Of the many people to make the jump from Wall Street to cryptocurrency, few if any were as successful in their careers as Daniel Masters.
After working at legendary investment bank Salomon Brothers as an energy and derivatives trader, Masters took on an even bigger job, running global commodities trading at JPMorgan Chase. He then made a transition most people in the financial markets only dream of – moving from the sell side in banking to the buy side in hedge funds.
Masters opened his first hedge fund in 1999, but in the mid-2010s – as commodities and other traditional asset prices became less volatile and in turn less profitable – he discovered and ultimately became engrossed in the rollercoaster world of cryptocurrency.
Yet wild price swings weren't the only aspect of the market that interested the former trader. In a new interview, Masters told CoinDesk he was also captivated by the promise of borderless, frictionless, digital money.
From there, Masters began developing a strong intuition that bitcoin could, potentially, challenge fiat money and gold, and that it might play an important role in capital formation, the money-raising function that has traditionally been accomplished by stocks and bonds.
"I think, at the core of this, is the development of new tools that are challenging the role that fiat money and gold have historically played. And that challenge is being brought forth by bitcoin."
And while he still keeps an ear to the ground about his old shop – especially when JPMorgan CEO Jamie Dimon opines about cryptocurrency – those disruptive functions have become the foundation on which Masters bases his bullish investment thesis for Global Advisors Bitcoin Investment Fund, GABI for short.
The notorious price
While the legacy financial system sits on its haunches, failing to adapt to the opportunities cryptocurrencies present, as Masters sees it, the technology now exists to digitize and tokenize large swaths of traditional asset classes – such as money, precious metals, commodities, stocks and bonds.
Moreover, once those assets have been tokenized on a blockchain, they will be able to perform far more intelligent functions, because the assets themselves will be programmable, just like any other instance of computer code.
There are serious benefits, something that he points to for the rise of the cryptocurrency market, which is currently valued at over $150 billion.
In his mind, cryptocurrency has found a way to reach that scale in almost total isolation from the legacy financial system. Now becoming self-sustaining and reaching a kind of "escape velocity," cryptocurrency is finally gaining enough momentum to challenge the old ways of doing business in financial services, he said.
Still, institutions and investors are hesitant, seeing the market's intense volatility as a sign for concern.
But that doesn't phase Masters. He believes the price of commodities is "notoriously fractal," meaning that prices swing wildly in both directions, adding the big picture takeaway:
"Don't get hung up on price."
To highlight his theory, Masters cited his work trading natural gas in the late '90s.
At the time, there was a five-year period during which the commodity was trading between $0.50 and $0.85, making it difficult for many people to foresee natural gas trading above $15, as it later did. He also pointed to his years trading in the oil market, when the price of a barrel of oil hovered between $5 and $20, figures that made the $145 it traded at in 2008 seem exaggerated.
In a similar fashion, if you were obsessing about the price of ethereum's ether token when it hit $1, you would never have bought it at $20 – and, as Masters said, "Look where it is now." Notably, ether is currently trading at just below $300, according to CoinMarketCap
Masters sees the relatively low valuation of cryptocurrencies when compared to other asset classes as a major opportunity.
When you look at all digital assets currently trading, the combined market capitalization isn't as high as a single one of world's 100 largest stocks, a statistic Masters believes means there's room for growth. Further, as bitcoin is only the 65th largest currency in the world, and some of the larger currencies are highly problematic for political and economic reasons, he believes it's not unthinkable to believe the cryptocurrency could provide a real alternative.
A blockchain bear
One of the key drivers of Masters' thesis is that an investment in cryptocurrency is a fundamental investment in the forward movement of technology.
In essence, he believes, an investment in cryptocurrency is tantamount to an investment in fintech, medtech and the Internet of Things. In this way, the view provides an elegant counterargument to the cryptocurrency skeptics who believe blockchain technology may change the world, but that cryptocurrencies are a passing fad.
To Masters, cryptocurrencies will be the true market force.
"The vital thing to understand is that the momentum and the scale that you have in some of these public blockchains essentially means that it's going to be near impossible to build any of this big technology on any other kind of platform."
Masters adds that the cost savings derived from using cryptocurrencies to access a global, open-source financial platform will make it impossible for even large tech companies to bootstrap their own proprietary technology to effectively compete.
And when you begin to see cryptocurrencies in that context, you get a sense for just how large the potential of its digital economy may be.
Differences with Dimon
Bearing in mind Masters' bullish view of the cryptocurrency space, one could expect him to disagree with Jamie Dimon's comments on bitcoin (most recently calling bitcoin a "fraud").
Indeed, despite their common background at JPMorgan, the two former colleagues have gone opposite ways when it comes to cryptocurrency.
While Masters believes Dimon has proven smart and hardworking in his role running the financial behemoth, Dimon doesn't have adequate time to understand the complex issues at stake in the cryptocurrency space, he said, calling the comments on bitcoin "short-sighted."
"I don't think Jamie Dimon has an open enough mind, all the time, to properly accept the contribution that digital assets can make," he said.
He points out that other senior financial executives – at such renowned institutions as Chicago Mercantile Exchange & Chicago Board of Trade, Chicago Board Options Exchange, and NASDAQ, where Masters' shop lists its bitcoin trackers – feel very differently.
Masters also points out that JPMorgan does, in fact, trade in bitcoin, and that JPMorgan Securities was buying bitcoin for its clients at the same time Jamie Dimon was criticizing cryptocurrencies.
"They either need to get with the program and support their clients who want to buy bitcoin, or they need to stop talking about it like a fool. Because those things are not consistent with an organization of that character."
Daniel Masters image via Vimeo