Why they will survive the crypto winter when inflation hedging fails

  • Michael Wang is the founder and CEO of the alternative investment platform Prometheus.
  • The director explained how bitcoin has failed to live up to its billing as an inflation hedge.
  • Wang also explained why bitcoin and ether remain the best cryptocurrencies for retail investors.

“The world is moving towards more transparency,” says Michael Wang, former chief analyst at Steven Cohen’s now defunct SAC Capital hedge fund.

The 15-year-old capital market veteran, who later worked for a now-closed hedge fund, Tourbillon Capital Partners, told Insider that Wall Street has a problem with transparency. But Wang says his Los Angeles-based fintech startup is making progress in solving that problem.

His new company, Prometheus, is a marketplace for alternative funds combined with a social network. It facilitates investments in hedge funds, venture capital funds and cryptocurrencies, although the latter are not particularly known for their transparency.

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Wang says he should imagine the platform as a pseudo-LinkedIn for people who want exposure to more than Robinhood and Coinbase have to offer. The problem of transparency between the various funds mentioned above, mentioned by Wang, can be solved with a more efficient and faster way of communicating with investors.

“Think about how many doctors, lawyers, entrepreneurs and engineers you know who are likely to have close to 0% of their assets in hedge funds, venture capital funds and private equity funds,” Wang said. “We want to change that.”

Bitcoin’s dubious reputation as a safe haven

As Prometheus allows users to invest in cryptocurrencies, Wang has been keeping an eye on the space as he has seen widespread losses over the past few months. For context, bitcoin and ether – the two most historically dominant cryptocurrencies – have fallen more than 50% since the recent highs in late 2021.

There have also been wrecks in altcoins, perhaps no more serious than in USDTerra and its sister currency LUNA. Solana has fallen by 83% from the highest level ever due to sporadic outages on its network.

That all this happened at a time when the United States is experiencing the highest inflation in 40 years has removed the once popular idea that bitcoin could act as a hedge against rising consumer prices. Instead, bitcoin and crypto have generally functioned more as a traditional risk asset.

This explains why cryptocurrencies have fallen with equities for most of 2022, in response to Federal Reserve monetary tightening measures aimed at cooling inflation and avoiding overheating of the economy. As the central bank prepares to announce major rate hikes at its next two meetings, the biggest headwind for crypto and equity investors is likely to continue.

Wang, who was named the institutional investor’s 2016 Hedge Fund Rising Star, said the crypto markets are strongly correlated with the broader stock market, and he agreed with the narrative that bitcoin failed as an inflation hedge. But this interdependence is only the beginning: Wang notes that bitcoin has a “much higher beta” than stocks, making it more susceptible to sharp downward fluctuations.

For signs of what awaits the crypto market, Wang – like most equity investors – looks at central bank activity.

“Whatever the replacement for any asset class and the price of assets, whether it’s crypto, stocks or real estate, that’s what the Fed is doing,” Wang said. .

What to buy in the middle of a crypto wreck

Wang predicts that most cryptocurrencies will not “survive” in the long run, except “probably” bitcoin and ethereum. Both have accumulated great market values ​​and achieved enough mainstream adoption to withstand bear markets.

“Your litmus test here for certain stocks and cryptocurrencies is that if it does not go bankrupt, you will probably make money holding it for a year,” Wang said.

Bitcoin in particular will continue to gain traction as a limitless payment method that allows users to circumvent payment fees and slow transaction times.

“Many parts of the world are still not bankable,” he said. “Blockchain can be used as a solution to help people in these areas.”

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