Trends Watch: Digital Assets Investing

EisnerAmper’s Trends Watch is a weekly entry to our Alternative Investments Intelligence blog, featuring the views and insights of executives from alternative investment firms. If you’re interested in being featured, please contact Elana Margulies-Snyderman.  

This week, Elana talks with Zoe Cruz, Founder & CEO, Menai Financial Group.

What is your outlook for digital assets investing?

Clearly, the environment for risk is challenging right now; all asset classes have struggled in the new regime of monetary tightening. Crypto assets are down approximately 70% from peak, and even a stock like Netflix is down about 75% from its peak. With a potentially weakening economy, liquidity concerns—even in the most liquid assets and geopolitical disruptions affecting supply chains and commodities—risk assets may be volatile in the near term. But as someone who began their career during the early stages of globalizing foreign exchange trading in the early 1980s at Morgan Stanley, I have seen momentous advancements in how investors exchange value. When I think strategically about crypto and blockchain as programmable value across trustless networks, it is that potential that makes me very constructive for the future of digital asset investing over the coming decades.

Where do you see the greatest opportunities and why?

Investors are beginning to realize the thesis is not necessarily buy Bitcoin and you’ll be rich, but rather the real opportunities are in use-case applications of crypto/blockchain technology. These are extremely disruptive to many sectors of our economy in a positive way. Take an example like Uniswap, which is a decentralized cryptocurrency exchange competing with the likes of Coinbase, but at a fraction of the capital intensity and cost than centralized competitors. Or Lemonade in the insurance space, and tokenization of real assets. The greatest opportunity for investors is to own a diversified portfolio of cryptocurrencies and tokens for the long term. It’s like liquid venture capital in a way. And looking back at the winners from the 1990s dot-com boom, the value creation was immense.

What are the greatest challenges you face and why?

As with any new emerging asset class, one of biggest challenges is assigning value to speculative technologies. When you think back to the internet era, any company with a dotcom traded at astronomical valuations. Ultimately, there were countless failed businesses, but it’s the winners that more than compensated for them over the long term. Think about Google versus AltaVista in the search business back in the mid-90s, or Facebook versus MySpace in social media. This is why diversification, deep fundamental research and ongoing active management of portfolios is so important. As blockchain technology changes, so must portfolios, which is why we have built a team of experienced traditional investors, crypto natives and technologists to help identify winning protocols and potential value creation.

What keeps you up at night?

I sleep pretty well considering I’m such a believer in the innovation of crypto and blockchain. But one thing that I spend a lot of time thinking about is the regulatory environment, more specifically how multiple jurisdictions will deal with truly global technology disintermediating business everywhere. If cryptos are banned full stop, then a lot of us in the ecosystem go back to the drawing board. Yet distributed ledger technology and stablecoins, or digitized fiat, will continue to be disruptive and add value. The big question is when will regulators act, and how will they harmonize? The sooner we get clarity—and I believe it will be constructive regulation—the sooner the economy will benefit from disruptive technologies that create real value. That’s what is exciting about this digital asset class and ecosystem.

The views and opinions expressed above are of the interviewee only and do not/are not intended to reflect the views of EisnerAmper.