Over the last few years, investing in digital asset companies has been turbulent, to say the least.
There was the inexorable rise of 2020 and 2021, when crypto wrestled itself into mainstream consciousness. Companies’ valuations went parabolic, early investors reaping dizzying gains.
Since then, however, things have turned. Prices have plummeted, with the sector besieged by scandals and capital flooding out of the space. Many projects have gone under entirely, while most are trading well below their peak. Even Bitcoin, which has bounced back this year, remains a stomach-churning 60% off its peak from late 2021.
Of course, the drawdown has not been limited to crypto alone. The tech-heavy Nasdaq index lost a third of its value in 2022, as rising interest rates sucked liquidity out of the economy as a whole.
It is amid this context that we chat with Bundeep Rangar, the CEO of Fineqia International, the digital asset and fintech investment business.
Fineqia International interview
Invezz (IZ): The crypto industry has been ravaged over the last 16 months. Even after an auspicious Q1, Bitcoin is still 58% off its highs, while almost every altcoin is down further and company valuations have taken massive hits (or gone under entirely). As a digital asset and fintech investor, how tough has this period been?
Bundeep Rangar (BR): The crypto market has been tough since May 2021. After the all-time high reached by Bitcoin in Nov. 2021, the market dropped by more than 50% during summer 2021. It has been almost 2 years since the bear market started, but so far, we have seen good year-to-date data.
Seeing BTC outperforming (other cryptocurrencies) in these hard times is pretty normal, it is something that has been already seen in the previous downtrends. Now of course the BTC dominance is lower, because there are many more projects that have a reliable history and are seen as robust assets even during this “Crypto Winter”.
Indeed, ETH is still +54% YTD and -62% from its all-time high, which shows how its performance has not been very different compared to BTC. The whole crypto market cap is up +44% performance YTD. It is true that BTC is outperforming the digital asset market, but the whole sector is doing well since the beginning of 2023.
Major drawdowns for the altcoins are normal, as most are small caps with price fluctuations triggered by relatively small amounts of capital flows. Some altcoins are able to rise significantly. BNB, ADA and SOL, for example, did so in the last upward cycle.
IZ: Bitcoin was only launched in 2009, meaning until last year, it had only experienced a relentless bull market in wider financial markets. This is therefore the first bear market in crypto’s history that is occurring in conjunction with a pullback in the wider economy. Are you surprised the damage has been so severe in the space?
BR: In the previous bear markets that had their bottoms respectively in November 2013 and in December 2017, BTC had an 85% decrease in price from its all-time high. If the bottom is seen to be at about $17,000, that would be the lowest level reached in this cycle, implying a 77% decrease in price. This would confirm the theory of diminishing losses and returns and gives a strong signal that digital asset markets are more resilient in difficult macroeconomic conditions.
In November 2022, Bitcoin hit a low of $15,516 (albeit briefly). This drawdown of 77% may be smaller than the 85% drawdown of previous cycles, but only marginally. To us, it does not feel like concrete evidence that the asset has become more resilient in difficult macroeconomic conditions, particularly as the previous periods (2013 & 2017) came when things were rosy in the wider economy rather than difficult.
Additionally, Bitcoin was highly illiquid in 2013 and 2017, and the capital required to move prices are far lower than what it is today. For this reason, we tend to believe that this highlights how dramatic the pullback was this time around, as the crypto market scaled back from a $3 trillion market cap to below $1 trillion. In 2013, the cryptocurrency market cap peaked at under $2 billion; in 2017, it peaked at less than $800 billion. We find it hard to extrapolate and draw meaningful conclusions regarding the sensitivity to macro conditions from 2013 and 2017 price action.
IZ: What do you think of crypto valuations currently, after strong price action in Q1?
BR: I think investors generally still think in the short-term.
There is too much uncertainty concerning the possibility of a worldwide recession and consequently, the monetary policy of the US’s Federal Reserve and the other central banks. Investors are constantly adjusting their positions, because it seems difficult to predict or even think which levels the price could reach in 3 or 6 months.
For sure, it can be said that the bounce of the digital asset market has been really strong and so far, BTC is the best performing asset YTD, when compared to other indexes such as S&P 500 or Nasdaq. This could be seen as an indicator for the long-term future of this market.
IZ: You mention the metaverse, gaming and NFTs as some areas to focus on for this your planned new “Fineqia Glass Slipper Venture” fund. These areas have all done exceptionally poorly as the crypto bubble popped last year. What makes you believe these areas will turn around?
BR: We must remember that this sector is quite nascent. As you mentioned in one of the questions before, BTC was launched in 2009, and ETH in 2015. Most of the other assets were not launched prior to 2017/2018. Subsectors such as NFTs, gaming and the metaverse are even newer.
Of course, these markets haven’t yet matured and this is the reason why we have seen speculative bubbles around these subsectors, but the technology is here for the long term and has tangible use cases.
In the financial sector, there is increasing interest for the tokenization of real assets, enabled by unique features within NFTs such as smart contracts. Similarly in gaming, blockchain technology allows players to actually own in-game assets and trade them on secondary markets unlike before. The opportunity for Fineqia is to spot early adopters of this disruptive technology and capture the value before they go mainstream.
IZ: Will the new fund have any benchmark for performance? Will this be within crypto (such as aiming to outperform Bitcoin) or a more conventional benchmark (such as an index fund like the Nasdaq)?
BR: The Fineqia Glass Slipper Venture fund will be benchmarked against early-stage VC funds investing in alternative assets.
IZ: How do you deal with the elevated levels of volatility in the crypto space, and the lack of regulation that so many coins and companies operate under. Does this make it extremely difficult?
BR: This is the trade-off in dealing with digital assets.
Investors are well aware of the crypto market volatility and of the fact that their portfolio can move up or down by many percentage points, but this is exactly what they’re looking for. People who invest in T-bills or S&P 500 stocks are different types of investors most of the time.
The other scenario is a typical traditional finance (aka TradFi) investor that wants to diversify his portfolio and allocate a small part of it in a much more volatile environment. In the end, it’s just a matter of risk tolerance. People who invest in crypto are aware that it is not the same thing as investing in other markets and so they are prepared for it.
The lack of regulation is the main reason why at Fineqia we are building digital asset financial products that are appropriately licenced and regulated for our target audience of investors. Due to the number of risks and the difficulty of navigating the crypto market for investors, Fineqia operates as a bridge that allows investors to invest in the digital asset market without all the steps required to directly buy and hold the assets. Fineqia allows investors to get exposure to digital assets in a safe and regulated manner, without worrying about the convoluted process of buying such assets directly.
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