Steven Menking | Should You Invest in Cryptos & Blockchain Technology Right Now?

Steven Menking has been investing in blockchain assets and crypto currencies individually since 2016. In 2018 he joined Genesis Capital Management as a Founding Partner and the Director of Investment Strategy. At GenCap Steven is responsible for managing a diversified portfolio of crypto currencies and oversees portfolio construction, trade execution, investor communication, and strategic development and is passionate about the disruptive potential of the exponentially expanding blockchain ecosystem.

Steven graduated from Williams College in 2010 with a B.A. in Mathematics & Statistics and a B.A. in Economics. Prior to Genesis Capital Management, his professional career included being an investment banking analyst in the technology group of Morgan Stanley. Steven also was a part of the proprietary trading desk for SMB Capital as a short term equities trader.  You can reach Steven via GenCap at [email protected]

0:05 Introduction of Topic and Guest

3:32 How Steven came to manage a Crypto Investment Fund

10:35 Applying fundamental and technical analysis to crypto investments

13:13 Do crypto currencies possess intrinsic value like precious metals?

16:00 The bullish argument for crypto currencies

23:45 Are crypto currencies a speculation or an investment?

31:35 How will cryptos perform in a market crash or dollar devaluation scenario?

42:25 Insights on managing risk

BEGIN TRANSCRIPT:

Bill: Welcome back ladies and gentlemen.  This is Bill Powers and you are listening to “Mining Stock Education.” I want to thank you for tuning in for another episode.  Today we’re going to be focusing on the cryptocurrency markets and specifically what it is like to manage a cryptocurrency fund.  My guest today is Steven Menking, who is an economist, commentator, and thinker based in New York City. He graduated from Williams College in 2010 with a BA in Mathematics and Statistics and a BA in Economics. His professional career includes being an investment banking analyst in the technology group of Morgan Stanley.
 
Steven also was part of the proprietary trading desk as a short term equities trader. He’s also the host of the “On the Objective” podcast, where he covers economics, finance, philosophy, and world events through the lens of a Christian worldview. Steve is a precious metals and cryptocurrency enthusiast. And as I mentioned, he manages a cryptocurrency fund. So, Steven, I appreciate you taking the time to join with me today, and welcome to the program.
 
Steven: Hey, Bill. It’s a pleasure to be here. Thanks for inviting me on your show. It’s a great pleasure and a blessing to be able to speak with you and with your fantastic audience. Anyone following the junior mining in the mining stock sector has definitely put in their homework in terms of understanding the monetary system and recognizing opportunities and is definitely someone who is willing to understand and take risks. So, you know, there are some tremendous opportunities out there, and I’m more than happy to discuss my views of the landscape because there is tremendous amounts of complication and complexity. And there isn’t really a silver bullet, so to speak, with how you handle these things.
 
Everyone as an investor has to conduct themselves in an appropriate kind of way. Because even if somebody gives you excellent recommendations, if you don’t do your own homework, if you are not up to speed on all of the fundamentals, then even if a trade or an investment pieces, even if something works out, you can end up on the wrong side of it even, if you were looking in the right direction to begin with. So it’s extremely nuanced and difficult to drive returns.
 
But nonetheless, for those people who are willing to put in the effort and the time to understand the landscape and to find opportunities, there is still some really excellent risk reward adjusted plays that you can make out there in my view. Of course, this is not investment advice. Standard disclaimers apply, all of the above.
 
Bill: One of the things I think that cryptocurrencies and junior mining stocks have in common is that they’re highly volatile and they can offer high-powered returns, albeit with a lot of risk. Let’s start by getting to know you a little more, Steven. So how did you come from graduating with an economics degree from college in 2010 to where you’re in the place now where you’re managing a crypto fund? And what is a crypto fund?
 
Steven: So to answer the second question first, a cryptocurrency fund is essentially, the way that we’re structuring it, our legal incorporation, is like that of a hedge fund, but we exclusively look at opportunities in the digital asset space. And so we offer our investors exposure to the cryptocurrency markets in a diversified and compliant fashion. And, of course, that restricts us from doing certain things, but that is the primary pieces that we are dealing with and terms of representing ourselves to investors.
 
