Why They Will Survive The Crypto Winter If Inflation Hedging Fails?

  • Michael Wang is the founder and CEO of the alternative investment platform Prometheus.
  • The executive explained how bitcoin has failed to live up to its billing as an inflation hedge.
  • Wang also explained why bitcoin and ether remain the top crypto options for retail investors.

“The world is moving towards greater transparency,” said Michael Wang, former chief analyst at Steven Cohen’s now-defunct SAC Capital hedge fund.

The 15-year capital markets veteran, who later worked for a now-closed hedge fund, Tourbillon Capital Partners, told Insider Wall Street has a problem with transparency. But Wang says his Los Angeles-based fintech startup is making progress in solving that problem.

His new company, Prometheus, is a marketplace for alternative funds combined with a social network. It facilitates investments in hedge funds, venture capital funds and crypto funds, although the latter are not particularly known for their transparency.

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Wang says he’s presenting the platform as a pseudo-LinkedIn for people who want to see more than Robinhood and Coinbase have to offer. The problem of transparency between the various funds mentioned above, Wang said, could be solved with a more efficient and faster way of communicating with investors.

“Think about how many doctors, lawyers, entrepreneurs and engineers you know who probably have close to 0% of their assets in hedge funds, venture capital funds and private equity funds,” Wang said. “We want to change that.”

Bitcoin’s dubious reputation as a safe haven

Ever since Prometheus allows users to invest in crypto funds, Wang has been eyeing the space as he has seen widespread losses in recent months. For context, bitcoin and ether – the two most historically dominant cryptos – are down more than 50% since recent highs in late 2021.

There have also been wrecks in altcoins, perhaps no more serious than in USDTerra and its sister coin LUNA. Solana is down 83% from its all-time high due to sporadic outages on its network.

The fact that all of this happened at a time when the United States is experiencing its highest inflation rate in 40 years has dispelled the once-popular notion that bitcoin could act as a hedge against rising consumer prices. Instead, bitcoin and crypto in general have functioned more like a traditional risk asset.

This explains why crypto prices have fallen alongside equities for much of 2022, in response to the Federal Reserve’s efforts to cool inflation and prevent the economy from overheating. As the central bank prepares to announce major rate hikes at its next two meetings, the biggest headwinds for crypto and stock investors are likely to continue.

Wang, who was named the Institutional Investor’s 2016 Hedge Fund Rising Star, said crypto markets are highly correlated with the broader stock market and agreed with the story that bitcoin failed as an inflation hedge. But this interdependence is just the beginning: Wang notes that bitcoin has a “much higher beta” than stocks, making it more prone to sharp downside swings.

For signs of what’s to come in the crypto market, Wang – like most stock investors – is looking to central bank activity.

“Whatever takes precedence for whatever asset class and the price of assets, be it crypto, stocks or real estate, that’s what the Fed does,” Wang said.

What to buy in the middle of a crypto wreck?

Wang predicts that most cryptocurrencies will not “survive” in the long run, except “probably” bitcoin and ethereum. Both have amassed large market caps and gained enough mainstream adoption to withstand bear markets.

“Your litmus test here for certain stocks and cryptos is that if it doesn’t go bust, you’re probably going to make money holding it for a year,” Wang said.

Bitcoin, in particular, will continue to gain popularity as a borderless payment method, allowing users to bypass transfer fees and slow transaction times.

“Many parts of the world are still not bankable,” he said. “Blockchain can be used as a solution to help people in these areas.”

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