Watch the full video of our conversation on the Spread Great Ideas YouTube channel.

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Full Transcript of Our Conversation

Introduction to Tom Kineshanko

0:30 – Brian David Crane

Hello friends. So today I am talking with a longtime friend of mine, Tom Kineshanko, who has a pretty impressive resume. He’s an expert in cryptocurrency. He’s the co-founder of a cryptocurrency hedge fund called Protos. Prior to that, he had also started a company in Canada to do cryptocurrency mining with hydroelectric power. He founded or co-founded a company called GridBid that was a marketplace for doing solar panel installs.

He also co-founded a company that was dedicated to carbon emissions trading amongst different nation states. So he’s got a lot of experience in cryptocurrency and ICOs. He’s been an investor since early 2012. And we get to jam today primarily about crypto, and also about the state of crypto in the sense of which jurisdictions are interesting, how Protos is different from what’s out there currently, and how he sees asset allocation amongst crypto and fiat currencies in 2020, and beyond.

So enjoy the show. And here’s Tom and I. Cool. Thanks for being here. Yeah. So yeah, where is it? We’re in Ubu together. Tom is getting ready to fly to Switzerland, to work with your business partners, and also put on a conference around investing in cryptos. Is that right?

Purpose of the Protos Summit

2:05 – Tom Kineshanko

Yeah, Protos Summit number 2, 80-person invite only event at some fancy hotel and, in Zurich, and the print, the whole point of conference 2020 was getting crazy. What are the biggest threats to your crypto if you hold it because the people we work with, our customers or clients at Protos have crypto, we have crypto. What are the biggest threats to your crypto and what are the biggest opportunities to grow it? And that’s it. That’s the day.

2:37 – Brian David Crane

And so the 60 people that are coming, they’re ones who, they’re managing crypto for other people or this is investors in Protos?

Understanding Market Correlation in Crypto

2:45 – Tom Kineshanko

These are some of our clients. So, like a fund, clients are called LPs like limited partners. And, or people that hold a large amount of crypto and then we are bringing in a bunch of other people who, like, have proven themselves over many years in crypto to earn returns in a systematic way. So it’s kind of, like for me, the reason to do an event is to bring together a bunch of people and just kind of talk about this stuff in a bit of a no bullshit sort of way.

Like, what actually works, what data do we have to know what’s going to happen in the year ahead? You know, a lot of people, for example, talk about how crypto isn’t correlated to traditional assets, which is true. But during the last couple years, well A) we’ve never had a recession since the start of Bitcoin. B) when there’s little flash crashes in the equities markets. Bitcoin immediately correlates to the stock market.

3:42 – Brian David Crane

In terms of it goes up or goes down?

3:44 – Tom Kineshanko

Correlates and goes down. So just as an example of kind of how I’m thinking about crypto right now: It’s like, we’re heading into a crazy year. What I’m constantly thinking about for our clients and also for myself is What bad stuff could happen to my crypto? What could cause it to go down? And what are the opportunities to earn good returns?

4:09 – Brian David Crane

And so when you say that 2020 is a crazy year, and when you think about some of the bad stuff that can happen to your crypto, you’re talking about it like at a macro level, you’re talking about the US election? Are you talking about a recession? Or what are you referring to?

Tom’s Crypto Thesis

4:22 – Tom Kineshanko

You want to dive straight into Tom Kineshanko crypto thesis?

4:26 – Brian David Crane

Yeah!

4:26 – Tom Kineshanko

Yeah, that’s it. That’s a quick start. Well, I think that you have a macro environment where you see banks, basically with a ton of money, giving money out for extremely low interest rates –

4:51 – Brian David Crane

To questionable borrowers.

4:52 – Tom Kineshanko

To questionable borrowers. You’ve got the US dollar dominating the world. And I believe it will totally continue to dominate the world. And so the US can put pressure on other countries to do things economically. You’ve got a generation of people like us who, you know, can be in Ubu recording a podcast and like you have all these digital native people that wouldn’t mind just transacting with each other without having to go to the the smelly currency exchange office, who probably want just some sort of shared currencies or just an easier way to get around.

You’ve got a possible war, or wars, you’ve got a possible recession. And so I guess you take all this stuff together. And it’s like, if there is an economic recession globally, does Bitcoin go up? Because people flee to it? Or does it go down? Because it’s a risk on assets like an angel investment and people just trying to get the hell out.

5:53 – Brian David Crane

And they want to hold it, and they want to hoard dollars at that point? Hoard cash?

The Case for Bitcoin

5:56 – Tom Kineshanko

Yeah. So… I think… My thesis is really, really simple. It’s basically like, if you take all the big macro trends in the world, there’s just so much evidence for why people would want a store of value that is decentralized and deflationary. Limited in supply like land, except its shrinking because people lose one every day. You know, people use Bitcoin every day. And so A) we’re now in an 11 year Bull Run for Bitcoin, there has never been a period of more than I think, 13 months of negative returns. So we’re in a huge bullrun.

I think we will see all time high prices this year. But then at the same time, I believe that Bitcoin is still a risk on asset and if there’s a serious stock market crash, where the data that we do have is that it’s going to drop because the only data we have is these micro stock market drops, when Bitcoin immediately correlates and drops, so if there’s a recession, I think it drops. And then my last bit of my thesis is that, say there’s a big stock market crash.

There’s this – there’s an outside probability that people are like, “Oh, damn,” and they start actually rushing into bitcoin and actually blow it up because people see it as kind of an escape from the existing system. So that’s my thesis in a nutshell.

