Trends Watch: Cryptocurrencies

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 Anthony Limbrick, Managing Director, Pure Capital.

What is your outlook for alternative investments? 

I have been a great believer in alternative investments for many years, but I think the vast bulk of strategies in this sector will see substantial challenges in years to come, especially U.S.-centric strategies, where risk premia are so compressed. An example of the richness of assets in the U.S. is the S&P 500 forward PE ratio circa late dotcom bubble levels, and the recent extremely narrow breadth of stock market gains. Most alternative investments have a much greater exposure to risk premia monetization than they let on, and this could be a serious problem for pension funds and endowments that have used alternatives to boost the perceived probability of reaching return targets. 

What are the greatest opportunities you see, and why? 

I think strategies that monetize choppy equity downside and those that monetize the debasement of fiat currency will present the greatest opportunities. I come from an options background and I know some strategies which are well positioned for such an environment. I think inflation-linked bonds, if one can get hold of flow, are a responsible addition to a portfolio. And leveraged plays into hard or limited supply assets with credit risk locked down over a long window are also attractive. But the opportunity of the decade is Bitcoin, and high quality blockchain projects. It may sound absurd but I believe this sector will see tenfold growth over the next three years, albeit in fiat currency terms. The outlook for fiat currency is unclear in the near term, but very poor in the long term. 

What are the greatest challenges you face, and why? 

As an investment advisor in a country a long way away from everywhere else, and not being able to travel easily, I think it will be very difficult to grow my business unless I, and everyone else, truly embrace virtual technologies. I am not sure that will happen soon. But that is a micro problem. From a macro perspective, running a financial services business where the revenue unit is being aggressively debased makes for a poor long run outlook. But I believe my firm’s pivot into cryptocurrency is an appropriate strategic response. I think all investment firms and investors should be thinking similarly. 

What keeps you up at night? 

I talk of the massive potential gains to come from cryptocurrency investments, but much of that view is driven by the consensus around Modern Money Theory (MMT) economics, i.e., very few countries are being prudent with their stock of money. What worries me is that the cryptocurrency complex will rally substantially, but only because of the collapse of the purchasing power of fiat currency. In my view, the cryptocurrency investor will preserve or enhance their future purchasing power, but what if I am wrong? What if what is coming is something akin to the Zimbabwean stock market, which rallied exponentially during the early part of their hyperinflation, but no one was making money in real terms? Therefore, a hyperinflation for which there is no protection possible is what I most worry about. Additionally, I am a bit nervous about the potential for a major global war as a result of China’s steady growth and expansion running into incumbent resistance from the West, the so-called “Thucydides Trap.” Fingers crossed on that one. 

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