Maxim Ploskonosov: All financial instruments are begging to be switched to a cryptocurrency
Managing Partner of the White Castle Capital hedge fund Maxim Ploskonosov in his interview for LetKnow.News told about the reasons for Bitcoin’s recent growth, how insider trading affects the crypto industry, and why would central banks need blockchain.
- Tell us what a cryptocurrency hedge fund is and how does it differ from a hedge fund on a traditional market?
- In principle, they are not different that much, since the hedge fund structure and ideology itself is taken from the classical markets. When working with
crypto hedge fund, however, there is quite a few of nuances and difficulties.
One of the main difficulties lies in the legal area, since the regulation of cryptocurrencies in the world is held in different ways and very unevenly. There are classic legal schemes for hedge funds, which have been created long ago, usually, in offshore jurisdictions, and for the whole world they are understandable and transparent.
At the same time, when it comes to cryptocurrencies
trading, the majority of counter parties that must be present in the hedge fund structure are auditors, administrators, i.e. those who essentially confirm and guarantee the security and compliance of financial statements, tend to cooperate and work with cryptocurrencies very reluctantly. Therefore, we have to look for those who understand that and negotiate with them. That’s the first moment.
The second point is the cryptocurrency exchanges themselves, which, to put it mildly, are far from ideal and are not exchanges in legal sense. In fact, those are
exchange platforms and their legal structure also is far for ideal or even desirable. The market is still very young.
In general, a cryptocurrency hedge fund is engaged in collecting a certain type of strategies into portfolios and, basing on those portfolios, performs trade and management of crypto assets.
- According to the PwC report, many cryptocurrency hedge funds are losing money, but their number is actively growing. What is the reason for that?
- The fall in hedge funds was due to the collapse of the
ICO market. Since all the funds that were there were not engaged in active trading, but in investments in ICO projects. As a result, a massive sale of assets led to huge losses and many had to shut down.
At the moment, as we can see, there was a wave of Bitcoin growth. And the revival among investors provokes the creation of new funds. At the same time, the psychology of many investors is also quite interesting. Because during the so-called “crypto winter”, when Bitcoin was at $3,500, people were very skeptical about the cryptocurrency market. It was believed that the
bubble burst and that nothing would happen next. Nobody wanted to buy an asset for $ 3,500 - everyone was afraid. And only when have passed the bar of 7-8-9-10 thousand dollars for a coin, we saw a revival. The number of calls, calls for the purchase of cryptocurrency increased. So, those who did not want to buy BTC for $ 3,500 ended up buying for $ 7,000.
Anyway, in general, the market is very young and many investors do not fully understand the situation as a whole. Few people understand the fundamental features and some parameters of cryptocurrencies. It is also very difficult to explain and justify even the current growth. What so special happened from the point of view of fundamental analysis, so that bitcoin has shown a dramatic, almost fourfold growth?
- For many, the word cryptocurrency hedge fund is associated with Galaxy Digital. What do you think, is it worth to listen to the advice of its head Mike Novograz, who actively post his predictions in social media?
- Normally, it is very ungrateful to give free tips. Moreover, many people know that large players deliberately lead the public into erroneous forecasts to play against the market. As a result, it is impossible to build your own strategy and that’s a direct path to losses.
- How easy and convenient is to conduct a crypto business in the Russian Federation? Are there satisfactory conditions for doing it?
- Russia is not developed from the point of view of conducting a cryptocurrency business, and thus loses a sufficiently large number of both developers and enterprises who could conduct their activities here. Therefore, in most cases, you have to choose foreign jurisdictions and conduct business from there. So far, I do not see any serious desire and consistent steps that could handle this situation.
The fact is that this issue is poorly developed and regulated not only in the cryptocurrency business, but also in the whole of IT, so it happened historically. And we are far behind the world in this respect. Although, of course, Russian developments and developers are the strongest in the world. That’s must be stated without false modesty anytime and anywhere. Therefore, perhaps things do not happen thanks to something, but in spite of anything. And our country hardens us and makes us even stronger, without creating greenhouse conditions for us.
- What is the reason for the active growth of the market in recent months?
- We cannot answer this question with 100% certainty, since there are no indicators of classical markets (profit, interest rate) for Bitcoin. So, that’s is a kind of nonsense, a paradox, and the situation on the market has to be explained by different things. We have a fairly large department that deals with research, and we are looking for various correlations between classical markets and Bitcoin. Oddly enough, the biggest correlation of the bitcoin rate is related to the price of avocado. Avocado for two weeks, ahead of Bitcoin, showed rapid growth, and in fact Bitcoin simply repeated the growth of avocado. Therefore, we can say that avocado was a bitcoin growth driver.