7:29 – Brian David Crane

It was really well said I… that was really well said. I think on the third point, to me the the litmus test is going to be if Bitcoin acts more like gold, or acts more like a risk on asset when there is a crash, because if it acts more like gold, and people move into it as a store of value, I would consider that to be incredibly bullish for it.

If it doesn’t happen, as you’re talking about, or potentially doesn’t happen then I think, to me from a political or socioeconomic perspective, it makes it less attractive because part of the reason to hold it is as a hedge against Fiat problems and global recession and these sorts of things.

8:17 – Tom Kineshanko

So I, like a young person who really enjoys this stuff, naturally, feels that way. Like me, I think that in the 70s and 80s people fled to gold. It was like a generational thing. Because of what was happening in the US, with the US dollar. I think our generation probably is gonna flee to this stuff. And move to it. I think, if I were to have to stand up and speak to a roomful of people who, you know, have hundreds of millions of dollars and I was, you know…

8:50 – Brian David Crane

Made a prediction?

Data vs. Gut in Investment Allocation

8:51 – Tom Kineshanko

Yeah. And they were asking me how much of their net worth should they put into this stuff? I would probably say, you know, the data we have is that it correlates during these micro drops in the stock market and therefore, we have no data showing what happens in a recession. So if you’re taking a data driven approach, you have to say, it’s a risk on assets. If there’s a recession, it’s going to drop.

But if you were just like, “Tom, you’re playing with just your own money and you can do whatever you want, like, what would you do?” It’s like, well, I would, I would much more feel that my gut sense is that our generation is going to see a lot of the chaos in the world and be like, you know what, I just really like this stuff, A and B, I’m a little scared of the existing system, and I’m gonna move into it. So…

9:38 – Brian David Crane

Interesting. And so in the second scenario that you described over there, in what, what percentage would be the allocation to crypto, and then the first, what’s the allocation to crypto, is it…?

9:50 – Tom Kineshanko

That’s a good question. So I have, I’ve got these three great slides that I just did like a ton of research on how you answer that question. So the question is, you have a portfolio.

10:06 – Brian David Crane

Make it simple $100

Portfolio Allocation to Bitcoin

10:07 – Tom Kineshanko

100 bucks. How much of it you put into, let’s just say Bitcoin? We can talk about different crypto assets, but let’s just say Bitcoin. So I think the question is, do you buy it?

10:24 – Brian David Crane

First? First and foremost? Yeah.

10:25 – Tom Kineshanko

Do you buy it? I think the answer is, the way you answer that is, it’s been the best performing asset of any asset of the last 10 years. And it is in, it’s in a sustained long term Bull Run with a lot of volatility. You know, for generational reasons for currency crisis reasons, generally, all the stuff, the macro stuff we talked about, it seems like a good thing to buy.

It’s scary, like the answer to that is, ” Yeah, you probably have some. When do you buy, how much do you buy, and when do you sell? So when do you buy, I think it doesn’t really matter. Like, if you look at the return graph of the last decade, it’s like you should have just bought the day that you concluded that you should have bought

11:09 – Brian David Crane

And effectively every time you add extra cash dollar cost average into it.

11:13 – Tom Kineshanko

Yeah, yeah, dollar cost averaging is a great principle and yeah, why not do that? But even if you just, you know, didn’t want to mess around, just put your money in it tomorrow and then just forget about it for the next five years. I still think that’s better than trying to wait for some bottom. So do you buy, when you buy, how much do you buy? I think it was more your question.

11:36 – Brian David Crane

Yeah. percentage. Yeah.

11:42 – Tom Kineshanko

We looked at – I wish I had this graph in front of me – we broke down what happens to like, your typical portfolio you know, like the idea of the all weather portfolio.

The All Weather Portfolio + Bitcoin

11:52 – Brian David Crane

Explain it to me.

11:52 – Tom Kineshanko

All weather portfolio is like, I think Tony Robbins probably brought this to the masses. Like, if you look at the best asset managers in the world, several of them have tried to build portfolios that do well, in good times and bad times, hence all weather. And so it’s basically a portfolio that performs in good and bad times. So if you, we looked at if you add Bitcoin to a typical all weather portfolio, what does it do over the last one year, three years, and five years, and we just looked at a 1% allocation of your assets, 3%, and 5%. Under all of those conditions, it improves your absolute returns. So I guess what I would say is like on a personal level, I’ve got way more than 5% of my money in Bitcoin.

12:39 – Brian David Crane

As do I.

12:42 – Tom Kineshanko

Nice, I wanted to ask you that question. On a fun level, I would just say like, I would feel totally comfortable pushing data across the desk and being like, Look, the data says you should probably allocate 5%.

12:55 – Brian David Crane

Okay. And so then, how does Protos fit into that, as far as if somebody says, I’m going to take 5% of my liquid net worth, and put it into crypto and they come to you, what is it that Protos does that is the special sauce? Or what’s the value add? Why would somebody do that?

What Makes Protos Different

13:18 – Tom Kineshanko

So Protos is for people who want to hold a long position in the top 10 crypto assets. Let’s just say again, Bitcoin, because we just weigh them by risk. And so we hold, let’s just say, Protos is for people who want to hold a long term position in Bitcoin…

13:36 – Brian David Crane

Along with Ethereum and I don’t know what the other eight or nine would be.

13:41 – Tom Kineshanko

But yeah, we just we, we take the top 10 and we weigh them by risk, which for us is just a calculation, a standard calculation using stuff like volatility. Most of our allocations pick one and we run like fully systematic strategies to protect in the event of downturns without missing the upturns. And so the reason people come to us is, we’re a Swiss Fund, which is we’re regulated fully transparent. Our strategies aren’t some black box quant strategy. It’s just the real, classical trend following.

