10 Things Learned from the Multicoin Capital Summit: Investment Methodology and Future Outlook
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10 Things Learned from the Multicoin Capital Summit: Investment Methodology and Future Outlook
The investment team's job is not to find good investments, but to develop investment theses around how technology will advance and be implemented, and how markets will evolve.
Navigating Web3 tides with focused insightsWritten by: emagicTT
Translated by: Alex
Multicoin Capital's hedge fund has returned over 20,287%. Its Fund I, raised in 2018, has a mark-to-market net MOIC of 135x and a net return of 28x. It is one of the most successful venture capital funds in history.
Below are 10 insights I learned at the firm’s recent summit in Miami that help explain its exceptional performance and outlook for 2022.
1) Discipline and Avoiding FOMO
They attribute their performance to patient asset selection and allocation during bear markets. They don’t try to time the market. Instead, they focus on selecting assets aligned with their investment thesis framework and building concentrated, long-term positions to generate asymmetric returns. The core belief is that you don't need to catch everything. FOMO leads to subpar returns.
2) Thematic Investing First
The investment team’s job isn’t to find good investments, but to develop investment themes around how technology will evolve, be adopted, and how markets will develop. They happen to monetize these insights through investing. The main sections of their investment memos:
1. What is our investment theme?
2. What assumptions are we making?
3. How does this compound?
Once they establish a theme, they figure out the best way to express it in the portfolio. If it happens to be something favored by early-stage investors, the venture fund takes the lead; otherwise, the hedge fund steps in. They are missionaries, not mercenaries. They want to create more freedom in the world, drive greater impact, and push the frontier forward.
3) When to Exit
Three reasons they sell assets from their hedge fund:
1. The theme has been validated, and the asset has reached its ideal value.
2. The theme is invalidated. They’ve learned new information and no longer believe in it.
3. Other.
Venture funds work differently. If they still believe in the asset and it becomes liquid, they begin distributing it to limited partners and collect carry. If they no longer believe in it, they sell. They only want to invest in things they believe can be held for 10 years—at least at entry.
4) Who They Hire
- Ability to formulate theses and reason critically about how technology and markets will evolve. When writing a thesis, you must clarify what you actually know, what you truly believe, and how you formed those beliefs.
- Flexible enough to reconcile belief in a thesis with the ability to recognize when it’s wrong. Rather than abandoning an idea entirely, update your thinking with new information and revise the thesis.
- Not swayed just because others disagree—because the only way to earn outsized returns is to be contrarian and right.
- Must understand business models operating in open-source, permissionless worlds. Since anyone can copy your code and there's no IP, you need different ways to capture value. This is fundamentally different from what traditional investors understand. People with traditional investing backgrounds take about six months to unlearn old habits and become crypto-native. It’s better to find people who have the skills to be great investors but haven’t picked up bad habits from traditional finance, so they can reason from first principles from day one.
- Candidates are evaluated based on their writing, not their academic credentials.
5) Open Finance (DeFi) and Web3
Open finance (DeFi) and Web3 are two major themes driving Multicoin Capital’s performance.
The total value locked in DeFi protocols, along with transaction volume and activity within these protocols, is increasing sharply. This is driven by the emergence of liquidity mining, where protocols can essentially buy liquidity using their own tokens. This has proven to be an extremely effective bootstrapping mechanism, fueling incredible growth and capturing the attention of nearly everyone in financial services.
On the Web3 front, NFTs are the first major product to achieve true product-market fit in Web3. The total number of users holding crypto wallets is surging, largely thanks to NFTs bringing blockchain and crypto wallets into the mainstream.
6) Declining Bitcoin Correlation
Historically, most crypto assets had high trading volume denominated in Bitcoin. Market makers needed large Bitcoin inventories to operate. Recently, however, stablecoins have taken over as the primary "currency" for crypto trading. Stablecoin supply has exploded, reaching $80 billion. Meanwhile, Bitcoin’s use as collateral in derivatives trading has declined significantly. This drop in Bitcoin correlation marks a structural shift in the crypto market, leading to lower correlation among crypto assets and broader dispersion of returns. They expect this trend to continue as Bitcoin loses relevance.
7) Composability
According to Jesse Walden, “composability” means “a platform is composable if its existing resources can be used as building blocks and programmed into higher-order applications.”
For some time, scaling blockchains has been a major topic. But throughput alone isn’t enough. You must be able to compose components together and enable users to engage in novel social interactions on open, public, permissionless systems.
Composability is now central to everything they consider, especially how they allocate and invest. They believe that within the next 12 months, the next generation of applications will rely heavily on composable crypto primitives, delivering experiences previously impossible.
Lego bricks serve as a perfect visual metaphor for composability. Many in the crypto community talk about “money Legos” or “DeFi Legos.” They believe the next wave of applications will be Lego castles built on Solana.
8) Solana is Crypto’s “iPhone Moment”
The iPhone revolutionized society. It created a design space for developers to build apps for mainstream users, giving rise to numerous mobile-first businesses like Instagram, Snapchat, Uber, WhatsApp, and more. They believe Solana represents crypto’s “iPhone moment.” Solana provides entrepreneurs with a design space for crypto innovation, enabling movement up the stack toward more user-facing, real-world applications. In fact, over the past 18 months, Solana has grown from nothing to become one of the top five crypto assets, with $15 billion in TVL spread across 32 protocols.
9) Creator Economy
Creators are highly excited about cryptocurrency because it allows them to connect directly with fans, introduce new engagement models, and unlock new monetization methods without intermediaries. Traditionally, advertising has been one of the most common ways for creators and influencers to monetize—but it delivers a poor user experience. Creator tokens or social tokens change how influencers and creators interact with their audiences and will improve the overall user experience.
10) Metaverse
As a general rule of thumb, if a pitch deck includes the word “metaverse,” you should probably avoid investing. The metaverse is still in its early stages and requires significant core backend infrastructure before it can function properly. It’s better to focus on deep technical infrastructure layers instead.
Original link:
https://mirror.xyz/0xB6CBB2aC5106bbF936810B317f7c9ae0c40D84eC/AfgziSgCzLB_rul5zXuEam9mtLjsTdUtlBZMhRoVntc
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