Now in terms of my story, the quick version is that when I went to college originally, I wanted to be in academia, in philosophy or math or something else like this. And I realized rather quickly that that wasn’t the place for me for a variety of different reasons. I didn’t really like…the landscape is very tight sort of niche arena, and there were people who were way further ahead on that kind of track than I was. And so I turned my attention to deploying my quantitative and analytical skills into an area that would be lucrative. And that was financial services.
 
And this was around the time of the financial crisis, while I was at school taking a class called Money and Banking. The second week of the class, Lehman Brothers went bankrupt. And we’re coming up on the 10-year anniversary of that now. And there were a bunch of us who were looking to go into the financial services arena as a career path. And we were speaking with the professor saying, “Hey, can we take a look at this?” And it’s like, “No, we have to focus on, you know, Basel II and all the different sort of the standard curriculum.” And so I was like, “Really? Like, isn’t education supposed to be about what’s going on now, what’s relevant, as opposed to something that’s hyper theoretical and everything else like that?”
 
So I went into finance starting at Morgan Stanley doing technology investment banking out of the New York office working on IPOs and M&A transactions and debt refinancing and all sorts of different things there. That was also an area where I found that many people were being well-compensated and rewarded for the work that they were doing, but they were also making sacrifices with their lifestyle and with their time that I wasn’t necessarily willing to make in terms of being in the office, late nights, multiple days a week with young kids at home etc. I had different priorities. And it took me confronting that in the real world in order to realize that, in order to make that kind of decision that I wanted to go in a different direction.
 
So I wanted to pursue something where I had more autonomy and everything else that comes along with a better work-life balance, so to speak. And so I joined the proprietary trading desk at SMB Capital. That’s a prop firm here in New York City as a U.S. equities day trader. And in that kind of experience, I was there for a couple years. And I also learned that in that kind of environment, everyone has to understand what works best for them. And that’s a personality fit, all sorts of different things.
 
And so your ability to generate results as an investor is not necessarily, can you follow some formula that has been laid out by other people, but can you find what you were naturally attracted to and what fits your personality, in terms of how much time are you going to spend every day dealing with investment opportunities and everything else like that. Because if you’re a short term trader, that’s literally all you can do. You have to grind that stuff out day-in day-out all the time.
 
And so after a couple years doing that, I decided to move in a different direction. And an opportunity was afforded to me to take a couple of months off and figure out what I wanted to do that was gonna be for filling. And I thought back to the various times in my life when I was working as a tutor and as a teacher’s assistant. So this dovetailed with my original approach to getting into academia but at a different level. I basically decided to enter the market as a private tutor in New York City focusing on standardized test prep, because that’s the way you get into the business, but then also economics and accounting and finance and all of these things.
 
So I’ve been doing that since the fall of 2014. It’s afforded me a fantastic opportunity to conduct additional research around all of the economic affairs on the side and manage my own personal finances. And it was about 2015 when I first started to hear about cryptocurrencies. I didn’t do a ton of research until, let’s say, the beginning of 2016, but there were several different key arguments that convinced me that blockchain was a truly transformative technology with incredible disruption potential. And so I started getting involved in that market after having built a stack of precious metals, primarily silver. I started getting involved in 2016. And it’s been a wild ride after…
 
At the end of 2017, I met up with good family friend, and he asked for my advice on starting a fund. I basically said that he’d wanna strike while the iron is hot from a fundraising perspective, and he invited me on to be the director of investment management. So I now serve in that capacity in addition to all of the other work that I do. So I stay up-to-date with the markets and with trends, and I make connections, including trying to generate proprietary deal flow for our fund. And we do the best that we can with the resources at our disposal. There is still tremendous amounts of uncertainty and volatility. And if you are extra sharp, then you can take advantage of that.
 
For us, we take a diversified kind of approach that is more fundamental in nature. And so it’s more of a managed portfolio kind of style where we look at these opportunities as venture capital in nature, because they are early stage, a lot of the technology is unproven, in terms of what’s out there, at least, hasn’t led to mainstream adoption just yet. But that’s of course what investors and practitioners and technicians and people in the space are looking for. But…
 
Bill: Steven, do you invest are primarily in blockchain companies or in the cryptocurrencies themselves? What products are you investing in through the fund?
 
Steven: So the primary application here is through cryptocurrencies on the secondary market. But as we generate more proprietary deal flow, it is transitioning into earlier stage investments into the companies themselves in terms of seed rounds and things like that.
 
