UPDATE: Cryptocurrency Investing Strategy - February 2018
Cryptocurrency Investment Strategy 2018
I cover fintech, cryptocurrencies, blockchain and investing.
Jordan Clifford and Linda Xie are cofounders of new crypto investment firm Scalar Capital.
has raised money from new, high-profile investors, including Marc Andreessen and Chris Dixon. After pulling in
in January, the new inflow brings Scalar’s total assets to more than $20 million, according to a person familiar with the matter. Bain Capital Ventures, Coinbase cofounders Brian Armstrong and Fred Ehrsam, and angel investor Elad Gil also invested.
Scalar cofounder Linda Xie, 26, has been passionate about investing since college, when she was president of the investment club at UC San Diego in 2011. After graduating, she worked in risk analysis at AIG for two years. Then she bought her first bitcoin and joined cryptocurrency exchange Coinbase to work on compliance, helping law enforcement catch cyber criminals by tracing bitcoin transactions.
She met her cofounder, Jordan Clifford, 33, at Coinbase—he was a growth engineer helping the startup recruit new users. The two left the San Francisco company last fall, opening Scalar’s doors in January 2018. “Coinbase is a training ground for entrepreneurs,” Xie says.
One of the reasons Chris Dixon, a general partner at a16z crypto, personally invested in Scalar was because of Xie and Clifford’s deep experience in the space. “We believe in investing in true believers, a general partner at a16z crypto Cryptocurrency Investment Strategy 2018 ,” he says. “We don’t want these things to be used for speculation. We want real-world use cases with these new protocols.” Xie’s years-long focus on crypto has helped her build a following of nearly 50,000 Twitter users.
Scalar owns about 20 cryptocurrencies and has a long-term investing strategy, aiming to hold each crypto asset for three to five years. Bitcoin is among its core holdings. “Bitcoin has huge network effects, more infrastructure, various custody solutions, a futures market,” Xie says.
Ether is another high-conviction position. Xie co-organizes the
, a group of more than 4,500 software engineers and techies interested in the global computing platform. In response to
about major crypto investors shorting ether, Xie says, “It’s very dangerous to short in this industry. Things in general are very irrational.” She adds that she’d never short ether. “By far, it’s the strongest community I’ve ever seen.”
For digital payments, Xie and Clifford believe in “privacy coins,” cryptocurrencies that hide the identities of buyers, ” she says. “If I just go to a store and pay someone in bitcoin Cryptocurrency Investment Strategy 2018 , I learned that it’s so transparent—I can’t even believe people are willing to transact in it,” she says. “If I just go to a store and pay someone in bitcoin, now that person knows my bitcoin address, and they can see what my bitcoin balance is.”
She adds, “If you’re going to have a payments system, you can’t have the default state be transparent to everyone. It should mirror how the current financial system works, with selective transparency.” Scalar has positions in the two biggest privacy coins, monero and zcash, “If you’re going to have a payments system Cryptocurrency Investment Strategy 2018 , which was created by Moxie Marlinspike, the founder of secure messaging app Signal.
They’ve also invested in “scaling-solution” cryptocurrencies, which aim to process more transactions per second than Ethereum. Scalar owns tokens of Ethereum competitors Kadena and Dfinity, but not EOS, largely because they feel its architecture isn’t decentralized enough. They think three to five of these smart-contract platforms can subsist in the market, while smaller, less successful platforms will get squashed by competitors.
They’re fanatical about the principles of decentralization and egalitarianism that cryptocurrencies were founded on. Those might be noble goals, but such ideals aren’t always upheld. For instance, some crypto teams mint new tokens and keep huge stashes for themselves, or they sell tokens to insiders at large discounts before a public ICO. “I really try to make sure projects aren’t raising a significant amount and selling the majority of their tokens to insiders,” Xie says.
Xie and Clifford have accepted some pre-ICO discounts—Xie thinks discounts can be helpful to attract the right investors. Does that practice violate the egalitarian ideals of crypto? “I don’t think it’s binary,” Xie says. “You’re not going to be fully decentralized at any point. … And in the early days, you will need investors to help you.” Like any startup, crypto projects need to navigate legal, tax and hiring challenges.
But she opposes steep discounts: “When you offer very high discounts, you attract the type investors that want to flip your coin. I always discourage teams from having really high discounts.”
Clifford adds, “The current state of affairs is sad sometimes, when projects create tokens that don’t need to be there and raise huge amounts of money. But at end of day, we’re going to shake the leaves of the tree and all that stuff will fall away. I’m not terribly concerned about it in the long term.”
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I cover cryptocurrencies, blockchain, fintech and investing at Forbes. I’ve also written frequently about leadership, corporate diversity and entrepreneurs. Before Forbes, I worked for ten years in marketing consulting, in roles ranging from client consulting to talent manag...
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