13:56 – Brian David Crane

And you told me before we started the recording that you actually publish the trades that you’re making the same week.

14:25 – Tom Kineshanko

Yeah, you can go to producemanagement.com, sign up for the newsletter, and we will send you the trades that we run each week. We believe in basically, you know, there’re different people in the world that could build a trend-following system. So trend-following means catch the runs, move out during the drops. When you’re out, use the cash to generate yield through lending, whatever, some sort of safe yield.

There’s a lot of people who could build those systems. I guess what’s different about us is we’ve actually built those systems and we’ve run them with our own money and with other people’s money for two and a half years and consistently outperformed the market for the entire time.

15:06 – Brian David Crane

And how – so when you say trend following, the trend is driven by technical analysis, it’s driven by – what’s, what actually indicates to you that it’s trend on for Bitcoin or trend off? Let’s say.

15:23 – Tom Kineshanko

It’s basically we’ve built a data environment that essentially shows us volatility on price and the rate of change in price. So I guess okay, maybe black box is the reason. Anyway, the…

15:41 – Brian David Crane

I understand that, that makes sense. Like as the volatility goes up, you guys are looking at that and saying this looks like it’s… trending down, effectively?

15:49 – Tom Kineshanko

Yeah, the big thing with a trend following system is… and, you know, we can go back more into my background. I do come from more of a venture background than I do quant background and my two partners at quants. But essentially with trend following it’s like, do you trust the price data you have?

Then if you do, what’s happening to the price data? Is it changing quickly? And from that you make a decision. How much are we in the market? 60% of our money? 70%? And how are we weighting the assets that we hold. So for example, we mostly weight our assets by volatility as a bit of a formula to basically compute risk. So you put it all together into a system and it basically just gives us a signal and says, you know, today is a 6.3 out of 10 long position in your top 10 assets, and this is the weighting and the system responds and moves money into and out of the market and weights the different assets accordingly.

A big thing that we’ve learned is, okay, cool, that’s all fine. But how frequently do you trade? And that’s… there’s a risk associated with each trade you make, you know, as you’re making a trade does your exchange get hacked? And there’s a cost. And so you put all that stuff together and you, you run it for a long period of time.

And you optimize it, and you reach conclusions like, this is a system that is going to give you a long term position in Bitcoin. But you’re gonna move out and avoid the big drops, you’re going to use that cash to earn yield while you’re out of the market. And you’re going to not miss out on the runs.

17:30 – Brian David Crane

Sounds amazing.

17:32 – Tom Kineshanko

It’s cool. It’s been a hell of a lot of work to set up. But it’s, it’s, it feels really good to have it, yeah.

17:38 – Brian David Crane

And so, when you and I were talking prior to the show, you mentioned how this, how Protos actually works with people. So they have an account at an exchange and then you guys remotely manage it? Is that how it works?

Three Products at Protos

17:54 – Tom Kineshanko

So… we’ve got three products. The first fund we did at Protos was actually the first or one of the first fully legal tokenized hedge funds, which just means, you know, we offered a security token, so it was deliberately a security. People could buy it with a $1 minimum, in 97 countries raised something like $7 million US in a couple months. That was our first fund.

18:22 – Brian David Crane

In 2017. Right?

18:24 – Tom Kineshanko

Late… late 2017, yeah. We actually raised our first fund a week closer like a week after the peak Bitcoin price. So, it was about the worst possible time you could raise a hedge fund and then…

18:36 – Brian David Crane

Sometimes you’re the bug, sometimes you’re the windshield.

18:44 – Tom Kineshanko

So, then there was a huge 90% drawdown in the assets and in the price of Bitcoin, which is like 1% greater than the dot com crash,

18:54 – Brian David Crane

90%… So from the peak Bitcoin peaked at 17 or 19,000.

19:01 – Tom Kineshanko

19,700 something..

19:03 – Brian David Crane

US dollars and then in then it bottomed around 2000…

19:07 – Tom Kineshanko

Something, yeah.

19:08 – Brian David Crane

Okay. And so that from peak to trough that’s roughly a 90% drop or… Okay. All right.

19:15 – Tom Kineshanko

So we had just raised this fund there. The market was just, you know, pretty devastated. Like, some bloating. Yeah. You know, you’ve been through, I’m sure you’re through the dot com bust and stuff.

19:26 – Brian David Crane

Well, I held Bitcoin as it collapsed. I mean, I was watching this happen. Yeah, yeah. We’re survivors.

19:37 – Tom Kineshanko

Yeah. So we, we took a bit of a pause and we said like, you know, we’ve set up this new asset management firm in Switzerland at great personal expense, to manage other people’s money because we believe we do a good job of that and to also just have a way of trading our own money and we basically took a decision to not start a new fund during the depth of the crypto winter and we tested all these systems and we built all these systems and they were really working.

And so about nine months ago we concluded we would do a second bond. And so we set up two products in the last nine months. One is the traditional hedge fund, like for high net worth individuals, large holders of crypto. And the other is something that we’re going to announce pretty soon publicly. But it allows us to apply our system to people who have crypto in their own wallets. So they give us API access. And our strategy trades their crypto within their account. So that can be applied to almost anybody.

20:34 – Brian David Crane

And just for people who aren’t familiar with that, so the first fund effectively was if I had crypto, I would hand it to you all and then you all manage it under a traditional hedge fund structure. So that’s 2% of assets under management and 20% of the returns per year. Right? In the second scenario it is I opened up an account at a particular exchange that you tell me you have API access to let’s say, let’s say it’s Binance, I move my crypto into that account that I have at Binance and you guys, programmatically, via an API, trade on my behalf. Is that right?