Bill: So when you look at an investment as you’re managing this fund, how do you intertwine fundamental analysis and technical analysis? And how would you apply technical analysis to something like a cryptocurrency?
 
Steven: The difficult aspect of applying technical analysis to crypto is that the liquidity is not quite such that you can take advantage of it in quite the same way as you could in the more thickly-traded equities markets. And ultimately, the question is more about what venues are you going to use? How are you going to access these products? And how specifically are you going to deploy your investment strategy? I mean, you can run any sort of technical analysis kind of set up that you want. It’s more about the time frame that you’re using to play the strategies.
 
And so, for me, when I would look at these things, your technical analysis setups may not work in the way that they would in traditional equities. Because as a new asset class, this is evolving and changing so dramatically that if I tried to back test a particular setup, going back to the beginning of this year or the end of last year, the complexion of the market is so dramatically different that you wouldn’t necessarily be able to generate something that is reliable moving forward.
 
And so it seems that if you’re going to be applying technical analysis and approaching things from that direction as an investor, and in this case, more of a trader, then you are going to be able to…you’re gonna be able to make that effective only to the extent that you narrow down the time frame of your investment to the immediate one. At which point, you’re better off sort of just reading the order flow, you know, on the book and just sort of playing momentum traits, which is difficult because of the lack of massive liquidity, unless you’re playing in a couple of different products, in which point, there are some high frequency operators that are there sort of hunting down stops and whipsawing people and other things like that.
 
But, generally speaking, number one, it is difficult. I would use technical analysis because of my personal style more as something to identify trends and good buy or sell spots rather than as the primary driver of an investment strategy. Because we’re looking to take positions and hold them to fruition. And, you know, you wouldn’t necessarily call it exclusively an event-driven fund, but we’re trying to be early in the space in good companies with real teams that have real people building real products that can make a significant difference in the business models, in the verticals that my team and I understand the most, which would be finance and technology.
 
Bill: You were investing in silver before you were investing in cryptocurrencies. Was it your belief that cryptos, like precious metals, have intrinsic value, that drew you into investing in them?
 
Steven: Generally speaking, that is part of the package. I would be among those who would say that cryptocurrencies do have intrinsic value. And I know that that is in some way a contentious statement particularly in the precious metals community. And what I would say is, from an analogy perspective, even though analogies aren’t perfect, the idea that cryptocurrencies are built on the back of the effort and the energy that is put into them from a computing power perspective. So there is this trade off of using computing power to generate a cryptocurrency in what, you know, in the crypto world is called the mining process.
 
And so there is fundamental value there, however, that is not, like, actual backing there. But it is not necessarily the intrinsic value of these things that is driving the price or is determining the trends. What really sold me on blockchain itself, and cryptocurrencies as well, is when I understood the benefits of decentralization and how these products and these mechanisms could be used to help bring on board the several billion people who are either unbanked entirely or underbanked into the global economy. That was a very powerful use case for me.
 
And how that will end up playing out sort of remains to be seen, but, you know, we’re not gonna build bricks-and-mortar banks and, you know, and expensive services across the developing world when there is mobile phones and this digital infrastructure that allows the kind of flexibility and access at a personal level to people who want to participate in the global economy. So there’s tremendous productivity gains to be driven here.
 
But the short answer is yes, I would say that cryptocurrencies at the top level, Bitcoin etc., they do have intrinsic value, although it doesn’t look the same as it would for hard assets or other things like that. And, certainly, it’s not the intrinsic value that’s driving the price because there isn’t even an agreement on what the intrinsic value is or how to describe it or how to define it or anything else like that.
 
Bill: What do you say is the bullish argument for cryptocurrencies? After the run up at the end of last year and then the subsequent crash back down, many people have wondered, where do we go from here? Do you think that this is what we saw, that huge parabolic run up and then the crash, is that just one step in a continued upward trend? And for those that do believe that we’re gonna be in a multi-year upward trend for cryptocurrencies, could you articulate the bullish argument please?
 
Steven: Well, different people approach the bullish case from different reasons. But long story short, there are properties with the blockchain and the cryptocurrencies that are essential to it from a decentralized nature and from a trust nature that, as we see, trust in existing institutions and existing financial institutions, particularly all the way up to central banks, as those props begin to be removed, then you need an alternative for people to go into. And for many, the primary alternative is gold and silver. I own and hold of both of those and would agree with the bull case being made there.
 
