Considering we’re in a bear market at the moment, how’s the Web3 part of the fund going?

Obviously, it’s down, and this is why the allocation is small. But we’re thinking about things on a five to seven-year timeframe, and while this current downdraft provides some headwinds to the portfolio, for me, it’s actually quite good in terms of cleaning out a lot of the bad stuff in the space.

And what the regulators are trying to put in place, in terms of clear frameworks and legislation, is to avoid this. What’s happening today is a rerun of what’s happened in traditional financial services for years.

That’s particularly evident when you look at some of the leverage in the Web3 space. It doesn’t cease to surprise me that people were taking so much leverage on a space that’s already growing very quickly. Why would you do that?

Yeah, when you see things like the Celsius withdrawal pause and the interest rates they were offering, I mean, did people really think that could just keep going on forever?

Exactly. And people don’t realise the regulatory burden on funds like ours, we’re constantly running liquidity tests with our funds - it is a very thorough process. So, as soon as you see these very high-yield products, you have to ask how sustainable they are? How are they being generated? What’s the economic proposition?

And when you start to look at it more and more, it looks like a Ponzi scheme. With the way it’s actually structured, there’s nothing real there. It’s not surprising then when we have a downturn and all the liquidity gets sucked out of the market. These are common-sense things that someone who’s had some experience in financial services from a risk management perspective would have avoided.

Do you view this current bear market as a bit similar to the dot-com crash? In the sense that the companies that survive will be the longer-lasting, higher-quality ones?

Absolutely. You see through time that the well-positioned networks like Bitcoin and Ethereum and the companies that are building around them are the ones that last.

I think the main thing that will happen though, this will really make legislators globally realise that they do need to put in place some clear laws and clear regulations that bring risk management into the fray. I think that’s the single biggest thing I see as a clear outcome of this cycle.

The utility in the tech is what we’re attracted to and what, I think, will persist through time.

Holon portfolio manager Heath Behncke

When we look at legislation, we don’t want to just replicate what we have in financial services today where we’re heavily regulated with oodles of capital, oodles of compliance. That is not the model that we really want to go down with Web3, we need to embrace the technology and embrace the solutions it can offer.

Some people are saying this bear market could be especially prolonged due to the broader macroeconomic environment. If it lasts a number of years, or maybe doesn’t rebound as much as thought, what does that mean for your investments?

There are definitely some concerns about that, but for me, when I sit back and look at the situation, the utility in the tech is what we’re attracted to and what, I think, will persist through time.

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Sometimes you do sit and think ‘oh my god, how long will this go on’, but on the flip side of that, we’re seeing all these good moves from legislators globally. Plus, this isn’t like the ICO craze in 2018, the money that’s coming into the space is real. Back then, there was still a chance this whole thing could just go away, but now people have actually realised the value proposition.

It’s like chalk and cheese. Now you can see governments actually coming through with those consumer protections and investor protections to really enable everything we’ve learned from the current financial system and embrace the Web3 space to actually help the promise of the technology come alive.

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