21:14 – Tom Kineshanko

Yeah. So in this second scenario, there’s about 25 different exchanges and custodians, like, for example, Kraken, Binance, where you just move the amount of crypto you want us to trade for you in our system into that account, into that particular wallet. You give us access to the API. We put the API into our trading system, and then whenever our system makes a trade, it applies it to your crypto. Yeah.

21:43 – Brian David Crane

That’s pretty interesting. And so, then with the second type, you all are actively managed, like you’re actively promoting this, or this has been sort of a test vehicle and now you want to do a third fund that is totally different in structure. You were talking about this prior to the call part of the podcast. What’s the difference in the third thing that you want to do? Or… Yeah, please, I might have misunderstood.

Democratizing Access to Crypto Management

22:15 – Tom Kineshanko

We want to be running a really, really excellent trading system. And we want it to be available to whoever wants it.

22:26 – Brian David Crane

And so and part of the blocker, there has been that it’s a taxable event if people…

22:30 – Tom Kineshanko

Yeah, there’s kind of two things I guess. One is, you know, hedge funds are typically only available to accredited investors, in some cases, even super accredited investors. And so we have a traditional hedge fund, you know, you do have to be an accredited investor to put money into that. This third product is similar to our first product. The goal with the first product was to democratize access to professional crypto management.

We kind of like how I spent some years in crypto, I really got into it actively in 2013. And it was beautiful. The culture was beautiful and people were in it for, in my opinion, you know, good reasons. Beyond making money. People were trying to change the system and blah, blah, blah. It got pretty ugly in late 2016 and into 2017. And a lot of people came in and there’s a lot of dishonesty and cash grabbing and…

23:25 – Brian David Crane

Scams. There’s a lot of…

23:27 – Tom Kineshanko

Scams, which I just personally don’t… not really into. Cool. Enough for me. Yeah, I just, I just didn’t know. It kind of made me sad, I guess, in the sense that I loved the spirit of the market before that. And all these scams came in. And so part of the motivation to do a tokenized hedge fund was that we saw the first tokenized venture capital fund done by these guys we really admire, Blockchain Capital, one of the best venture funds, they did the first tokenized VC fund and we basically just did something very similar a few months after they launched that and to allow people to place money with us into a legal structure. And we were gonna, you know, trade it and invest it for them as a bit of an antidote to the madness that was going down.

24:17 – Brian David Crane

You were trying to be the good guys.

24:19 – Tom Kineshanko

We’re trying to just give, give what we knew to a bunch of people. And with this new product, similar ethos, a lot of people hold crypto, you know, our system works proven for two and a half, two and whatever years.

Surviving the Crypto Crash

24:34 – Brian David Crane

Through a very tough time for crypto as well.

24:36 – Tom Kineshanko

Through a super tough time, with you know, Swiss regulations, blah, blah, blah. So now can we give anybody who wants that system access, it’s part of the mission on the third product.

24:47 – Brian David Crane

And specifically with that third product, part of that that I found really interesting is you guys are effectively talking and targeting people who, they bought Bitcoin whatever time they bought it, but there’s a lot of folks who bought it early in 2013, 2012, 2011 and are holders that just held on to it, but they did not… They’re effectively not doing anything with it. They’ve got it in cold storage. I remember actually being at your house in Vancouver, and I think you had private keys written on pieces of paper at one point and standing. Like you showed me the private keys you’d written.

25:27 – Tom Kineshanko

My private keys!

25:28 – Brian David Crane

I think you were showing me the concept of private keys of how you actually should protect this stuff. Yeah. And you weren’t showing me your private keys? No, I wouldn’t remember a 16 string digit, whatever it is off the top of my head anyways. Anyways, point being that we’ve hit this large group of people who… they had bought Bitcoin early on, they wrote it way up in 2017. They’ve written way back down posts then, they’ve continued to hold it. They’re not really doing anything with it, and they…

There are some ancillary financial services that have popped up around trying to help people earn interest, whether it’s Celsius, or just lending it on… I don’t know some of the different crypto lending platforms. But there hasn’t been… That’s kind of amateurish in a way that’s still – it’s almost like treating it like a savings account. If you’re going to take your crypto and put it into Celsius, let’s say, is that a fair assessment?

Avoiding Massive Drawdowns

26:30 – Tom Kineshanko

Yeah, well, there’s a couple things I think. One is like, a 90% drop in something isn’t, you know, it’s not really necessary. Like, we could have all written that up. And we could have been, we could have applied, like we could’ve started taking gains as it was getting crazy and you know, put your money into an asset that wasn’t gonna draw 90% or after it dropped 30% maybe take your money out.

The challenge is, how do you know when to get in or out? So I think holding is better than not holding and people should be long Bitcoin. There are now systems like ours and others that you can give some of your crypto to and it could just be managed for you. And those systems are proven to avoid the major drops without missing out on the long term runs. So it’s like, we’re at this point now in crypto where you just don’t have to suffer the pain of the volatility.

27:22 – Brian David Crane

And basically hold the one coin through hell or high water up or down.

27:28 – Tom Kineshanko

Yeah. Which, you know, I’m super into. And I really think that if you don’t have the time to research, active management, or some of these services like ours, just you know, still get crypto and put it somewhere really safe offline. But if you have some crypto and you want it managed in a system that’s transparent and proven, that’s now available. It’s just become available like in the last, you know, year and a bit I would say, other than some of the crypto funds which you could put money with, but most of them are venture funds. So most of the quant funds haven’t, you know, haven’t done super well.

28:01 – Brian David Crane

So that’s an interesting distinction and segue there. So the crypto venture fund is effectively someone raising cash and then they’re putting money into teams or… What is a crypto venture fund putting money into and then… What, a quant fund? What are they doing? They’re basically trading amongst alt coins. Well, what’s the difference between the two?