Yes, in the spring we saw some correlations with oil prices. For example, countries under US sanctions, such as Venezuela and Iran, sometimes try to sell assets through cryptocurrencies.
Most likely, market insiders know what the whole market does not know. Perhaps it’s the adoption of the BTC-ETF after a certain period of time, and those who know it, are the ones who purchase. In general, the world is changing, and we see big changes in the regulation and adoption of cryptocurrencies by governments and financial institutions. Perhaps that was a critical mass, which provoked that growth.
- Is the demand for cryptocurrency associated with something other than speculation?
- The market is certainly manipulative, like any other market. Another moment, for insider trading in the cryptocurrency world there is no criminal penalty. In the Russian market, for instance, the same thing happens, since there is no responsibility for insider transactions. Therefore, we definitely do not need to get used to that happens.
Anyway, the market prices themselves are set by professional players, so it is difficult for non-professionals to influence the price of an asset. The bulk of the money comes through Tether and they are printed through very dim schemes. Therefore, we cannot say with absolute certainty that there is market money in Tether or that’s just a manipulation, thanks to which the rate is set up artificially. And for the whole cryptocurrency world it’s a big mystery.
- What events are needed for cryptocurrencies to become a part of people's daily lives?
- At the moment, integration into the current payment system is important. But there is one big moment of controversy. When we talk about everyday use of cryptocurrencies, we mean the purchase of ordinary classic goods and services. In order to buy them now, in principle, it is enough for everybody to have a card and pay with the currency of the country in which I am located. Moreover, these are strict legal rules, which say that mutual settlements should take place in the currency of the country in which we are located.
Another point is that while most cryptocurrencies and bitcoin itself are speculative assets or a means of accumulation. This can be compared with the shares of Gazprom. What is the point for me to pay for coffee with the shares of Gazprom? Therefore, at the moment, cryptocurrencies are trying to develop in different directions - being both means of payment and playing the role of an investment asset. And for now that’s all badly related to each other. Because why do I need to pay today, if it is going to rise tomorrow.
Moreover, there are questions of speed and convenience. Plastic cards that are universally integrated, are working at maximum speeds. At the moment, I still see the use of Bitcoin in the form of one-time transactions, when a person has accumulated, waited for the appreciation of Bitcoin, sold, threw money on the card and pays for everything with a card. I still do not see direct integration into the payment instrument.
On the other hand, there are a number of payments that are more convenient to carry out in cryptocurrencies. For example, those are mutual settlements for contractors on international issues. In that case, it is indeed much easier to transfer money than to make payments through legal entities.
- Many central banks are thinking about releasing their own digital currencies. What might be the point of doing that?
- Central banks do not want to stay away from those technologies and their interest here is obvious. Because in the case of
blockchain, all the money always remains in the system. In the current financial system, money can be withdrawn in cash and transferred somewhere else. You cannot withdraw money from the blockchain; they are always there, you can always track them where they move to, where they were at one time or another. Therefore, there is no doubts, blockchain has many advantages, including the ability to see the money supply and its turnover. This will certainly give financial systems transparency and practicality. Therefore, I think that this is not some kind of pursuit of fashion, this is most likely a sound idea, since the blockchain technology is well suited for financial systems, and even better for central banks.
- What is the role of the blockchain and cryptocurrency in the capital markets?
- At the moment, the main feature of cryptocurrency that attracts many people is its lack of regulation, freedom of circulation and anonymity, which, of course, create a separate branch for the capital market and its transfer. Of course, this is a grey zone, which cannot remain endlessly that way and, probably, it will become more limited sooner or later. Most likely, it will done through the regulation of exchanges, and then it will move to the identification of the network.
As for the new tools, the very essence of
tokens and blockchain, as some open registries, has already played its role. We already see their ubiquitous integration in many areas: namely finance and government institutions.
Those tools, on their own are just beginning to form. Initially, the ICO boom spawned some utility tokens that were poorly applicable. Currently, the tools that are the closest to market professional ones are STO - security tokens that represent digitised securities.
Meanwhile, you need to understand that the logic of finance does not change. People want to either receive dividends, or ownership of the company, or some bonds with maturity and interest rates. So, all classic financial instruments are begging to move into cryptocurrencies. In what form it will be held a hybrid or a classical one, or in a completely new - it is a matter of time. Most likely it will be some kind of hybrid - some part of the mechanic will be taken from the classic market, some part will be re-invented.
- How do you see the cryptocurrency market in five years?
- I see it more integrated with the current economy from more hybrid companies that are already in both the digital and analog world. I think that the difference between cryptocurrencies will be erased, as the line between the Internet and the real world has been erased.