But I think that there are other features that can be delineated and declared to be useful on the blockchain and cryptocurrency side that make that deserve a seat at the table, at least in terms of the analysis. For me, the question, to narrow it down in terms of the bull case is, why are you investing? If you’re investing for profits and appreciation, then the bull case is primarily…this stuff is really low.
 
This kind of movement has happened before. It has recovered at least at a high level. There are, in the ecosystem, a whole bunch of projects that are not going to succeed and are not going to be disruptive, but there are going to be things that will be disruptive. And a lot of value is going to accrue to them in part because of the miniscule size of the ecosystem and the leverage that’s coming in.
 
So, for instance, if millennials put in, let’s say, 1% of their liquid net worth, which is estimated, I believe, if I’m citing this presentation from Fundstrat correctly, to be about $70, I think it was billion, in the next year. Actually, rather than make up sort of numbers or misattribute them, let me point to the thing that I know for sure and concretely can state off the top of my head. Every dollar that comes into the cryptocurrency space has a multiplied impact on market capitalization because it is so thin.
 
Now, of course, this applies to the upside and to the downside. But if we see institutional investors taking 1% of the overall asset landscape and going in there, then the returns on a multiple basis are absolutely gigantic, even if you take very conservative kind of assumptions.
 
So if you’re investing for profits, it’s trying to either play the momentum game or pick particular buy spots to sort of buy and hold, understanding that even if something is down 80% from its peaks and you buy it, it could go down another 50% from where you bought it. So there’s extensive volatility there.
 
If you’re investing in sort of the fundamentals of the space and looking to hold it for an ecosystem, you’re looking ahead to a time where at the end of the network effects road, Bitcoin is even one of the candidates for global settlement/reserve currency status. And that may not necessarily come to fruition, but that final endgame wouldn’t necessarily have to be in play in order for people to realize significant gains. You’re looking ahead from a technological standpoint to the phase where there is adoption of these things, and they’re actually being used. That is not necessarily the case at the moment. There’s still the exploration phase and the level of technology is not quite yet there to enable these sorts of things.
 
And so we saw at the end of last year, in ridiculous ways, because the market is so thin, we saw the prices and the market capitalization far outpace the fundamental value of the technology even if you apply sort of aggressive multiples moving forward. And now we’re at a place where the technology has progressed since then and more teams are building actual things and real solutions. There’s a lot of scams that have been flushed out of the ecosystem. And there’s more productivity. And the prices come down so much from those roaring, ridiculous highs that we see an imbalance in the other direction.
 
Of course, that doesn’t mean that it can’t become even more imbalanced. The market can stay irrational longer than you can stay solvent in most cases. But there are some good prices for real products out there with a lot of potential.
 
And if people are aiming to generate returns or even just to take part in what has the potential to be a revolutionary technological change that impacts not just individual business models but the meta business model of how we do things on a decentralized basis versus a centralized basis, then this is an area that you’d need to look at. Of course, you have to be extremely diligent and extremely responsible in understanding both the investment pieces, what’s actually going on in terms of due diligence, because people really just weren’t doing that last year, and understanding your risk appetite and dealing with that appropriately.
 
And it’s worth noting that, you know, as mining stock people, we understand that…because I own mining stocks as well, full disclosure, for extra leverage on the precious metals play. You know, we’re looking at a scenario here in the cryptocurrencies where when people say, “Oh, Bitcoin almost got to $20,000.” Well, you know, realistically, in December, it got to, you know, the $14,000, 15,000 area and then went all the way up and then all the way back down in an extremely short period of time. There just wasn’t, you know…people weren’t able to offload or, you know, or grab a lot of Bitcoin at those prices because it just wasn’t there for any extended period of time.
 
And so when I’m looking at charts and trends and everything else, I’m kind of looking more at, like, the last little burst of those moves in Bitcoin as well as in the market overall as being so overdone that it’s not even worth really considering as real price action, you know. It’s more like Bitcoin got to 15 grand and had a reverse flash crash up to, you know, up to the 19,000 kind of area.
 
So it requires a great deal of homework to deal with these things appropriately, but the bullish case is there either from a returns perspective or from a general technological perspective with the understanding that if you buy the fundamental case, if you understand the benefits of decentralization versus centralization, and the notion that now you can trust math as opposed to trusting people, and that commerce can be built on top of a platform like that, then it makes sense to consider as an asset class with the understanding that you may have to do additional research rather than just applying paradigms that applied to previous asset classes to this new one.
 
