Forbes: Revealing the secret of the cryptocurrency big winner Multicoin, they absolutely question everything

2020/2/6

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The renowned business magazine Forbes has published an article introducing the success behind blockchain influencer investment firm Multicoin Capital. To learn more about Multicoin Capital's specific investment strategies and performance, refer to a previous in-depth report by ChainNews: "Getting to Know Multicoin, the Influential Investment Firm in the Blockchain World."

Author: Jeff Kauflin
Translator: Perry Wang

I had an in-depth conversation with the two co-founders of the cryptocurrency investment firm Multicoin Capital at a trendy coffee shop in Manhattan, New York. The 29-year-old Kyle Samani spoke to me about the cryptocurrencies they are shorting, mentioning that if the prices of these cryptocurrencies plummet, their fund, with only three years of history, would profit millions. "In two years from now, Zcash will be worthless," Samani remarked. Currently, Zcash is trading at $66.

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Research reports indicate that few users of Zcash utilize its core privacy features. Furthermore, other cryptocurrencies platforms like Ethereum are replicating Zcash's privacy technology. However, a Zcash spokesperson countered, stating, "If you want to use an exchange medium with exceptional privacy protection, Zcash is the best choice."

Samani's partner, Tushar Jain, eagerly mentioned another cryptocurrency they consider worthless. "We have been openly shorting Ripple's XRP," referring to the cryptocurrency used by San Francisco payment company Ripple for accelerating interbank settlements.

The two manage a $100 million cryptocurrency hedge fund from their office by Lake Lady Bird in Austin, Texas, with venture capitalists Marc Andreessen and Fred Wilson from Union Square Ventures as backers. Multicoin focuses on 11 publicly traded cryptocurrencies for long and short positions. They also hold stakes in 20 cryptocurrency startups that have not yet gone public.

Cryptocurrency market disclosures are not mandatory, and speculation and momentum play a significant role in pricing, prompting the two to combine data analysis and crowdsourced research to inform their trades. Samani and Jain attribute their impressive performance to one crucial factor: they question all information received. "In the crypto community, in some ways, it's almost like a religion. They keep telling you, 'Believe, believe, believe,' always have faith," Samani said. "We never take what we hear for granted as being correct."

This skeptical attitude has paid off well. Those familiar with Multicoin's performance indicate that the fund has delivered a return of 143% over the past two years, excluding fees.

By shorting some cryptocurrencies and adopting an active management strategy, Multicoin outperformed the market over the past two years.

Jain was born in India and grew up in Astoria, Queens, New York. His parents ran a clothing store in Manhattan's Upper East Side. Samani, on the other hand, grew up in an affluent neighborhood in Austin. The two met in 2008 while studying at New York University, both majoring in finance. Despite their contrasting personalities, they became good friends. Fred Wilson described Samani as decisive, "possibly controversial and radical," while Jain was more conservative and reserved.

After graduating from NYU in 2012, both worked at a medical information company owned by Samani's father, but eventually left to start their own ventures. Samani's new company developed applications for the ill-fated Google Glass, while Jain founded a data company to help doctors find patients willing to participate in medical trials. However, in mid-2016, both immersed themselves in learning about blockchain.

In May 2017, they co-founded Multicoin, just as the frenzy of cryptocurrency buying was taking off. They quickly raised $2.5 million from angel investors. The fund heavily invested in coins like ETH, OX, and Factom, which doubled in value by the end of 2017.

Tushar Jain in Multicoin's office in Austin. To cope with the immense pressure of the cryptocurrency market, Jain practices meditation while Samani attends high-intensity cycling classes.

Samani now has 36,000 Twitter followers. In addition to providing insights on cryptocurrencies on social media, they started publishing lengthy technical articles, one of which detailed why investing in a cryptocurrency designed for specific product payments was not worthwhile. "Our short articles, of around 1,000 words, sometimes bring us feedback," Jain said, referring to feedback from industry insiders on their posts. "Our full-time team consists of only 14 people, but it feels like a 50-person investment team."

Multicoin's blog posts also serve as advertisements to attract new investors and funding for businesses. By July 2018, Multicoin had raised a total of $70 million from David Sacks, a member of the so-called "PayPal Mafia," Wilson, and other investors. 2018 was a tough year for cryptocurrencies, with Bitcoin dropping 74%. However, Multicoin managed to limit its losses to 33% by successfully selling Litecoin, XRP, and Ethereum Classic.

In April 2019, Multicoin made one of its boldest moves by betting nearly 15% of its position on Binance Coin (BNB). Many investors had dismissed Binance Coin, as its billionaire CEO, Changpeng Zhao, was known for evading regulations and skirting U.S. anti-money laundering laws, unlike Coinbase, which actively sought compliance.

The two founders of Multicoin were intrigued by Binance's product innovations, including launching a user-operated decentralized exchange. This Asian company quickly gained market share in the cryptocurrency exchange market.

In June 2019, when Binance announced that its new exchange would comply with U.S. laws, the price of Binance Coin soared to $40, resulting in an eightfold increase in Multicoin's position.

For risk-loving enthusiasts willing to seize opportunities in the cryptocurrency market, they can learn from Multicoin's four experiential lessons. Source: MESSARI.IO FOR MARKET CAP

Jain and Samani are also prominent advocates of Bitcoin. They closely monitor the number of accounts holding at least 1,000 Bitcoins, which at current prices represent assets worth $9 million. These investors tend to hold Bitcoin for the long term. These factors, coupled with the upcoming Bitcoin "halving" in May, where the daily production of new Bitcoins will automatically decrease by 50%, led them to purchase Bitcoin call options.

In addition to trading cryptocurrencies on exchanges, Multicoin also directly invests in startups like Helium in San Francisco. Helium sells $495 Wi-Fi hotspots that allow landlords to share internet access with nearby individuals and earn cryptocurrency from it. For instance, scooter-sharing provider Lime can track its vehicles at all times through Helium without paying Wi-Fi fees to telecom operator Verizon.

Kyle Samani in Multicoin's office in Austin

"I believe our investment in Helium will yield over 10 times returns," Jain said. Samani's blog post caught the attention of Helium's CEO and secured the investment opportunity.

However, Multicoin faced a setback with its investment in EOS. After releasing a 31-page research report, Multicoin bought EOS in early 2019 at $11.60. However, EOS is now priced at only $4.

"I regret that we didn't build a better relationship with EOS's core development team earlier to better understand their protocol vision and how they planned to grow and scale," Samani said, sounding like a value investor who miscalculated management skills.

If there is one enduring lesson from three years of cryptocurrency investing, it should be that there is no room for passive investments in the digital asset space. Jain stated, "The cryptocurrency market is the least efficient market I've seen in my life, meaning active management strategies have the potential to shine."

This article is reproduced with permission from ChainNews. Source: ChainNews (ID: chainnewscom)

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