull comes around Bitcoin breaks all time highs everyone goes Max risk on your barbers cutting your hair, it’s on you, he made like a 10x on like Cardano or something like that, you know, you’re you’re ready to go and you have like some some, you know, cash to deploy and you know, bullets still left in the, in the holster. It’s such a funny thing that you mentioned the barber, literally, like if I would have taken a signal like that. In May of 2021. I was checking out of a hotel in Vegas, and my bellhop gets to the door and he recognizes me. He’s like, Hey, dude, your brace I listen to your podcast, I follow you on YouTube. And I was like, Oh my gosh, he’s like, let’s get a picture. Like you’re changing my life. Like I’m getting the house in the Ozarks. Like, all this crazy shit. I’m like, wow, that was so surreal. Like crypto is going mainstream. Like, that was literally like the top right before Luna collapsed. And I was like, man, if so everybody who’s watching if you guys take signals like that, in your life, use them. Right. They’re really strong indicators of sentiment in the market. And clearly things were overblown. But then on the flip side, you know, I’ll get people in the bear markets that happens every time who were like, Oh, I know, Bryce of the crypto guy. Let’s check on in him. You know, I got so many texts and FTX collapse, people always kind of morbid curiosity looking over, seeing if you blew up yet or anything like that. And so that was a great time to be a buyer, right? I mean, that’s right towards the bottom of the market. And so when, you know, always use those indicators, and I’m sure you guys have those people in your life, you know, when when mom texts you is everything, okay, with crypto or whatever, you know, that’s a good time to be buying. But is there is there any other indicators that you guys look at? or indications of, you know, how do you know when it’s a good time to be buying? Right? And like you said, like, you knew? Because, you know, certain things were overblown towards the high of the range, you couldn’t break out convincingly, you knew it wasn’t a good time to add risk. But do you guys look at anything else to say, hey, now’s a good time to go risk on.

12:41

Um, I would generally say like, it’s a combination of metrics, right? Like, generally speaking, like the best time to buy or when

12:49

multiple metrics like like three to five or six metrics, they all line up, and it’s like, alright, price has been price has been clobbered. But there’s a sign of a trend shift, basically. And that’s kind of like the stuff that we look for. When we get like very high conviction. That’s when we like to make our bigger bets. Generally speaking, though, when things kind of get towards the middle, like the middle in terms of conviction of like bullishness or at the top, or like, obviously, just like outright bears, or whatever, that’s like, when we kind of want to like, we tone down the level of exposure we’d like to have in the market, at least for the discretionary part of the book.

13:22

But we do, I’m trying to think of any other metrics that we have that we use.

13:28

I was gonna say one of the things that I just picked up on there that sounded you know, worth repeating is that like, whenever you might have a set of indicators that you’re looking at, look for confluence, right look for, like, hey, three, four, or five of them are all pointing in the same direction. And it’s just starting, like, you know, starting to rip above the 50, or whatever it is, and they’re all kind of starting to move in the same direction. And then you could kind of use that as a little bit of a confluence, as opposed to just looking at one indicator where you might just get faked out a little bit. Yeah, you could, like look at like, for example, let’s just list them off, right? Like some on chain data, something like the realized price, or you can want one thing we like to look at a lot is it’s on the glass net website on workbench. It’s called the market realized gradient, which it basically compares the performance of market cap versus the realized cap over like a 14 or 28 day period, right. So effectively, whenever realized cap has outperformed the market cap over 14 or 28 days, it’s a good time to get bearish because it’s telling you, the cost basis of holders has gone up more than the price has, right. So it’s starts to tell you things are getting a little top heavy, but other things you can look at, like for example on the XRP breakout at the top of the range, open interest on BTC and eath rip through the roof. Right so it’s a very purpose driven move. It wasn’t very

14:39

It wasn’t insanely spot driven by the looks of it. And then you can just like look at funding rates, like you can look at the average funding rate across multiple assets and see like alright, well, people are just really adding risk here as well.

14:50

So, you know, those are different ways you can like skin the cat, so to speak. Do you ever have, like, Oh, I’m gonna buy the 50 day break

15:00

Out of the, you know, by the retest of the 20 day moving average, do you not really look at like, technical indicators like that? Are you more just an on chain and kind of funding rates type strategies? No, I actually do like, like technicals. You know, back in the day, when you first get into crypto, it’s like, the only thing you know about like, I feel like, I got into space in 2016. And I remember the only thing people would talk about is Ta Kigoma. Q magazine was like very few data providers, right, like purps didn’t exist.

