As a Fund, the main objective is to increase the capital of all investors through sophisticated strategies that aim to extract alpha out of the market in a risk-controlled operation.
Most investment vehicles in the industry need to live with two very important handicaps which are the sovereign national currency of their jurisdiction of incorporation and the US dollar as a global reserve currency.
By design, we have chosen to diverge from that disadvantageous situation. On the contrary, our mandate is focused on crypto assets and projects using Blockchain technology.
But what does that mean and why this is so important?
For starters, it is imperative to deploy an investment strategy that includes and considers the mechanics of the most advanced type of money known nowadays (bitcoin).
Let’s us give you a brief explanation of what is going on in the world with Inflation and its pervasive effect on the deterioration of the purchasing power of pretty much everyone.
Since its beginnings, the US Dollars have been backed by the reserves in Gold that the United States has. That means that no authority in the country was empowered to increase the number of dollars in circulation unless the gold reserves increase at the same pace.
To drive further economic growth (or at least that was his reasoning behind it) the Nixon government in the ’70s ended the gold standard and allowed the national currency to freely float without any ties to the gold reserves.
Now the US dollar is not backed by Gold but by Credit issued by the Federal Reserve. With that technicality, the dollar was downgraded from Sound Money to Unsound Money.
Let’s remember that the Federal Reserve is a private solution to solve the fact that the United States does not have a Central Bank because the forefathers didn’t want the Union to have something like the Bank of England and did not authorize the government to create one in the constitution. I guess they knew better because precisely at the time of writing this article, the Bank of England expressed their concerns for the adoption of bitcoin as legal tender in El Salvador, and it’s asking the UK government to tax 2% of all bitcoin transactions in the island.
Back to the main topic and because of that, the Federal Reserve is capable now of increasing the dollars in circulation at the rate they see fit in order to deploy the monetary policy in the country.
40% of all circulating US dollars in the economy have been created since the beginning of the pandemic 24 months ago.
If Inflation follows closely the relationship between the circulating money and the number of goods and services in the economy, is relatively easy to understand why we have to pay more money for the same. Unless you believe that 40% of all Goods and Services in the country have been created during the same timeframe.
The crippling effect of inflation is what drives the deterioration of the purchasing power of the people, and this is something that as a Fund, we cannot reconcile with the idea of wealth creation.
That’s why we rather use as a reference, a superior form of money. Sound Money like bitcoin.
With a capped supply of 21 million coins, bitcoin can offer the confront that it will never be increased at a higher rate than the one pre-determined on its code. There will be no organization like the Federal Reserve with the power to affect at will the monetary policy of its algorithm.
For this very reason is that Bitcoin offers the comfort that despite temporary volatility, it will safeguard the purchasing power of its holders over the long term.
Furthermore, the antifragility of bitcoin as coined by Nassim Taleb (remember to separate the Art from Artist) is one of its major strengths. Antifragility is the capacity to thrive and become more powerful through adversities and chaos.
The most recent example of this was when an important sector of the public opinion was criticizing bitcoin for having an important concentration of miners in China and for using large quantities of non-green energy in the mining process.
Right at that time, the Chinese government decided to ban all mining activities in China and all miners were forced to shut down their operations and leave the country. The hash power of the network decreased and with that an important correction in price.
Months after that event, most of the hash power has been restored in the network and an important number of mining companies have relocated their operations in places like Florida using nuclear-generated electricity to mine bitcoins.
As a result of that, now the Bitcoin network not only redistributed its mining nodes reducing to zero the number in China and increasing drastically in the United States but also now, an important amount of the electricity used for mining is generated out of green sources.
Antifragility!
There cannot be Sound Investments if they are run over unsound money.