James McDonald | Vishnu Wealth Management
In the long-term, Bitcoin will NOT be the leading cryptocurrency
James McDonald is the Chief Investment Officer at Vishnu Wealth Management, a growth focused Registered Investment Advisor based in Los Angeles, CA. A 22-year veteran of the investment industry, James was named one of America’s top 10 advisors by ETF.COM in 2012. We recently sat down with James, who will be speaking at our Digital Asset Strategies Summit (Oct. 16 – 17 – Dallas), as he shared with us how to manage volatility in the crypto space from an investment perspective as well as the importance of regulation on dampening volatility.
Digital Asset Strategies Summit: How can the extreme volatility of the cryptocurrency market be managed?
James McDonald: Active management currency strategies provide risk-adjusted returns that exceed market benchmarks. Three active management strategies we employ are long-short, statistical arbitrage, and volatility arbitrage strategies. Long-short: In our opinion, there has never been as many disruptive forces at work in a tradable market which impact asset prices as there are today in the cryptocurrency space. Vishnu’s long/short managed account strategy is deployed to capitalize on them. The strategy seeks opportunities where it can exploit weak cryptocurrencies to yield uncorrelated returns with below market volatility. The Long/Short algorithm is calibrated to achieve zero correlation and by allocating capital dynamically. Statistical Arbitrage: Vishnu’s Statistical Arbitrage models identify cointegration relationships exhibited amongst the spreads between the ten most liquid cryptocurrency pairs. Short term departures from this relationship present profit opportunities, which are executed with Vishnu’s effective risk management program. The result is a long/short strategy yielding aggressive performance with moderate volatility. Volatility Arbitrage: As the unfolding of recent political/economic events have illustrated, directional strategies can share factor exposures common across asset classes that can cause a well-diversified portfolio to adversely correlate with factor shocks. It’s precisely such times of market stress that long-volatility strategies yield value to a portfolio. Vishnu’s volatility modeling of the Bitcoin-USD index continues to enhance our cryptocurrency volatility strategies.
Digital Asset Strategies Summit: Do the threats of increased regulation make crypto more or less volatile?
James McDonald: A thriving, liquid and growing financial market demands trust from its participants. No factor toward the long-term growth of the cryptocurrency space is more important than trust. And perhaps no other component of the crypto space has more potential to increase trust than enforceable regulations which protect investors and companies from bad actors. In the short-term, threats of increased regulation may increase the volatility of crypto prices; but in the long-term the establishment and enforcement of regulations that ensure investor protection will reduce the volatility of the crypto market by drawing in more players and engendering a more trusted space for business to transact. This growth will result in more stability and less volatility.
Digital Asset Strategies Summit: Will bitcoin remain the leading cryptocurrency?
James McDonald: For the short-term (e.g. 1-3 years), most likely it will. In the long-term, no. Other currencies will establish themselves as having greater utility, adoption, and potential.
Digital Asset Strategies Summit: Do you see more investors gravitating towards wanting actively managed crypto portfolios?
James McDonald: Absolutely. As the market attracts more established Broker/Dealers, Advisors, and Fund Companies their clients will be introduced to and interested in both actively and passively managed crypto portfolios.
Digital Asset Strategies Summit: What are some of the common misconceptions about bitcoin?
James McDonald: The biggest misperception is that the opportunity to profitably invest in bitcoin has passed. Other misconceptions about bitcoin are that it is a fraudulent scheme, overhyped bubble, and a product without a market.
Digital Asset Strategies Summit: Thanks James. We look forward to hearing more of your thoughts at the Digital Asset Strategies Summit October 16 – 17 in Dallas.