The Financial Industry's 'Internet Moment'
“If one’s able to see beyond the speculative mania, the underlying technology here is groundbreaking. Distributed ledger technology (DLT) enables ‘cheap’ trust,” said Andrew Steinwold, Managing Partner at Polynexus Capital. “In traditional finance, every action incurs cascading costs in the forms of internal frictions, human effort and technological capacity. Blockchain has leveraged the power of software to codify many of these processes and judgement decisions, streamlining and lowering the cost of certain functions. The financial industry may finally have its ‘internet moment.’”
Hehmeyer Trading + Investments sat down with Steinwold to learn more about how he first got into cryptocurrencies, why he thinks they represent an incredible investment opportunity and how he believes blockchain is a “game changer.”
Steinwold’s Polynexus Capital is a long-biased, multi-strategy investment fund that invests exclusively in digital assets and related products. He focuses on defining crypto fundamentals and says that research takes precedence when it comes to his investment strategy.
“Our experience trading these assets allows us to blend well-understood, early-stage investment value drivers with elements particularly germane to crypto markets, such as sentiment indicators and on-chain metrics” said Steinwold, who is a true believer in crypto. “The long-term fundamentals of this technology are exceptionally promising, but it’s important to remember this is a young and inefficient market, so we have to stay nimble. There is certainly room for the venture capitalists and quants alike, but we find each end of this spectrum misses the transformational nature of this new asset class. If you’re trading early-stage, liquid investments, you need to have a foot in both camps.”
Career Roots Planted in the Middle East
Steinwold started his career in operations management at a hospitality conglomerate in Saudi Arabia in 2012. He started reading articles online about bitcoin, which sparked his desire to open an account with Coinbase to purchase his first cryptocurrency in 2013.
“I had a limited pool of knowledge but a strong and immediate attraction towards the emerging cryptoasset industry,” he said. “Bitcoin first seemed like this form of magic internet money that could be used to purchase illicit goods online; but, as I grasped its roots of decentralized consensus and digital scarcity, it soon became much more.”
He initially purchased a few dozen Bitcoin at $200/coin and watched in excitement as it spiked to upwards of $1000. Bitcoin swiftly crashed back down to $300 and the volatility of the asset class scared him and he sold all of his coins on the way down.
“That was my first bubble cycle in the asset class. But certainly not my last,” he said. “This is fundamental human psychology that will continue to roil crypto prices as the market matures beyond 200 billion in total assets.”
In 2014, Steinwold moved to Dubai and was focusing on crypto during his nights and weekends. He noticed that the local population accounted for less than 10% and everyone else was from another country. They all would regularly send money to their families in their home countries but paid fees anywhere from 2-10% on each transaction.
“I knew I had found a perfect use-case for blockchain and began learning all I could to build a usable product for global remittance,” he said. “It was around this time I realized that distributed ledger technology was going to be a game changer in the financial industry.”
An Entrepreneurial Spirit Kicks In
With the knowledge of Ripple, a fast cross border transaction application, Andrew tracked down the only Ripple developer in the Middle East.
“I set up a meeting to discuss creating a low cost remittance network using blockchain,” he said. “Unfortunately, the developer was uninterested saying that we were just too early” and that “This technology wouldn't even start to be adopted for another five years.”
Although a defeating moment, Andrew did not give up on his thesis that this is paradigm-shifting technology. In 2016, he headed back to the States, set on the idea of launching a business that utilized the unique properties of blockchain technology.
“I settled back in Chicago and began building out my crypto network. I initially reached out to friends and colleagues but realized no one knew what I was talking about. I began a few crypto projects, but was constantly reminded that real user-adoption was a long way off.” he said. “During this time, I continued to research DLT and began to invest once more.”
In early 2017, Steinwold became interested in the Ethereum blockchain. “It allows developers to build decentralized applications on its network. Imagine a version of Apple’s app store with no centralized, rule-setting, profit oriented, entity controlling the platform.”
He said that he knew quickly the implications that Ethereum would have on the space and there would be an explosion of decentralized applications.
“I decided that my knowledge of the asset class was uncommon enough whereby I could add more value to the ecosystem by deploying capital to the best teams rather than starting my own company.”
That summer, Steinwold founded a fund to invest in the best projects. He teamed up with Dan Patterson, whom he believes is the smartest guy he knows.
“Dan and I grew up together in the North Shore. He’s an engineering and finance graduate who went on to work in private equity for about five years in Hong Kong,” he said. “He had been similarly involved in the space for a number of years, and we both share a belief on the future impact of crypto. Most importantly, our differing backgrounds provide a confluence of traditional finance and crypto-native investment perspectives necessary to be successful trading digital assets.”
An Evolution in Money Markets
Currently Steinwold trades and works from crypto co-working space, Athena Bitcoin.
“Working amongst a community of diverse backgrounds is particularly valuable in this field,” said Steinwold. “While we never lack for naysayers, my personal conviction is that cryptoassets represent a technological paradigm shift, similar to that brought about by the railroads or internet.”
He has a few pieces of advice for believers in this space.
“You need to research, research, research and invest cautiously. Begin will small amounts to understand the security and custody requirements. There is a multitude of scams and misinformation out there, you need to make certain to rely on credible sources and focus on ‘good’ role models in the space,” he said, who counts Brian Armstrong, the CEO of Coinbase, as someone he looks up to.
In conclusion, Steinwold said that he foresees crypto as a revolution in money.
“The internet, and email specifically, revolutionized the transfer of information, making information cheap, easy and quick to move around the world. That first “killer-application” for Bitcoin and distributed ledger technologies is the transfer of value. We now have the capacity to send value anywhere in the world near instantaneously, with very low fees, across a secure and decentralized network. We our entering an era of cheap, democratized trust.”