Should You Invest in Crypto? (And Other Important Questions with Makara Co-founder Jesse Proudman)

Authored by Jesse Proudman
Jesse Proudman

Jesse Proudman

Published August 24, 20216 min
Makara - Why Crypto 1200x1200

We launched Makara because we see crypto as an opportunity—for everyone. By removing the gatekeepers from many transactions, crypto democratizes finance. There’s no bank for approval, no unexplained fees. And there’s no limit to its potential. We see crypto as an investment, of course, but also as a way to define the future of money and what can be done with it.

Our co-founder, Jesse Proudman, has been involved in digital assets since 2017. First it was as an investor, then as the founder of the quantitative hedge fund Strix Leviathan, systematically trading cryptocurrency, and finally as the driving force behind Makara. We asked him a few questions about why he believes in crypto, how it compares to traditional markets, and why, if you’re on the fence, he may not try to convince you to join him.

What is it that you like so much about crypto?

This is the first opportunity that average investors—any investor at all—have had to participate in an evolving asset class from the very beginning. If you think about angel investing, startups, or real estate deals, those things are usually exclusive. You have to be an insider to be a part of them. But with crypto, given that it’s globally liquid, there is no exclusivity. Anyone can participate and be a part of this innovative, evolving new technology.

How does it compare to traditional markets?

When you’re buying stocks, you’re buying equity in a company. That implies ownership. In this landscape, by and large, you’re not buying equity in a company. You are buying part of a network. You’re buying commodities—governance tokens that allow you to vote on things that evolve. It is fundamentally different. At the end of the day, it’s a behavioral market, which makes it hard to say, “Bitcoin at $60,000 is expensive or reasonable.”

That almost seems like it would make people more nervous. When you buy into a company, you can judge based on performance indicators.

It’s true. In the stock market, there are valuation models. There are understood ways, like price per earnings, to value a specific stock. While there are valuation models for crypto, they are still early and evolving. They’re not shared among enough market participants to have material weight. That means the reason you value Bitcoin at a certain level and the reason I do are probably very different. In our eyes, that’s simply an argument for long-term investing and diversification.

Long-term investing gets a little harder during a bull market though, doesn’t it?

If you bought Bitcoin at the top of 2017 and held it, certainly you went through a long and painful drawdown. It wasn’t until the fall of 2020 that your investment reached those levels again. But if you did hold on to everything, between then and now, the value has more than doubled. These markets go through cycles, and the potential for recovery is always there. The general historical trend demonstrates that.

What do you tell people about the value of altcoins, or anything that isn’t Bitcoin or Ether?

People like to argue that Bitcoin is the only asset that matters and the rest is garbage. I think Bitcoin 100 percent has systemic advantages as a function of being the first, the largest, the best-known token. But to some extent, by that logic, as the first big search engine, Yahoo! would be the only one that matters. It’s all software at the end of the day. We’re so early in the life span of crypto that picking a singular winner based on its existing network feels like a weak argument to me.

Does that mean you recommend investing in those other coins too?

If you believe this asset class will continue to exist (and you have to believe that, if you’re willing to put your money into it), for the long-term horizon, you have to diversify. If you do that, you are set up to weather market turbulence.

The problem with suggesting that people invest in other coins is that they then have to learn about all of the other coins.

Not necessarily. There are currently 11,000 tokens in existence. You can’t learn about all of them—and many aren’t worth learning about—but what you can do is check out our guide to the 38 (and growing) tokens we currently invest in. For each one, we give you a brief background and tell you why they matter. It’s our way of simplifying the learning process and helping you decide what to invest in.

How do you respond to people who are negative about crypto, or those who call it a bubble?

It’s a speculative and emerging asset class, but that doesn’t really matter. In some regard, all assets are speculative in nature. You wouldn’t buy stocks if you didn’t think they were going to go up, would you? The market goes through cycles. It has boom and bust cycles that repeat just like they do in any other market. But also, look at the debate that took place over the Senate Infrastructure Bill. If this is a bubble or this is tulips, the Senate wouldn’t have argued so much about it, holding up more than $3 trillion in spending. Crypto is no longer “fake” internet money. This is the real thing, and it’s not going away. It’ll still be volatile, of course, but it’s not going away.

Is crypto for everyone?

I don’t think so. Like I said, it’s a volatile asset class, and if you expect it to consistently go up month after month and quarter after quarter, that’s just not what this is. It’s not a get rich quick opportunity either (although it certainly has been lucrative for some investors). Investing in crypto is investing in emerging technology. It has market cycles that you need to be aware of. You participate knowing that’s part of the experience. Some people aren’t into that, and that’s okay.

Do you need a strong stomach for crypto?

If you go into this with a diversified portfolio and the knowledge that a small percent of your net worth can have an outside set of gains—and you also are in a position that losing your investment isn’t catastrophic—crypto shouldn’t feel nauseating. If it does, you maybe shouldn’t be in it. So yeah, maybe you need a strong stomach.

How long did it take you to understand the market?

It’s hugely complicated. It took me three months of full-time work before I had a general understanding of everything. Even now, I’m in this all day and I still don’t understand everything that’s happening. That’s why it’s a compelling place to be.

Authored By
Jesse Proudman

Jesse Proudman

Jesse is the co-founder and CEO of Makara, and the co-founder of Strix Leviathan. Prior to Strix Leviathan and Makara, Jesse founded Blue Box, a cloud computing startup that he led to a successful acquisition by IBM. During his time at IBM as a Distinguished Engineer, Jesse focused on blockchain technology and cryptocurrency applications. He currently serves on the board for the Buerk Center for Entrepreneurship at the University of Washington.