Investor Discussion Series: Clay Collins of Nomics

In an effort to better understand cryptocurrency investing, I had the chance for a conversation with serial entrepreneur and very active crypto investor Clay Collins.  Clay is extremely active in the blockchain and crypto community as an investor, host of the excellent podcast The Flippening, and co-founder of startup Nomics.

How did you first discover cryptocurrency and become fascinated enough by it to devote your career to it?

I first got into cryptocurrency in 2013.  At the time I was CEO of a marketing startup called Leadpages.  I found the crypto world to be the intersection of a number of my passions - game theory, computers, money and economics.  I immediately put a large amount of my personal net worth into the space as I was a firm believer in the technology changing the world.  I certainly foresee the world becoming tokenized. I was fortunate enough to get involved with Ethereum right after its initial crowd sale.

Do you invest solely in crypto tokens today?

I have a barbell shaped investment approach.  One one hand I have a large percentage of assets in relatively safe investments such as cash, precious metals and real estate.  The remainder of my assets are on the extremely high risk end of the spectrum invested in direct crypto currencies crypto hedge funds, and crypto index funds.

Buy, Sell, or Hold Bitcoin/Ethereum?

Buy Bitcoin.  Buy Ethereum.

Do you think fiat money be replaced by cryptocurrencies in the next 10-30 years?

It could happen but that would be the last aspect of money that would be disrupted.  Store of value is the first use case of cryptocurrency that is real today (i.e. gold substitute).  Another use case you see emerging is court judgement resistance. Remittances aren’t there yet but will be coming when the infrastructure is in place.  

I foresee various use cases gradually eating away at and supplementing fiat currencies.  For example, there is an uptick in Bitcoin every time a local government currency collapses such as you saw with Venezuela and Zimbabwe.  Ironically, it will most likely be the poor and middle class in developed countries like the US that will be the last adapters and therefore benefit the least from crypto.  It’s easy for people in Venezuela to understand the use case behind something like Bitcoin.

What are some under the radar coins you think people should be watching?

I’m a big believer in Monero as it develops network effects over time.  Monero doesn’t allow anyone to opt out of the anonymity unlike any other anonymous crypto.  A great use case you see is in some countries purchasing certain books over the internet is a high risk activity.  Also the Monero team is very strong technically and they don’t promote marketing. I see it as presently undervalued.

Others include 0x (pronounced Zero X) which is a protocol for a decentralized exchange.  There is a growing network effect around it that could be very powerful.

Also the Dharma protocol which is a protocol for debt instruments as crypto tokens.

What are your thoughts on investing in ICOs?

I’m not comfortable doing as it requires a very different skillset.  You need to be incredibly networked in the space and be able to buy in during the SAFT phase (Simple Agreement for Future Tokens).  Networking and access to deal flow requires you to spend full time doing this and travelling to meet the teams. Crypto hedge funds do this better.

What are your thoughts around Bitcoin and its scaling challenges?

I am still a big believer in bitcoin.  There is so much capital and capital allocation around the bitcoin network that scaling is bound to happen one way or another.  For the next 1-2 years it will be slightly behind the curve but will catch up.

Another way to think about Bitcoin is the fact that it hasn’t been hacked is a huge value indicator.  Every single month that goes by without Bitcoin being hacked increases its proof as a store of value despite daily hack attempts.

Can you speak about how you invest your own crypto portfolio?

I am highly diversified across the whole of the asset class via direct investments, index holdings and crypto hedge funds.

Best resources to stay up to date on what’s happening in Crypto?

• Eric Meltzer over at INBlockchain has a good newsletter called Proof of Work

• Token Economy newsletter

• My Crypto List that is public on my Twitter account @ClayCollins.  Twitter is probably the best place to really monitor the space in real time

Predictions for 2018-2019 crypto?

Obviously this is not investing advice and for entertainment purposes only but I think crypto will rally toward the end of 2018 and we will see Bitcoin back around $20k a coin in the next couple of years.  

Anything else you think crypto investors, new and experienced, should know?

• I am a big believer in index funds such as the Bitwise Hold 10 and Coventures index fund.

• Also just a 50-50 split between bitcoin and ethereum isn’t a bad way to invest.

• In general when considering a crypto token the most important indicator is quote currency dominance.  For example you see Ethereum inching up there with 2nd order network effects being built on the token.

BlockFi

Overview

BlockFi is a fintech startup offering personal loans backed by cryptoassets.  The company's flagship product is a standardized loan at a flat interest rate for up to 12 months, at a 35% LTV ratio.  As collateral for the loan BlockFi holds a customer's Bitcoin or Ether at a registered custodian.  To manage the risk of such a volatile asset class, the firm has triggers at cryptocurrency price drops where the borrower has to put up more collateral or they begin selling the borrowers cryptoasset.

Unlike a traditional lender, BlockFi does not look at FICO or credit scores.  They generate revenue via loan interest as well as servicing the loan when they sell it off to other investors.  They are growing fast expecting to originate $100M worth of cryptoasset backed loans by end of the year, with more customer demand than they can currently support.

The team is based in New York City and has under 10 employees.

Why I like Them

Blockchain technology and the cryptoasset class it has given rise to, continues to grow as a part of the global financial system.  No matter if cryptoassets are a bubble or not, it seems unlikely they will ever go away, with a real possibility they will be part of any well balanced portfolio in the future.  BlockFi is helping build out a modern financial system around an emerging asset class.  They have huge amounts of growth ahead with their current offering as just a first step, with the team one day hoping to offer lines of credit and a credit card backed by crypto.  