28:23 – Tom Kineshanko

Yeah, that’s a good question. Let me circle back to that really quickly. So the one other point I wanted to make on the, I guess the question is kind of like, okay, you have some crypto, what should you be doing with it? I think you…

28:35 – Brian David Crane

You’ve taken step one, you bought Bitcoin. Got it. Then what do you do with it? It’s almost like if you buy gold, what do you do with it? You are buried in your backyard? In one sense, you know, if you’re not going to trade it, what are you supposed to do with it? You’re not gonna use it as a monitor as a means of transacting on a day to day basis to buy cookies at 711 or whatnot. Yeah, what are you supposed to do with it?

ETF-Like Tools for Crypto Holders

28:57 – Tom Kineshanko

Yeah, I think now there’s services available where rather than sitting at home and buying, you know, 30 different stocks and trying to rebalance them every day and things like that, like we did before ETFs. Now there’s kind of ETF-like services, there’s stuff like ours, where it’s, you know, a quantum system, and there’s index products that you can buy, which just is just going to allow you to still be in the market, but just avoid huge draw downs.

The other point is, do you really want a bunch of gold in your house? I don’t want a bunch of gold in my house and I should have opened the podcast with this. Like, I don’t have a bunch of Bitcoins sitting under my mattress. My Bitcoin is in our fund, or I’ve liquidated, you know, a lot of it and diversified so that I can live so yeah, I mean…

29:42 – Brian David Crane

So don’t come to Tom’s house.

Security Concerns and Custody

29:44 – Tom Kineshanko

Well, like honestly, that was something that gave me a lot of stress. Especially you know, 2017 you’re seeing your wealth grow every day. Good feeling but then the corresponding thought is “Oh shit, like, at what point do I need a gun?” So I don’t want a bunch of gold under my mattress. I don’t think many people do.

So that’s the other reason to think about getting crypto somewhere else. There’re people who’ve really wanted to hold on to their crypto, which I understand, you know… Governments, the world maybe gets crazy, like, it’d be nice to have some money you can use. There’s people that I know in crypto that have disappeared and sort of set up addresses where people aren’t aware of where they’re at. It’s just not for me.

30:27 – Brian David Crane

Yeah, I was at a conference in 2017. And there was a guy who stood on stage and announced that he had half a billion dollars worth of Bitcoin. And I think his name was York. I could find it in the conference notes, but the fact that he stood up there and announced he had half a billion dollars in crypto, and there didn’t seem to be any security around him. I thought it was such a foolish move of putting a target onto his back because Indonesia is still a third world country.

It’s not impossible for somebody to kidnap someone here and to be held ransom. I don’t know where he’s got his crypto held at, whether it’s in private keys, whatnot, but to say in a place where you could be taken and effectively disappeared like what you’re talking about just seems like a very risky move to make for very little reward. That was my takeaway when I heard him say that.

31:23 – Tom Kineshanko

Yeah, yeah, totally. It’s, uh, yeah, if there’s a gun to your head, you’ll find your private keys pretty quick. So I think that’s a huge reason to consider like, you want exposure to crypto like, you know, get it in a way that isn’t gonna put you at risk. The… What was your other question?

Crypto Fund Landscape Explained

31:45 – Brian David Crane

Well, it was about these crypto venture funds and the crypto quant funds and then, like, Protos as far as the crypto hedge fund goes, the three… what they each do in the ecosystem.

32:01 – Tom Kineshanko

This question I think, has really forced… there’s three things that have changed – or there’s two things that have changed. One is, you know, in 2017… can’t remember the time period, but it’s sort of the exact time period. But basically, there was, you know, billions of dollars raised into these ICOs. This was largely unaccredited investors buying these tokens, which have mostly been deemed to be illegal, but it outstripped venture capital for a period of time. And so investing in ICOs, is that venture capital? So that’s changed. The other thing is our crypto assets, venture assets.

So if you’re holding Ethereum, it’s kind of like a share in a company that hasn’t quite yet grown up. Like there’s all these applications that are proposed to be built on it. But right now, you can’t do a whole lot with it. You can do some really, really important cool stuff. But you could probably argue that Ethereum is a venture capital asset. So a fund holding Ethereum is therefore a venture fund. But the asset’s liquid. So is it now a liquid venture fund? So I think that…

33:11 – Brian David Crane

Because typically in a venture fund, it’s not liquid, it’s like you give the money to the LPs. It’s locked up for a period of time and you might get the funds back after the fund is effectively liquidated. Is that right?

33:23 – Tom Kineshanko

Yeah, like a typical venture fund you give money to, it’s locked up for seven to 10 years. They buy stock in a corporation, corporations sell our IPOs and you get a return. Typical hedge fund, you give money to usually there’s like, let’s say, a year lockup, and then you’ve got like, three months –

33:44 – Brian David Crane

In that first year?

33:45 – Tom Kineshanko

Yeah. So you locked it for a year or in some cases, you’re not locked up at all. And there’s just a redemption period of where you make a request and maybe two months later, they give you your money, they just need a bit of time to rebalance your portfolio to get cash out. So hedge funds are typically a bit more liquid. I think with crypto, most of the money has gone into what you’d call venture funds. These are funds that do have lockup periods for a period of time, two plus years and they are investing in early speculative assets,

34:15 – Brian David Crane

I.E, coins or teams that are building both. Yeah. Okay.