Bill: My next question deals with speculation. The first part of the question is, do you consider cryptocurrencies to be more of a speculation rather than an investment? And the second part of that question, especially as you mentioned you also invest in mining stocks, what is your approach to speculation? And what advice would you give listeners?
 
Steven: Well, right now on CoinMarketCap, they keep a list of 1,901 cryptocurrencies. It beggars belief that all of those would have really utility as investment classes, and so you’d have to say that the vast majority of those are speculative. So you’d have to evaluate the extent to which a cryptocurrency has been around, been tested, has actual use cases, has network effects, and all these sorts of things.
 
So I know many people who say, “Look, the only thing that’s really been tested sufficiently is Bitcoin itself.” And some people are maybe Bitcoin, maybe some Ethereum. Some people like, you know, anything in the top 10. And for other people, everything is fair game as an investment. But for me, you would view, or at least I would, any utility token or medium of exchange token that doesn’t have a product or a system that has been adopted, has been stress-tested, and is actually being used by a community of people, anything that doesn’t meet those criteria is more speculative.
 
And so if those are the criteria, then it’s going to be a very constrained list of blue chip crypto, so to speak, if there even is such a thing, that would start with Bitcoin and maybe a handful of others that you would say, “All right, this is now transitioning over from full speculation to having this kind of solid core of established investment check boxes that we can say, ‘Yeah, this is a little bit less speculative. I don’t think this is going to go completely to zero because of the value that’s in the ecosystem.” So there’s always a bit of a speculative element here, in part because of the lack of clarity globally from a regulatory perspective.
 
But there is resiliency to these networks in that they are not subject to any particular jurisdiction. You know, any regulatory crackdown in one environment can simply, you know, it’s like stepping on a rug that has a pocket, and the pocket will just go someplace else. And so these communities and the people who are building on top of them and involved with the creation of these products in these companies, they’re robust and even anti-fragile. They have spent a great deal of time, energy, and effort maintaining the security of the blockchain ecosystem for these blue chip cryptos.
 
And here, if it helps simplify, I can say that I’m referring here to Bitcoin specifically. It’s been in the ecosystem for the longest, coming up on 10 years since the white paper. There’s been, you know, numerous developments that continue to improve things. And the space is not static.
 
So there’s always going to be an extent to which these are speculative investments until there is mainstream adoption and everything else. But if you’re going for the home run speculative play, then an understanding of the fundamental case can lead you into taking on positions that are risky and that they can all go to zero overnight, like, that is totally true. And it could be an announcement from regulatory authorities that put a lot of pressure on it. We certainly have precedent to see how the ecosystem responds to these sorts of things. But, you know, there can also be failures of the electrical grid, although that’s not a universal wiped out unless all electricity goes down forever and all copies of a specific block chains are lost. It can be reconstructed like a starfish from any one of its different instances. It’s one of the benefits of decentralization, even though it is an electronic money system.
 
But as it pertains to speculation overall, I would just say that people need to do it with an eye, not to the potential of what could happen if everything goes right but with an eye towards what would happen if everything goes wrong. And that’s not to say that you should be cynical, but you need to be intelligent and emotionally-aware. Because when people start speculating at the wrong times and trading the way that retail investors tend to do on the street and on trading desks with people who are professionals in this arena, frankly, they refer to retail investors as Muppets or monkeys or bag holders, you know.
 
The institutional folks and the professional folks treat retail people as, you know, as marks. They will, you know, suck people in and push people out. And this happens at the micro level, whether we’re talking about high-frequency trading firms understanding where people stops are and dealing with it that way, just, you know, testing it to shake people out of their trades, or whether we’re talking at a macro level where commentary and animal spirits, so called, will suck people in at the right times and then sentiment can be destroyed.
 
And so if you’re going to speculate, you can’t do it with funds that you need to preserve, but you can take small, calculated risks here and there as appropriate with the awareness of, well, how am I going to respond emotionally and psychologically to different potential events that come up. It’s not just a financial stress test of your portfolio, it’s an emotional stress test of your results.
 