15:28

You know, the Glassnote didn’t exist. Point metrics, I don’t think came out to like late 2016 2017. So there wasn’t really any other way to look at stuff. So back then, it was actually relatively easy space, because there’s no other tools at your disposal. But yeah, I do, like,

15:43

technical analysis. And I think it’s useful to see like, you know, people respect horizontal levels, right, like, we’ve seen that in this range that’s been going on the top and bottom of the range has been horizontal.

15:53

So it’s a good way to just add another piece of confluence, and then, you know, depending on which metrics you prefer, you can weight them accordingly. Yeah, yeah. Yeah, I guess, open up the floor, this one will go for anybody. But I guess the question I get a lot is like, how do you know, in a sea of 25,000 different cryptocurrencies, like shit? How do you know which one is worth buying? Is there a fundamental analysis that you should do? Is it all just looking at liquidity? And like you said, all these indicators? Or is there actually a level of fundamental analysis that goes into the selection?

16:29

Yeah.

16:31

You guys, I mean, I can jump in with a quick stab at that. I mean, I think it’s almost it’s like an extension of the last question you guys were talking about. But, you know, to me, it largely comes down to this, you know, blend of like fundamental factors and narrative factors. Right. So you know, so like, there are, you know, profitability factors, token value accrual factors, you know, supply release schedule factors, like they’re actually fundamental data points that are really helpful and understanding like, what direction the price is gonna go in. But there’s also narrative points, you know, where like, there have been a lot of scenarios where, like, fundamentally things make sense, but like narrative, Lee, you know, there, there are things that that may be going against it. And so it takes time, I think the biggest beauty of things is actually when you get an alignment of these, like fundamental and narrative driven things, especially when those things sort of crossed against multiple protocols and chains. So like one example that I’ll sort of specify as sort of this, like, growth of RW a and what that means, right, so when we started, you know, 14, OSI back in 2020, RDA was not a thing, right? This is like not an industry, this is like not a growing trend at the time, that was definitely something that was, you know, for all intensive purposes a bit early. I mean, even in 2018, there was an original push for RW eight, which is way too early, even if like, fundamentally, you know, some of it makes sense. What we’re seeing today is Rw is hyper scaling, right, we’re seeing demand on chain from different protocols, we’re seeing, you know, all these large public institutions from Bank of America city to, you know, literally alliancebernstein I mean, BCG, everyone that are putting out, you know, legitimate projections of, you know, the total market opportunity of these things, you know, like 16 trillion, you know, by 2030, we’re doing a significant, you know, projection from the markets today. And it doesn’t come into account a lot of, you know, sort of the integrations with permissionless networks that we’re seeing, and that we’re enabling through Fortuna phi. So I think this number can be significantly larger. So the beauty here of bringing this together, is that fundamentally, right, our view is makes a lot of sense. narratively, they now make a lot of sense. And what we’re seeing is that these things are now getting integrated across different layer ones and layer twos and different defy protocols. Right. So why has maker been doing pretty well? Well, they, you know, turn profitable, they have a buyback mechanism, which is, you know, taking 15 million and buying back maker dye LPs, which, you know, is a pretty sizable supply chunk, as that continues to grow, which will have a positive impact on price. And I’m assuming, I think that’s a fair assumption.

19:10

You know, and you know, compound has seen some pretty big success there, right? We’ve seen Lesnar spin out and spin up a, you know, money market fund, that will be open to on chain investors, supposedly, and so I think there is like, an expectation that this will be integrated into compound, you know, we’ve seen Ave integrating real world assets with centrifuge. And so both of those are doing really well, you know, we have our acids from fortify on both centrifuge and out here today and maker as well, actually. So this integration of things is sort of like getting an empowerment across the defy layer one protocols, which we’re now seeing that sort of translate into price action for those. So that’s just you know, an example that I’ll point out of stars aligning in a pretty supreme way which have not been priced in, in my opinion to the markets yet.