Disclosure:  I have spoken to members of the team.

Loft Orbital

Overview

Loft Orbital is a spacetech startup with the ambitious goal of enabling any organization, company, government or group to access space simply, reliability, and affordably.  They do this by offering a turnkey service and interface for leasing space on satellites and getting a customer's desired sensor systems onboard.  Loft Orbital takes care of purchasing the satellite, operations, launch logistics, licensing, and everything else involved in getting a sensor suite into space and maintaining it.  The analogy here is a rideshare company such as Lyft where the customer just wants to quickly and easily get from point A to point B and not have to worry about buying a car, maintenance, navigation, getting a license, etc.  In the same vein as a rideshare organization, Loft Orbital also provides a cloud based software solutions so customers can operate their satellite sensor suites.

Previously space was restricted to large governments and corporations but Loft Orbital aims to provide space as a service to groups that previously have not had access. This includes smaller emerging space nations, startups or smaller companies (there is strong interest from data analytics firms), and R & D centers including research labs and universities. 

In terms of business model customers are charged a yearly fee while their sensors are in orbit for a pre-agreed number of years.  Loft Orbital itself owns the satellites.

The team is currently about 10 people and based in San Francisco, California.

Why I like Them

Bold.  Loft Orbital is extremely bold in pioneering a new business model.  With the recent success of the SpaceX Falcon Heavy Launch, space travel and access is about to become a whole lot cheaper (estimates currently say around 10x cheaper) and more accessible.  The big breakthrough here is that SpaceX's launch vehicles are reusable bringing down the cost and even more importantly drastically reducing the time between launches.  Currently it takes 1 - 2.5 years booking in advance to launch a payload into space and this timeline often gets extended due to unexpected delays.  Organizations are required to pay millions of dollars in advance with no certainty on when they will get their payload into orbit.   Loft Orbital is perfectly poised with a strong offering to take advantage in the new, emerging space race that I expect to become mainstream in the next decade.

They also have no direct competition at this point in time and will be on the cusp of new business offerings around space giving them room to pivot to faster growing space industries in the coming years (one area likely being space tourism).

Disclosure:  I have spoken to members of the team.

NoiseAware

Overview

NoiseAware is an Internet of Things (IoT) startup that sells a device and associated monitoring service to automatically detect noise pollution at any location.  Noise pollution can include anything from loud traffic locations to parties, or just unacceptable levels of noise after a certain time period.  When such an event occurs the property manager is alerted and can take appropriate action.  Their technology is smart enough that one off background noises (such as sirens) will not activate an alert.  

NoiseAware is currently focused on selling to landlords, especially for short-term rentals such as people listing on AirBnb, HomeAway, etc.  Their next area of expansion is the outdoor monitoring for pools, hot tubs, and patios where noise disturbances travel much further. The team has excellent traction with customers in 14 countries and most of the 50 states. 

They are based in Dallas, Texas and have 10 employees.

Why I like Them

As is often mentioned, "hardware companies are hard".  That being said I like that NoiseAware uses their hardware as a lead into their subscription service and have a very distinct (yet broad) niche with little competition.  They have a distinct advantage over general purpose at home IoT devices, such as Amazon's Echo, in that they only listen for noise pollution, so privacy is not violated.  Any landlord will know noise complaints can easily cost a lot of money and signal damage being done to the property.  The company has grown extremely fast with the popularity of AirBnb and the industry of multi-AirBnb property managers that have sprung up in the last few years.

I also really like that this technology has surprisingly widespread applications.  The obvious use case is for rentals (a large market as it is) but the team has received a ton of interest from hotel chains, city officials, school dormitories, senior living communities - basically anywhere people sleep has shown an interest in this type of monitoring system.

Disclosure:  I have spoken to members of the team.

Emerging Trend: Voice Synthesis and the Next Generation of Fake News

Voice synthesis is the the next generation of audio editing.  It has been called “the Photoshop of voice" and is a rapidly emerging technology which allows software to convert text into speech synthesis of a voice that is completely indistinguishable from the real thing.  It allows anyone to edit recordings of what someone has said such that it sounds like the person actually has said the edit or even flat out create artificial sound-alike voice recordings of anyone in the world. 

Voice synthesis software works by taking in sound clips from the person you want to copy as inputs, with the software able to convert these to make any sound or combination of sounds (i.e. words and actual sentences).  Examples of these new types of software include Adobe Voco, WaveNet, and the recently launched Descript.  

My concern is around the ethical issues and the next level of fakes news this type of technology will give rise to.  It is extremely scary to think about the power of anyone having the ability to make it sound like world and corporate leaders have said anything you want.  It also extends to being able to create songs and albums sounding like they were sung by your favorite celebrity without their consent.  Even worse, it is nearly indistinguishable from real voice recordings with no way to verify if the audio is real or fake. 

There many legitimate use cases for this type of software, especially for members of the media and the record industry, but I do have a lot of concern that voice synthesis technology will enable a more insidious and dangerous form of fake news and manipulation.   Being able to make anyone say anything with no way to prove it is a scary prospect with a number of potentially malicious use cases.

You can see this technology in action on Barack Obama below as well as a demonstration of Descript's software.