34:20 – Tom Kineshanko

And typically a lot of those funds will hold positions in Bitcoin and Ethereum. So they’re kind of… I think your average crypto fund is like a shorter lockup than a venture fund, mostly investing in newer riskier stuff but also holds a position in some of these major assets. And then I would contrast that with a crypto hedge fund. Or let’s say a crypto quant fund like Protos and we actually have done some, you know, done a lot of ventures, we can talk about that if we want, but with Protos where we were much more liquid than that, like the longest lockup period we have is a year.

The new product for people who hold crypto, the more consumer focused product that I can’t probably speak about because of legal reasons very much, but I will announce pretty soon, is no lockup whatsoever. You want your money back, just take it out of the system, boom, done. And then the other difference is that we’re, we’re systematically trading the assets.

We’re not making discretionary choices about oh, we think this one has a good CTO. And so we’re going to invest in that. We are using basically price and volatility data to make our trading decisions and we’re only in the top 10 assets.

35:37 – Brian David Crane

Okay. Interesting. So then that…

35:41 – Tom Kineshanko

It’s pretty dry actually.

35:42 – Brian David Crane

Well, I mean, the last part is interesting because it’s also a reduction, like the stock pickers dilemma, in a way. If it’s in the top 10, it’s in the top 10. And if the formula says, go then go and if the formula says stop or red then you don’t go or vice versa, so then if you have this group of people who let’s just say like I’m in the camp of where I like following some of what’s happening in crypto and I kind of want to move money depending on a project or a development that I think is bullish or bearish you all are…

I’m not well suited to working with Protos, or at least putting like all of that I have in crypto into Protos. But you guys are… are you doing anything where you’re publishing thought leadership stuff to… to sort of explain… That was insane; that was a bird that just ran into the office.

36:49 – Tom Kineshanko

A bird which flew into the window but it is standing up looking around and looks not dead. Haven’t seen that in a while. That’s… No way. All right.

37:06 – Brian David Crane

Yeah, I… This is a long way of segueing into my question, which is that, for people who are following folks in the crypto space, who do you follow? Or who is it that you think is, let’s say not talking about their own book, and is actually giving seemingly objective advice, right? And because that’s one of the critiques if you watch… Who is the fella, it’s not Nassim Taleb. It’s the… Roubini? The Dr. Doom professor from NYU.

37:44 – Tom Kineshanko

Oh, yeah.

37:45 – Brian David Crane

He’s a big critic, or his critique of crypto is that genuinely, everyone in the space is talking about their own book and that they’re not objective about it, huh? So you’ve been on both sides. You were not in crypto, you went heavy into it, you saw the losses. And I think you understand the concept of like you’re trying to be fairly objective and also you still need to raise money right?

38:16 – Tom Kineshanko

Yeah… Yeah, I mean, there’s a lot of misinformation, there’s a lot of… you have this asset, these coins that people can sell and raise money and then they can use that money for stuff. You have liquid assets. So there’s this, get rich quick…

38:35 – Brian David Crane

Gambling phenomenon, almost, in a way.

38:36 – Tom Kineshanko

Yeah, gambling… You know, lie a little bit to raise some money and then, you know, make yourself wealthy, deal with the guilt about doing it later. There’s a lot of that going on.

38:47 – Brian David Crane

Yeah.

Fiduciary Responsibility and Integrity

38:49 – Tom Kineshanko

For me… I don’t feel good about stretching the truth. Yeah, I mean, we are an asset management company. We are, you know, we’re growing. People are giving us their money and we’re trading it for them. And so we serve those people. I don’t feel good about myself if I stretch the truth in any way in terms of how to like, share what we’re doing, like even the amount of sharing I’m doing with you makes me mildly uncomfortable. Just in that if people are going to give me money, I want it to be for something that I really believe in, to have some of my own money in.

39:25 – Brian David Crane

Yeah. And you take your fiduciary responsibility seriously.

39:29 – Tom Kineshanko

Yeah. Yeah, for me what you know, as probably for you like, it’s just terms of, you know, like super short, I want to spend time serving people who I like, doing something that I think is interesting and matters. And I think crypto matters because we need a new financial system. We need a new way of collaborating. There’s a whole bunch of other reasons why I’m into it. I want cool clients who believe in crypto to give us your money. I want to share with them transparency about what we’re up to, we totally screw up and lose your money when I, you know, disband the fund and leave and say we’re sorry. People I follow?

40:10 – Brian David Crane

Yeah. That was a good explanation. But yeah, who do you follow in the space that you think is doing a good job of educating people without, let’s say, that is at least nominally objective in their approach to crypto.

40:32 – Tom Kineshanko

I think this is really different to the people you follow if you’re looking at sort of like quant trading, like trading crypto, versus finding early stage tokens to invest in, and I don’t do a lot of speculating on early stage tokens. At this point. I kind of wrap that up. Yeah, a year and a half ago. Here and there, you know, invest in some small things. I think…

40:57 – Brian David Crane

Is that because your early stage tokens you think is a broken model, like the ICO model is broken or because you got burned and decided that the risk profile was something that you weren’t comfortable with?

41:14 – Tom Kineshanko

For me, I mean, I made about 37 early stage investments, you know, Ethereum, ICO to the most recent one was buying, sort of going big into the maker as early as I could. And I just think we, you know, I don’t enjoy venture capital, all that much in the crypto space. I think there’s enough money. What I think is more important to me now is actually bringing crypto to a lot more people and making sure that the people who are into crypto do well and actually become rich. I think that’s something that matters to me, because…

41:56 – Brian David Crane

It’s a set of values you want to see spread.