19:57

Yeah, that’s incredible. And it’s funny because as your

20:00

Talking about RW A’s I was thinking, oh, yeah, I’m gonna ask him like, you know, what are some good protocols that are crushing it, and then bam, you followed it up right there with, you know, the Ave is the makers, the compounds of the world. To me, it really feels like a renaissance, or rebirth of, you know, eath, d phi, the OG synthetics is getting new front ends and fixing up all their crummy user interface and all that kind of stuff. So, yeah, now, we’re going into maybe the age of, you know, more usability and just better apps and stuff. But I think for people at home who are watching this, they might be curious, like, hey, like, you know, are Who is it sounds good in theory. And I, you know, maybe people have credit cards that work wherever they want, and they have, you know, the ability to get mortgages and loans and small business, you know, help and stuff. And so they might not see the outset, but people in like, you know, the developing world, like need access to a lot of these technologies that all you need to get loan is, you know, your, your wallet address, you don’t need certain levels of, you know, identification or credit checks and all that stuff that, you know, developing world can’t really do. So I think the technology is, you know, on the long tail going to be super, super beneficial to help in like, just GDP across the world. But is there a way? And this might sound short minded, but I know a lot of people are thinking it, is there a way to make money in the short term by using these protocols? Like RP like I know, there was yield farming and liquidity mining and everybody was making buku bucks. Is there a new way to do that with RW there was yield farming? So here’s what happened, right? Like there was yield farming, what happened? Well, like what happened is that like a majority of the underlying yields associated with these yield farms were like highly inflationary base yields, right. And so as the market collapse, those yields collapse, because the underlying inflation is worth less effectively. And so you get this diluted selling sort of cycle, which like crashes these yields. One of the beauties of RW a REIT is that by introducing a high quality base yield to these protocols, I call it the politicalization of RW a REIT, you now have an actual, you know, what we before used to look at for high quality protocols like, you know, revenue, profitability, how can they drive values, their token, you know, now, by introducing our viewers to these protocols, there is a real underlying underlying source of yield, which means there’s a lot more users that come to the platform to get there get attracted to it. And then that sort of compounds into a lot of other things, right. So this politicalization of RGBA means that like, with an underlying high quality yield, you can have different, you know, incentives on top of that, which get to a much higher yield, but you still have this high quality base underlying yield, which, you know, maybe back in the day was like profitability of a protocol, you know, these days, it could be profitability, plus RW A plus incentives. And so you have a much more legitimate stack of yields, if you will, that is, you know, what I think is sort of creating a renaissance here for DD fi 1.0. At least, ya know, I’m excited about it.

22:59

Now know what, you know, Kevin, maybe I’ll go to you real quick. In terms of just like the landscape for investor appetite, are you guys fielding a lot of calls inbound, are people scared, trying to, you know, maybe even, you know, withdraw their money from the fund or like, what’s, you know, the overall sentiment of investors that you’ve kind of been able to interact with in the past couple of months, at least?

23:21

Yeah, I mean, obviously, 2022 is tougher fundraising, you know, people were taking a hit, weren’t really looking to deploy, with the market kind of in shambles. From what we’ve seen recently, you know, a lot of investors are looking for a more stable kind of yield fund. So that’s kind of what we adapted to, you know, because investors, if they’re, if they’re looking for volatility, if they’re looking for exposure to the market, you know, they can always just buy Bitcoin or eath on their own.

23:52

Some things that they can’t do, you know, is participate in certain reward asset pools, for example, or different defi protocols. So that’s what we’re kind of trying to cater to right now. Delivering, you know, a low risk, base yield, uncorrelated to the market, and just delivering positive returns month over month. Yeah. And is, you know, I’m curious, like, how does a high government interest rate or a high like, you know,

24:22

benchmark, I guess, how does that affect

24:26

a credit fund or something that might be structured like that, because, or market neutral fund, because it’s so easy to get, you know, 4% yield from a government bond. If you go out the risk curve, I guess it makes it a lot harder to get a higher yield than that. And you take on a lot extra risk. Maybe

24:44

you guys find any difficulties, like in a rising rate environment for strategies like that?

24:52

Yeah, I mean, it’s a fair point and we have seen a lot of funds, you know, just electing the whole treasury and get that four or 5% base yield.

25:00

But you know, when it comes down to it, we’re still going to outperform that pretty, pretty massively.

25:06

And I’ll maybe Nick take take it from there on the industry front.