For instance, my general cryptocurrency holdings in the background here, because I’m not allowed to trade my personal portfolio with certain exceptions, because I’m involved with a fund, and so it’s a conflict of interest, and compliance is extremely important when we’re trying to establish ourselves in such an arena that still is Wild-Wild-Westy for a very…to a significant extent. Like, the paper value of my holdings have decreased significantly as I’ve held things through the entire way even though I’ve made some moves in the meantime.
 
I do my best to have the discipline to look at these things not in terms of their U.S. dollar value but in the size of my stack, so to speak. So I’m treating these kind of opportunities like I would my precious metals positions with the additional caveat that I know some of them may, and indeed, can go to zero, whereas that’s not the case with the precious metals because of the clearer intrinsic value case. So speculation is extremely challenging and extremely risky. Nothing I’m saying should be considered as investment advice, it’s educational purposes only, hence Mining Stock Education. Happy to be here, once again.
 
But, you know, it’s tricky. Take small bites, see how you respond. If you’re worried about missing out, then you’re not making the right trade. And if you’re concerned about the volatility, then you shouldn’t be speculating at all.
 
Bill: Steven, we’re a decade past the Lehman Brothers crash, and many people post-2008 didn’t think the dollar would last more than three to four to five years. But as I say, we’re a decade past. Those of us that hold precious metals still believe that one day we will see the king dollar dethroned in a possible currency reset, therefore we invest in precious metals to protect our purchasing power. How do you see cryptocurrencies functioning if there was, let’s say, a major general equity stock market crash and/or a major dollar devaluation? How would the crypto markets respond?
 
Steven: Well, here’s the thing that we don’t know. Because what we saw in the wake of 2008, the immediate aftermath, even safe haven investments like gold went down because there were margin calls going on, and it looked like everyone sold everything to go into cash. Now, since you’re asking me my opinion, I don’t think that that same dynamic would play out in the same way. Because if we’re talking about this next stage of financial reset or financial collapse or any of these other scenarios that are inevitable, the timing is the real question. And that’s what nobody really knows.
 
I mean, if the system were rational the way that academic economists claim it to be, then everyone would have recognized quantitative easing as the beginning of the end and sort of bailed out at that time. But, you know, when you print money and buy assets with it, like, that’s a pretty good way to make sure that the price goes up particularly when your pockets are essentially infinite. But I won’t rehash that, because I’m sure that your audience is well aware of that kind of overall thesis.
 
And so if we’re talking about how cryptocurrencies would perform in a scenario like that where there’s adversity, you’d have to imagine that all the ones that don’t have real businesses or a real use case would essentially go away overnight, because, you know, in those sorts of situations, people aren’t going to be rushing on with speculative demand to come in to these things. It’s like, you know, it wouldn’t make sense to me.
 
I mean, I suppose it’s possible that they could see a tremendous influx of capital because people are like, “Hey, whatever,” but the problem is that the ecosystem is so complex in that, you know, if you asked the everyday person on the street like, “All right. Well, how would you buy a cryptocurrency?” That’s not necessarily a question that people could answer.
 
And in order to get at these secondary cryptocurrencies, you typically have to purchase Bitcoin or Ethereum or one of the stable coins and then exchange those on an exchange for something else. So it’s like multiple steps away from U.S. dollars or multiple steps away from other asset classes. And so I don’t see how all of that would sort of flow through.
 
Now this would be if the monetary trauma event were to take place in the current ecosystem. If you ask me in six months, the scenario could be significantly different because of development inside of the cryptocurrency and the blockchain ecosystem. But if it’s a lack of trust in central banks and countries, where it’s like, “Well, who’s gonna bail out the ones who did the bail outs in the last round?” The real question is “Would the people be satisfied to continue along in that process?”
 
And I don’t think so. I think part of the hypothesis of the systemic reset… I’d prefer systemic reset to a total systemic collapse. And, you know, that’s my own personal preference. But generally speaking, there are certain cryptocurrencies from a medium of exchange perspective, from a security perspective, from a decentralized trustable perspective that could hypothetically do very well under those kind of scenarios mostly because, like I said before, and this is part of the general bullish case of the limited size and scope of the market. And the same argument gets used in gold and especially silver, because it’s such a small asset class by dollar value on, you know, fraudulent paper exchanges that any real influx of capital is going to apply to, you know, to have multiples of the price. And that kind of return is something that, you know, we’d be really curious to see what happens from a purchasing power perspective.
 