Focus on Spreading Bitcoin’s Values

41:58 – Tom Kineshanko

Values I want to see spread. It’s a system I want to see spread. I’d personally rather see Bitcoin go global than I would support, you know, probably, 100 startups below it. Yeah. And partly also, I just, I really think that in order to get a bunch of cash into crypto, we’ve got to prove that people can participate in a way that is safe, as well. So I didn’t really answer your question. I think that if I was somebody I would ask myself who to look at in terms of venture…

42:40 – Brian David Crane

I think you did answer the question in the sense that you are advocating for not necessarily participating in venture. So maybe there’s not someone to necessarily follow because it’s not something you recommend people doing?

42:52 – Tom Kineshanko

I think I would say if you’re interested in new crypto technology and like new startups and stuff like that, which you know, I totally am, I’m just right now a little bit more interested in getting large amounts of money into the major ones like big monitoring. But if you’re really into that thing, and I think there’s a ton of money to be made, I think DeFi is where it’s at for the next few months, and I would say, right, like my answer to the way I find deal flow is by just connecting with my network people that I that I’ve known in the space and trusted and I know are making good decisions.

But I would follow the top crypto venture funds and just read the stuff they’re publishing because they usually publish what they’ve invested in pretty soon after they’ve invested. And I, you know, I think material beats method you could read, you know, you could listen to 1000 crypto podcasts and hear about every new and shiny deal, but I would just say like, the people who have proven themselves to pick good deals are probably going to continue to do so. That does change when there’s a paradigm shift –

43:52 – Brian David Crane

And they’ve put their money into it, yeah. It’s not theoretical at that point.

Trust in Younger, Internet-Native Crypto Investors

43:58 – Tom Kineshanko

I think that the younger guys in the crypto venture game are actually gonna come out on top. I think that it’s such a paradigm shift that I don’t think this may be an unpopular opinion, but I don’t think the a16z of the world are going to find the next biggest crypto projects. I think it’s a little bit more trust in like, younger internet native people. In the quant game… We publish our trades each week. You can sign up for our newsletter and we literally show you how we’re weighting our trades. The system has outperformed the market by, you know, a percentage that I can’t say because of restrictions, but…

44:43 – Brian David Crane

It’s done well.

44:45 – Tom Kineshanko

Yeah. And you can see who’s given us their crypto to trade for them and… yeah.

Crypto Jurisdictions and Regulation

44:49 – Brian David Crane

So last thing and we’ll wrap up is you’re getting ready to go to Switzerland from here. Switzerland is one of the countries that’s been quite proactive in the crypto space. There’s one city you will know the name of. That’s like, yes, thank you, Zug, Switzerland. So I want to know if you’ve been there. I also want to know if you’ve been to Malta, which is now billing itself as this sort of blockchain island. Curaçao, I don’t know, there’s several that have popped up that are sort of being very crypto friendly, what’s happening at the jurisdictional level. As countries kind of compete for some of the talent and the money that’s going into this.

45:35 – Tom Kineshanko

What from what perspective? Like, what are you interested in?

45:38 – Brian David Crane

Yeah, I’m interested in seeing that. In the same way that you would look at Liechtenstein or Luxembourg, which became very wealthy, for embracing certain tax schemes or embracing certain ways of doing business. I get the sense that some countries, like Malta, are looking at crypto as this next opportunity to harness the energy and the talent that’s going into it. And that’s, to me, exciting. Number one, I think probably for the same reason that crypto’s exciting, which is that it’s a chance to break the existing power structure.

So it’s like Bitcoin is effectively a chance to break the existing fiat power structure in the same way that these countries are optimizing for, like making themselves crypto friendly or whatnot, you could argue that they’re doing it to, to kind of differentiate themselves in a world where maybe certain countries let’s say the US decides that they don’t want to be so or the EU which is taking sort of an anti crypto stance. That’s what I’m looking for. Yeah, talk about that.

46:53 – Tom Kineshanko

Yeah. I mean, Switzerland is… So I co-founded what became the first licensed asset management company for crypto in Canada. So we went through the process of basically trying to create a crypto asset manager in Canada, get licensed to manage Bitcoin, we achieved it. Ultimately, he co-founded it with people that didn’t work for me. But it was extremely hard even to get licensed to manage Bitcoin. And as a Canadian resident, like, I had to make a tough decision. Like I want to work in this industry. It’s really difficult to do it in Canada, because it just seems like the regulators just dislike it or they believe it’s a threat to their system or whatever.

47:44 – Brian David Crane

Yeah, it’s a no that you’re trying to get to a yes.

47:46 – Tom Kineshanko

Yeah. So as a Canadian, it’s tough because you can’t, you know, I’m not a resident of Switzerland. But, so to be a part of a fund there, I’m actually pretty restricted in what activities I can do for the fund. I have to limit what I can do. And I have to, we have to have the majority of our team in Switzerland. But I still am so happy that I, you know, helped to start a business that’s there.

And it’s hard to walk around the streets of Zug without seeing a bunch of people I know, huh, which is really interesting. And so as a number of Americans that have that have left, like, you know, people in their 40s, with kids that have uprooted and moved to Zug to be amongst their crypto peers in a place where they can experiment with this stuff in a way that’s legal and transparent and non scammy. But just…

48:35 – Brian David Crane

And they feel supported! Yeah, I think that’s it. I mean, I think they feel supported. There’s one place that comes to mind, which is Puerto Rico in the States, which has turned into a bit of a crypto island for Americans because of tax reasons. And I wouldn’t say that the Puerto Rican government is necessarily pro crypto or anti crypto. It’s just more of a function of people who’ve made money in crypto and so they moved there for tax reasons.

But you have this community that has sort of popped up around the, around the coin or around blockchain, whatever it is, that’s quite interesting. It’s almost like a shared set of ethos. That was, I think, appealing for both of us when in 2012, 2013, when we were both getting into it, it’s like, this is a way. You know, I don’t think that budget deficits are a good idea. I don’t think that the fact that I have to report every time I cross a border with $10,000, or whatever it is, right like this.