25:11

Yeah, I mean, I just think that right, if your base like risk rate of return obviously is increasing, because, you know, you can get treasuries, right like, you know, what do tokenized treasuries on chain enable, for example, right, we, you know, at 14 Nephi, just recently announced that we’re launching tokenized treasuries on Kanto. And Kanto has a whole stable coin market and money market, they have, you know, several different defy sort of applications there. And, and this sort of same concept exists, you know, across sort of the crypto sector, right. And so being able to take a treasury, for example, and borrow a yielding stable coin against that and create a low leverage.

25:51

But still hotline, Treasury, you know, you can get to like a double digit yield, with the same underlying risk, simply by, you know, managing sort of the on chain risks associated with accessing these things, which we’ve set up a good infrastructure to do here at the fund. And so we’ve been able to significantly outperform, I mean, it’s not just our to view a strategies, either, right, there are different cross chain emerging defy protocols that have really unique opportunities that, you know, I think a lot of the folks in the market just are not aware of, but we do a lot on the venture side as well, which, you know, has given us access to insights to a lot of these different early stage, emerging defy protocol yields. Obviously, we do a lot of research as well in the market to find alpha. But we found a lot of great opportunities, allocating stable coins, in some cases spot that will hedge as well to these protocols. And, you know, doing some cross protocol operations, some, you know, within protocol optimizations of these yields, to achieve, you know, much higher double digit yields than for example, holding treasuries with the idea of, you know, capturing alpha in crypto, but managing that downside risk as well, and offering investors sort of an alternative place to park capital. So that’s, you know, what Kevin was mentioning, like one of the newer strategies we actually just launched, which, you know, we have been, in fact able to raise capital from a couple of funding funds this year in terms of bringing them into that that vehicle. So, you know, it’s not been easy broadly to raise capital. You know, but but we’ve seen demand there. Awesome. Jordan, let me pick your brain real quick on just some tools that you use to analyze the market. I know you guys have a lot of paid premium tools, probably. But are there any that are maybe also free to use or have some lower level options that you know, all the good citizens of crip nation who are watching could go check out on their own?

27:38

I’ll be honest, so most of what I do is I operate out of API’s. So I use like the binance API, the Darebin API, the bybit API, you build everything yourself. Yeah, we build everything internally. And we have our own internal website, just hosting all these different metrics. It’s probably I don’t know, it’s like 20 tabs now or something like that. So we that we use defi llama. So all this stuff is free. And one thing I think that people don’t realize, especially if you’re like, pretty comfortable with, with XML, right, is that you can pick up Python coding to pull from these API’s, like pretty seamlessly. It’s not that difficult.

28:12

I know, that’s like a pretty lame answer that I think a lot of people probably don’t want to hear. But very good answer. Yeah. Well, a lot of don’t trust any other data. We do it all on ourselves. Just yeah. Well, you get more, you get more like customized stuff, right? Because it’s like the same thing. Like let’s say you buy a book and you buy like,

28:29

I don’t Hopefully, nobody gets mad at me for saying this. So many like how to make friends and what’s How to Win Friends and Influence People or something like that. Like, if everybody reads that book, you’re not getting a ton of alpha by being one of like a billion people that has read that book. Right? Right. So what’s nice about building out being able to pull the raw data directly from the source. And keep in mind all these exchanges, at a minimum, provide their API data for free, so that you can make some really custom stuff and get some really unique looks at the market.

28:54

But like, you know, honestly, like if you really want to keep it simple, you know, I like Glassnote a lot I used to I’m a little bit biased. I work there for a bit. But you know, Gladstone’s got a decent set of data for relatively affordable prices.

29:07

But in other words, you know, defi llama is something that we’re pretty fond of, as well, you know, they have a pretty robust data set. And I think if I’m not mistaken, we played around with it recently. I haven’t really, I haven’t dove in deep as much as I have, as I should have into the AI stuff. But I know they’ve got AI, open AI plugged in, if I’m not mistaken.

29:25

So that is probably the best if you want to do it. The best way in my opinion, is to just start pulling from the API’s and get the data raw yourself and start playing with it.

29:34

But yeah, yeah, very, I guess very nerdy hedge fund the answer. No. Hey, it makes sense. DIY. Do it yourself. Yeah, I think that’s, that’s the best. Yes. So we’ve covered a lot. There’s a lot a lot of different ways to look at the market right now. I think we could all kind of agree, you know, in the near term, definitely bullish. You know, maybe some slight room for breathing in the market.

