Eric Peters, CEO of One River Asset Management made these comments on Sam Bankman-Fried, digital assets, inflation and markets in an interview yesterday with Magnifi+, an AI-investing and trading platform.
Crypto Markets
“We entered the crypto space with the largest institutional allocation in November of 2020 and that was really driven by the macro backdrop at the time which continues to play out. That macro backdrop was one where it seemed apparent that that we were in a period where central bankers needed to debase currencies in order to relieve economies from the large debts that they had incurred.”
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"This year has been a year where central bankers have started to pull the reins in and they've obviously raised interest rates far higher than anyone expected. They've been quantitatively tightening and that has had a really dramatic impact on crypto markets.
While I think there's some really firm, fundamental underpinnings to the market, there had just been so much froth because that big macro driver had really captivated people's imaginations. We've seen the same are kind of similar dynamics in the tech stocks, but I don't I don't think technology is over. I don't think crypto is over as well."
FTX - Sam Bankman-Fried
"We never did any business with FTX. I think our approach to crypto has been pretty conservative. We took very large risks earlier on. We actually made very substantial profits from our early investments.
We more or less tripled our money and exited almost all that risk and returned that capital to our investors. That was pretty exciting. That happened through 2021 but we took the opportunity to build out a range of institutional asset management products in this space."
"When the FTX news hit, I told our team that I think this marks the beginning of the end of this bear market. I didn't mean that it would end on the day, but it's when big things like this big frauds happen. They happen. They don't happen at the highs they happen more or less in the range of the lows. Thankfully we didn't have any exposure. Our investors didn't have any exposure."
"It's just not an area that's interesting to us when people make money faster than average or way faster than average. That's something to kind of steer clear of and so in the calls that I had, he seemed like a very nice, lovely person. But as I said we didn't do business with them. There are a lot of lovely, nice people in the world. And yeah, we just we didn't touch that."
"We go through a very thorough due diligence process with all of our counterparties and FTX. wasn't a firm that passed our due diligence and so we didn't we didn't end up working with them."
Blockchain
"I think one of the things that's happened in this last cycle with Bitcoin and digital asset prices is that it was sufficiently large enough that it attracted a lot of attention.
This resulted in a lot of people getting involved in too much leverage, and that's been painful on the unwind, but the silver lining is that it got big enough and real enough that it finally pushed institutions to start really investing in blockchain technology, which ultimately, we have a very high degree of confidence will provide a new infrastructure foundation for finance."
"Over the 10-15 years, just about all trading will be done on blockchain. You'll have you'll have digital custodians, obviously, have got some terrific ones right now, Coinbase, being the leader. You'll have traditional finance enter that space through time.
Stocks will be traded as tokens just as Bitcoin is. Bonds will be traded as tokens, commodities will likely be traded as tokens, funds, ETFs as well. Bitcoin will be one of the multitude of tokens that will trade.
I think Bitcoin will retain its position as digital gold at a minimum, it could become something bigger than that. I see in that future world the price of Bitcoin and a number of these other assets will go up along way."
Inflation
"It is true that the Fed is trying to reduce inflation. It's highly unlikely that it gets anywhere down near to 2% sustainably. We're probably moving to an environment where inflation is between 3, 4 or 5%.
Sometimes it goes a bit higher, sometimes it goes a little bit lower, but when you look at previous periods of higher inflation, they also have a lot of inflation volatility. So that's what we need to live through right now."
"There are drivers in place that are going to keep inflation higher for longer and more volatile for longer. And I don't think whether Fed Funds go an extra 25 basis points up or down is not going to change that paradigm in the least."
"We're going to see in the early part of the year inflation heading in the direction of the consensus, and that's going to make people feel pretty good about it. But we don't think that it will sustain those levels. We think we're going to end up with a materially higher inflation rate."
Policy Choices
"We spent the last 30 years of my career in this world of ever deeper global integration. That process is at a minimum shifting. It may be that there's still plenty of globalization, but we're shifting from China more toward India and other trading partners or regional partners like Mexico and Canada, which already our biggest trading partners.
But it's likely that there's going to be a lot of consolidation and in our key partners, it's likely that we're moving toward a more bipolar world as opposed to a unipolar world."
"We think you're going to end up with is a world where there is a lot more reshoring. Economies throughout the world look to secure natural resources, they look for more redundant supplies of all the things that are critical to them.
That's going to create really lower productivity, higher wages, and a different inflationary dynamic. We think that those things have only just begun, incidentally. I think part of that is just the policy choices that we're making, and that policy choice will narrow inequality. Hopefully, we're kind of lifting the lower income segment up."
About Eric Peters
Eric Peters is the Founder, CEO, and CIO of One River Asset Management. Eric oversees the Firm’s business development and strategic initiatives and serves as Chairman of the Investment Committee.