The war on cash or the fact that the Federal Reserve can manipulate interest rates to benefit the bankers and these sorts of things. So anyways, yeah. I would love to go to Zug.

49:42 – Tom Kineshanko

Yeah, I would say a fast summary is Zug is a place where Swiss law is legit. It’s really costly to be regulated there. People who are doing stuff in crypto in Switzerland are doing it in a really credible way. And there’s a hell of a lot of talent there. It’s awesome. I love it. It’s expensive, but I love it.

50:02 – Brian David Crane

What is… it’s this little town?

50:05 – Tom Kineshanko

Zug is a canton. Which is like a province or a state. And each of these cantons in Switzerland has slightly different laws. The reason everyone goes to Zug is basically because it’s, you know, near zero tax or zero tax. And otherwise financial regulations are pretty much the same. And… yeah, but it’s just lower tax. And it’s 20 minutes by train from Zurich. And so you could live in Zurich, have your business in Zug, commute and save on tax.

50:32 – Brian David Crane

And there’s no regulatory agency set up there from crypto or there’s some logging body or something? I don’t know.

50:40 – Tom Kineshanko

It was Crypto Valley, maybe that is what you’re thinking about. That’s more like a…

50:45 – Brian David Crane

A branding effort on the Chamber of Commerce? Yeah. Okay.

50:50 – Tom Kineshanko

Yeah, they’re trying to make it like the, you know, what’s his name YC founder… Paul Graham, talks about how – He wrote a great essay, one time about there’s certain areas in the world that became these startup hubs. And it was cultural, like there was something special there. I think having read what he believes is kind of the fundamentals for the birth of a new industry. I do think that Zug has those fundamentals and that’s what people are starting to see. Puerto Rico, I’m not sure? I haven’t been. It didn’t attract me.

I just didn’t have a lot of personal interest. I was also just too busy trying to figure out Switzerland to be honest. Malta I have not checked out as well. I shouldn’t give an opinion; I haven’t been. To me it just didn’t quite smell right. Just didn’t… I just, I don’t know, maybe as a Canadian or maybe as… I don’t know, I just really liked the idea of Switzerland, given its history just felt right, smelled right. The US, I think, it’s gonna be pretty difficult. I mean, it’s the innovation capital of the world. Asia is a whole nother story. So that’s a conversation for a book but crypto in Asia is going off as well.

52:04 – Brian David Crane

Korea and Japan. Where are we talking?

Crypto and Geopolitics

52:06 – Tom Kineshanko

Japan is amazing. And Japan’s regulators seem logical about how they’re approaching it. I think the big question is, do the people running a country think that crypto will threaten or take down their existing power systems? And if so, they’re going to be really combative. And that’s what’s happening in the US and Canada.

Or do they think systems evolve? And it’s cool, and we’ll keep up with it. And Switzerland’s like, “Well, we’ve always evolved, we’ve permitted… our system is one that evolves.” Whereas I think the US is taking the opposite stance. Japan seems to be somewhere in the middle.

52:44 – Brian David Crane

And what about in China? What’s going on? Do you know?

52:49 – Tom Kineshanko

I know a little bit because I helped to start a crypto mining company that had rigs in China. We order a lot of machines from China. Right. I didn’t help to start. I was a founding advisor to a company called Argo, which is a publicly listed mining company that buys a bunch of these machines from China.

At the moment, it’s hard to say. They seem to change their opinion all the time. I think ultimately, they’re going to try to create their own national digital asset, they’re going to try to control and I think they’re gonna back crypto, but they’re gonna just try to really control at least what goes on in their country.

53:25 – Brian David Crane

Yeah, because they’re seeing… I mean, especially where you live in Vancouver, you’ve seen the influx of capital from China, where the Chinese are quite… Hmm, they would like to keep as much money as they can inside the country. And the pressure to get money out of China and get it into a place like real estate in Vancouver is real. It’s a serious phenomenon. And so if crypto enables people to get money out, and do it in a scalable way, the Chinese government is not going to tolerate it. For very… They’re going to tolerate up to a point effectively.

54:02 – Tom Kineshanko

Yeah, they seem to be trying to like, use it. It feels like they’re trying to get their heads around it, which I think they have their heads around it. I think they’re gonna try to actually, I think they see it as the future. They know it’s the future, they’re gonna jump to it. And they’re gonna try to use it as just one more tool to have leverage over other countries and I think…

54:22 – Brian David Crane

And leverage over their citizens.

54:24 – Tom Kineshanko

Yeah, if they know their systems are doing it with their money, that’s good. And I think that… if the US doesn’t pay attention to that, that’s a really bad thing. Escaping capital controls is one of the big macro drivers for why you should – why I want to hold Bitcoin for sure.

54:39 – Brian David Crane

Yeah, yeah. Whether you’re in Argentina, you’re in Venezuela, these places that are suffering from hyperinflation. Okay, so let’s wrap it up, Tom. If people want to get in touch with you, if they want to follow what you’re up to online or if they want to learn more about your fund, where would they go?

54:53 – Tom Kineshanko

Protos, protosmanagement.com

54:59 – Brian David Crane

Okay. And are you on Twitter, are you on any kind of social media?

55:02 – Tom Kineshanko

Not really.

55:03 – Brian David Crane

Okay, cool. So check them out at Protos management. His full bio is at protosmanagement.com/tom-kineshanko. There’s a dash between Tom and Kineshanko. And his last name is spelled Kineshanko. Cool. Thanks, Tom.

55:21 – Tom Kineshanko

Yeah, thank you.

55:24 – Brian David Crane

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