But that’s a long way of saying I really don’t have any idea. Because if I’m being honest with myself, there are so many different scenarios that could play out with the crumbling or the outright collapse of the existing system that I don’t know which one of those is more likely than the other. And your assessment on that is going to extend into multiple different realms that we don’t necessarily have the time and the scope to get into, because it would have to do…you’d have to have an analysis of the political landscape. You’d have to have an analysis of the cultural landscape. And you’d have to extend everything into this, well, how are these asset classes going to perform under this wide variety of different scenarios.
 
So, long story short, hypothetically, many of the same aspects of the pieces for precious metals could apply in those situations to select cryptocurrencies. But there’s so much uncertainty around both the timing and the nature of those sorts of sequences of events that it would be foolhardy of me to say, “Well, here’s how these things even should perform,” because I’d be making so many assumptions in the background.
 
And I don’t mean to equivocate here, Bill, I just honestly don’t know. And if I did know, you know, I’d raise capital based on my knowledge of the future, and, you know, we’d all eat very well for the rest of our lives. But, you know, it’s the kind of thing where if I’m not able to admit to myself and to others, in particular, that there are too many uncertainties and complexities for me to evaluate properly… Like even if I got every bit of the analysis right here in terms of, let’s say there’s… Let’s reduce it ridiculously and say there’s only, like, five different vectors. Even if I got the probabilities right on all five of those vectors, if you ask me in a week, the probabilities would likely shift. And even then, it’s still a probabilistic event.
 
And so to say what would happen or what should happen would have to be qualified by so many different assumptions. And there are so many different sort of batches of different potential outcomes that we’d sort of be here forever. And it’s a question of, well, how much time and how much detail do we want to spend on evaluating what the most likely outcome is.
 
Because let’s say you have, for sake of simplicity, 10 outcomes. The most likely outcome might only have a 15% probability of happening. So should you do all this analysis to figure out, all right, this is the most likely thing to happen, and then bet the farm on that? Well, not unless you’re doing that in sort of a risk-adjusted and a hedged kind of way. My simplification in this kind of process is that if you are, and we, collectively as a globe, are experiencing the inevitable transition from the current form of the system to a new form, then you want to have as little exposure to the current form and as much exposure to the new form as possible as soon as you can, because you may not be able to react to something like that.
 
And so that means that the old form, which would include, you know, fiat currency, stocks, bonds, real estate, everything else of that nature, the classic asset classes, should be, you know, should be skewed away from, or at least, hedged to buy these potential alternatives, precious metals, primary cryptocurrency as well. But more speculative there and more complex to get involved with.
 
So, like I said, I don’t know. And so the way that I would look at these things is to analyze it from a macro level. Now other people get into more of the weeds and the details and may be able to pick things out. Like, your people who are running mining exploration funds and, you know, the portfolios of mining stocks, they’re into the weeds. They’re doing that work to figure out who the winners and losers are going to be in a very discreet game of competition. And that kind of understanding is something that I don’t have the experience with.
 
But my strength is to look at the big picture and connect different dots from across different landscapes and to evaluate, all right, you know, where should I, for the sake of my family, or now for the sake of the investors in my fund, be positioned. And so our pitch is that you should have some exposure to cryptocurrencies.
 
You know, it would be really difficult for me to recommend a major allocation into the space at this level, but the potential for returns is so tremendous that I think that people would be wise to begin doing the research if they haven’t already, you know, the best opportunities in this space, because it’s technologically-driven, it’s even possible that the best opportunities don’t yet exist.
 
So don’t worry about fear of missing out and don’t let an existing paradigm prevent you from doing the real due diligence and the research. Listen to the best and the brightest people who argue in favor of something and who argue against something and establish your understanding of the nature of the debate. Because, you know, if you’re not going to do that, then you can’t really get involved in anything.
 
But the problem is, regardless of your asset allocation across different asset classes, you are going to be taking on risk anyway. It’s just a question of are you going to do it intelligently or are you going to do it based on rule of thumb without the necessary due diligence and acknowledgement of the uncertainty involved?
 
Bill: I’m Bill Powers. This is “Mining Stock Education,” and you’ve been listening to Steven Menking, who is a deep thinking economist, as you can hear. That was a very content-dense 40 minutes. And I encourage you to go back and listen to that again. There were so many nuggets in there that if you listen to that again, you’ll be able to pull out some of this wisdom.
 
