Should You Invest in Crypto? Q&A with Makara Co-founder Jesse Proudman
We asked Makara co-founder and CEO, Jesse Proudman, a few questions about why he believes in crypto and how it compares to traditional markets.
Crypto can democratize finance by removing gatekeepers and intermediaries present in the existing financial system. Crypto is intended to have no central approver, no hidden fees, and be completely transparent. Given the proliferation of the internet and the digitization of everyday life, cryptocurrency's transformative potential is clear. We see crypto as an investment, of course, but also as a way to redefine the future of money and what can be done with it.
Our co-founder, Jesse Proudman, has been involved in digital assets since 2017. First it was as an investor, then systematically trading cryptocurrency as the founder of the quantitative hedge fund Strix Leviathan, and finally as a co-founder behind the launch of Makara. We asked him a few questions about why he believes in crypto, how it compares to traditional markets, and why, if you’re on the fence, he may not try to convince you to join him.
What is it that you like so much about crypto?
This is seemingly the first opportunity that all investors have had to participate in an evolving asset class from its inception. If you think about angel investing, startups, or real estate deals, participation is often reserved for a select few—these are selective investment opportunities and you usually have to be an insider to be a part of them. But with crypto, the same technology that makes it so innovative also is designed to make it open to all. With global liquidity, likely anyone on earth can invest across a breadth of offerings at any time and be a part of this innovative, evolving new technology.
How does it compare to traditional markets?
When you’re buying stocks, you’re buying equity in a company, equity that is reflective of ownership with specific and defined rights. In this landscape, you’re not buying equity in a company. You are instead buying participation in a network. You’re potentially buying the direct ability to influence that network via governance tokens. Investing in this asset class is akin to being part of a community. It’s a fundamentally different type of investment with its own risks. At the end of the day, these are behavioral markets, which makes it hard to say, “Bitcoin at $60,000 is expensive or reasonable.”
That almost seems like it would make people more nervous. When you buy into a company, you can judge based on performance indicators.
It’s true. In the stock market, there are valuation models that investors generally agree upon. There are understood ways, like price per earnings, to value a specific stock. While there are valuation models for crypto, they are still early and evolving. They’re not shared among enough market participants to have material weight. That means the reason you value Bitcoin at a certain level and the reason I do are probably very different. In our eyes, that’s simply an argument for long-term investing and diversification.
Long-term investing gets a little harder during a bull market though, doesn’t it?
If you bought Bitcoin at the top of 2017 and held it, certainly you went through a long and painful drawdown. It wasn’t until the fall of 2020 that your investment was back in the green. But if you did hold on to everything, between then and now, the value has almost doubled. These markets go through cycles, and the potential for recovery is always there. The general historical trend demonstrates that.
What do you tell people about the value of altcoins, or anything that isn’t Bitcoin or Ether?
There are a portion of crypto market participants that like to argue that Bitcoin is the only asset that matters and the rest are worthless. I think Bitcoin absolutely has systemic advantages as a function of being the first, the largest, the most well-known token. But to some extent, by that logic, as the first big search engine, Yahoo! would be the only one that matters. We’re so early in the life span of crypto that picking a singular winner based on its existing network feels like a weak argument to me. Of course there are different risks associated with Bitcoin, Ethereum, and the thousands of tokens, but the truth is we simply don’t know what will be the winners a decade from now.
Does that mean you recommend investing in those other coins too?
If you believe this asset class will continue to exist (and you have to believe that, if you’re willing to put your money into it), for the long-term horizon, I believe you have to diversify. If you do that well, you may be able to reduce your overall portfolio risk.
How do you recommend people learn about all of the other coins? It seems like a daunting task.
It is, and while we do advocate for people learning about crypto, we don’t think you need to become an expert to invest. There are currently 17,000 tokens in existence. You can’t learn about all of them—and many aren’t worth learning about—but what you can do is check out our guide to the 54 (and growing) tokens we currently invest in. For each one, we give you a brief background and tell you why we think they matter. It’s our way of simplifying the learning process and helping you decide what to invest in. We also publish blogs covering crypto investing topics that only take a few minutes to read.
How do you respond to people who are negative about crypto, or those who call it a bubble?
It’s a speculative and emerging asset class that’s only existed for a decade, but that doesn't necessarily make it a bubble. That can create opportunity with commensurate risk. In some regard, all assets are speculative in nature. You wouldn’t buy stocks if you didn’t think they were going to appreciate, would you? The market goes through cycles. It has boom and bust cycles that repeat just like they do in any other market. But also, look at the debate that took place over the Senate Infrastructure Bill. If this is only a bubble, the Senate wouldn’t have argued so much about it, holding up more than $3 trillion in spending. Crypto is no longer “fake” internet money. This is a real thing with tangible markets, and it’s not going away. It’ll still be volatile, of course, but it’s not going away.
Is crypto for everyone?
I don’t think so. Like I said, it’s a volatile asset class, and if you expect it to consistently go up month after month and quarter after quarter, that’s just not what this is. It’s not a get rich quick opportunity either (although it certainly has been lucrative for some investors). Investing in crypto is investing in emerging technology. It has market cycles that you need to be aware of. You participate knowing that’s part of the experience. Some people aren’t into that, and that’s okay.
Do you need a strong stomach for crypto?
If you go into this with a diversified portfolio and the knowledge that a small percent of your net worth can experience outsize gains—and you also are in a position that losing your investment isn’t catastrophic—crypto shouldn’t feel nauseating. If it does, you maybe shouldn’t be in it, and that’s ok.
How long did it take you to understand the market?
It’s hugely complicated. It took me three months of full-time work before I had a general baseline understanding of everything. Even now, I’m in this all day and I still don’t understand everything that’s happening. That’s why it’s an intellectually engaging industry to work in.