30:01

But long term I mean especially when you consider just the the golden age period we’re moving into with with Blackrock right and all this you know, great stuff hopefully we don’t get shut down or else the markets gonna nuke on that filing, but we’ll see. But the Bitcoin having that’s the last thing I wanted to touch on Mali still have you guys because you know, every four years this thing happens in about you know 15 or 18 months after the halving happens, you’re like, you know, at the top of the market, everybody’s losing their minds. And so that’s just about, you know, the halving, I think is nine months away.

30:36

Did you guys have any general thoughts on on what’s what’s going on with the having? Or can you inform anybody about your guys’s view of how this moves the market?

30:49

Um, well, I think one thing that’s to be said about the having is that, you know, with each having, I think, you know, obviously, less and less coins are hitting the market for miners and I think the mining market, I think, keep in mind, I’m not an expert coin miners. Yeah, Bitcoin miners. Yeah, the Bitcoin mining market is not is much more efficient than it used to be right? You have all these different ways hedge exposure, the options market has exploded in terms of people using it. Now, I know, Dara bit, the open interest has almost surpassed like binance Total open interest for Bitcoin, or maybe it already has. So there’s all different all these different ways for miners to hedge out their exposure. So

31:23

I assume that,

31:26

that it doesn’t have as much of an impact as it has historically, just because there’s all these different ways to manage the risk reminders. And it’s not as much of a dumb market anymore in terms of like the miners, you know, they this does tend to happen. But like, if you look at historical data, for example, you know, the easiest way to check that if miners are getting squeezed or not, is how fast block times are coming in, right? The block times get really slow miners are getting squeezed really bad. And one thing that we’ve seen over time, outside of that large China ban that happened right after the Coinbase IPO when the market nuked Yeah, like 21. Yeah, yeah, you’ll notice though, if you like track block times, and you put like some sort of smooth moving average on it, the spikes don’t get as crazy anymore. And that I think is a testament to the fact that the market has just become substantially more efficient in that regard. Obviously, empirically, I don’t really have like the internal data from these miners to prove that.

32:17

But just from like, looking from a bird’s eye view. So that’s kind of my expectation. And I think we’re perfectly lined up for just another go have another bull run right around to having,

32:27

you know, just even expanding further outwards. But yeah, that’s kind of those are my thoughts on it. I’ll just add a couple, like, slightly bullish leaning thoughts on top of that, since that was a more at risk, risk managed perspective there, I would say,

32:44

answer what I’m about to give?

32:47

I would, I would say that like, I mean, if you keep it simple, right, this is all about supply and demand, like historically, and every other cycle we’ve ever been, we’re coming into a have any like, that was the one thing that got us out of the bear market. Right, it was the havening that was gonna get us out of the bear market. And like every bear market, like it was, you know, could have been the last one like until now. Right? So I think this supply and demand, you know, dynamics have shifted significantly where like the play, obviously, it’s just obviously continue to get more and more in favor, right. So we have a happening that supply. But, you know, demand, I think, has never had like a real chance of like hyper growing the way that it does going into this next cycle with these institutions taking a look at these ETF products coming out. I mean, like what GBTC did. And obviously, it is a little different than GBTC. But like in effect, these legitimately larger institutions that are going to offer this and now effectively create a global sales force to shill that coin and likely eath. You know, after that is, is, I think, like an unheard of growth and demand that like we haven’t seen going into previous happenings. So, you know, it wouldn’t surprise me if this one surprised us a little bit more than the other ones. Let’s go I love that one. surprise me if we’re all surprised.

34:08

I love it. That’s that’s the Bitcoin mantra.

34:12

So Kevin, let me wrap things up with you, man. How do people get involved with space whale capital? If they’re out there? Maybe they’re watching. They’re impressed by you guys. They want to learn more about either following you guys or maybe investing with you guys. Is that even possible?

34:27

Yeah, sure. I mean, they can check out our website, space, whale dot capital. Kind of see some of our select portfolio companies. Learn a little bit more about what we’re doing over there. Learn a little bit more about the team. And you can just contact us through there. Incredible. Sounds good. Well, boys, thank you for joining us here at the crypto hedge fund Summit. We’ll have you back next year. And take care yourself.

34:51

Thanks Bryce. Awesome. Thanks, Bryce. Thank you

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