Steven, I was gonna ask you, and you kind of hit on it before I was able to ask, as we conclude, would there be something, regarding what you see going on at the macroeconomic level or in the cryptocurrency markets or the general equities, what things would you wanna point out to the listeners to be aware of, specifically in regards to risks that they should avoid?
 
Steven: Well, there’s risk all over the place. And as I mentioned, and as your listeners likely know, even cash in the bank is taking on specific risks. And so we have to be aware of the different kind of exposures. Inside of crypto, the risks are quite literally everywhere in terms of all of the background uncertainties.
 
But I think that people are certainly under estimating the risks that are present in other spaces. And I think this has to do more with investor psychology. Because once we have a pet theory or a pet outcome or a particular paradigm that we’re wed to, then it’s easy for us to find evidence that confirms and less easy for us to find good arguments against because we’ll immediately sort of discredit them.
 
So we have to be, I think, aware of the risk of our own cognitive biases and counteract that by understanding that they’re there and doing our level best to identify the best arguments for and against particular investment thesis. And then if we like something, and we wanna take it on, then great. Do it responsibly. And if we don’t, then don’t.
 
I think a lot of the risks that are in existence are maybe less, let’s say, market and price-related, although we can point to some obvious ones about, you know, the bull market and U.S. equities being long in the tooth and not having breadth and the same kind of cases that your audience is likely well-familiar with. I think that the primary risks that we want to address are internal. And that is, am I the kind of person who is going to be able to deal with the widest variety of scenarios appropriately? Because you can fail even when you succeed, and you can succeed even when you fail. Because it depends on the definitions, and it depends on who you are really as a person.
 
And so if we’re not rounded as people, and we’re not really doing the due diligence on ourselves, and on our lives, and on these opportunities, then even if everything goes great, according to the best of all things, we may climb that mountain and realize that it’s not what we wanted it to be, or that we’re still unfulfilled, or any of these other things, or that there were things that we didn’t take into account.
 
Now I’m not saying that you can, through your rational comprehension and gathering of evidence from the external world, understand every single thing about every single potential outcome. And that’s part of the excitement of life. But I think that the primary risks that people may not be paying attention to are the emotional and psychological risks of dealing with both yourself and the people who you have relationships with that, you know, if all of that phrase, and all of that is in trouble, then it doesn’t necessarily matter how your portfolio is doing. Although, how your portfolio is doing is capable of affecting these other things.
 
So please try to consider holistically your world view, your approach to investing, and the relationships that you have. Because whether in bad times or good, we have to be aware of the opportunities and the risks that are facing us. And if we’re only looking externally for risks, then we’re ignoring the primary source of risk that we can control, and that’s ourselves, our mentalities, our attitudes, our world views.
 
And, you know, Bill, I’m 30. I’m still, you know, green. I’m not long in the tooth, so to speak. And so maybe many people who are listening to this who are many years or even decades my senior could teach me a thing or two. If so, please email me [email protected] to get in touch with me over there in that capacity. But I would say that, you know, even excellent teams with excellent ideas and solid execution can fail because of personal differences or other things that just happen to come up.
 
So the biggest risk is the one that we don’t see. And oftentimes, as investors, because we’re so focused externally on what’s going on out there and evaluating those opportunities that we don’t see the risks that are here in our own mindset and in ourselves. So that’s another thing to look out for that I would emphasize, that hopefully is a bit of a fresh perspective here for you, Bill.
 
Bill: Steven, you don’t just cover economics. You also cover philosophy and engage our current world events through the lens of a biblical worldview. If listeners wanna find out more about how you think, where can they find you on the web?
 
Steven: Well, in terms of the podcast there, it’s “On the Objective.” The website is ontheobjective.org. And just go to YouTube or Twitter and type in On the Objective and you’ll be able to get that content. As far as the cryptocurrency fund and everything else, that is Genesis Capital Management, gencap.io is the website. I gave out my email for that. Contact me [email protected] if you wanna start a conversation or talk about the cryptocurrency space or ask questions about blockchain, any of that sort of stuff. I’d love to hear from your audience, Bill.
 
And thank you, again, for inviting me on and spending the time with me. It’s been a great conversation. Thanks for your astute and important questions. And I hope that we can do this again sometime soon.
 
Bill: Sounds great. Steven, thank you for joining me today.
 
Steven: Thanks, Bill. Take care.