Beating Bitcoin at Scale with Directional Crypto Strategies | Sam Gaer of Monarq Asset Management

Episode Summary

Executive Summary: Sam Gare, CIO of Directional Strategies at Monarch Asset Management, discusses the current crypto market downturn, attributing it to a 'perfect storm' triggered by the October 10-11 liquidation event. He argues that despite short-term pain, institutional adoption is soaring and the long-term bullish case for Bitcoin remains strong due to macro and regulatory tailwinds. Gare emphasizes Monarch's quantitative, institutional-grade approach to building a scalable, risk-managed directional fund, contrasting it with underperforming crypto directional strategies. He also dives into the evolution of Digital Asset Treasuries (DATs) and the convergence of TradFi and crypto.

Main Topics: Crypto Market Downturn and Underlying Causes (Priority: 5/5): Analysis of the market sell-off after the October 10-11 liquidation event, including the impact of false narratives (MicroStrategy, BlackRock, death cross) and the decoupling from macro. Long-Term Bullish Case for Bitcoin and Crypto (Priority: 5/5): Long-term bullish case for Bitcoin: performance over five years, institutional adoption, macroeconomic and regulatory tailwinds, and the approval of Bitcoin and Ethereum ETFs. Monarch's Quantitative and Risk-Managed Investment Approach (Priority: 5/5): Building an institutional-grade directional crypto hedge fund, including quantitative techniques, risk management (triple barrier), portfolio construction, and strategic use of leverage. Building and Scaling a Crypto Investment Business (Priority: 4/5): How to scale from a small trader to a large institutional fund, emphasizing the importance of a time-based track record, experience, maturity, and risk-adjusted returns. Institutionalization and Convergence of Crypto With TradFi (Priority: 4/5): Analysis of industry trends, including the convergence of TradFi and crypto, the institutionalization of infrastructure (e.g., Hyperliquid), and the evolution of talent acquisition. Digital Asset Treasuries (DATs): Evolution and Pitfalls (Priority: 4/5): The evolution of Digital Asset Treasuries (DATs) from 'DAT 1.0' (multiple of NAV) to 'DAT 2.0' (proper operating companies increasing tokens per share), and common pitfalls in capital structures. Risk Management and Regulatory Landscape (Priority: 3/5): Comparison of risk management and regulatory environment in TradFi vs. Crypto, including lessons from Sam Gare's experience in the pits, at NYMEX, and as a regulator.

Key Arguments: False narratives (MicroStrategy liquidation, BlackRock ETF mechanics, death cross) amplified the recent market sell-off. The death cross has historically coincided with market bottoms. Long-term bullish case for Bitcoin is intact: fixed supply, permissionless, decentralized asset macro and regulatory tailwinds. Institutions dislike high volatility and large drawdowns in return streams (e.g., +300% then -80%), making them hesitant to allocate large capital to crypto directional funds. Monarch aims to change this by providing a more consistent, institutional-grade return profile. A successful institutional fund in crypto requires a quantitative approach, risk management (triple barrier), strategic use of leverage, and careful portfolio construction with liquid names. Crypto is more relationship-driven than TradFi. Collaboration and introductions are common, contrasting with TradFi's cutthroat environment. Connections generated from a long career in both TradFi and crypto are crucial for building a large-scale investment business. The crypto market is maturing: volatility is decreasing, liquidity is increasing, and infrastructure is improving (e.g., Bluefin). Regulation is becoming more favorable in the US. Digital Asset Treasuries (DATs) are evolving from a simple 'multiple of NAV' (DAT 1.0) to proper operating companies focused on increasing tokens per share (DAT 2.0). Many current DATs have flawed capital structures (converts, debt spirals, ATMs). The talent in crypto is still not the 'cream of the crop' from top universities, which goes to firms like Jane Street or Citadel. This will change as technology demands increase (e.g., co-location, low latency, nanosecond profiling).

Data Points: Size of liquidations on October 10-11: $20 billion - During the podcast, Sam Gare describes the market environment post-October 10th. 5-year performance of Bitcoin (BTC): +394% - Gare provides performance data for various assets over the past five years, as of the podcast recording. 5-year performance of Gold: +134% - Performance comparison of other assets over five years. 5-year performance of S&P 500: +87% - Performance comparison of other assets over five years. 5-year performance of Ethereum (ETH): +439% - Performance comparison of other assets over five years. Bitcoin price mentioned (anecdotal): $83,000 - Sam Gare mentions Bitcoin's price during a specific anecdote about a taxi driver. Bitcoin price (at time of recording): ~$90,000 - Sam Gare notes Bitcoin's price at the time of the podcast recording. Recent liquidation event size: $2 billion - Sam Gare mentions a recent liquidation event. Bitcoin return since 2017 (hypothetical $100,000 investment): +535% - Gare discusses historical returns for Bitcoin and crypto directional funds since 2017. Crypto directional hedge fund return since 2017 (hypothetical $100,000 investment): +211% - Comparison between Bitcoin and crypto directional hedge fund returns since 2017. Market cap of all crypto: ~$3 trillion - Gare uses this statistic to illustrate the massive scale difference between crypto and traditional markets. Market cap of U.S. equities: ~$70 trillion - Gare uses this statistic to illustrate the massive scale difference between crypto and traditional markets. Value lost in U.S. equities during 'Liberation Day' temper tantrum: $5 trillion - Gare mentions this to show the scale of volatility in equity markets during the 'Liberation Day' tariff announcement. Market cap of stablecoins: $1.1 trillion - Gare highlights the rapid growth and importance of stablecoins. Market cap of Gold: $27 trillion - Gare uses this to contextualize Bitcoin's potential upside. Implied Bitcoin price if market cap reaches $10 trillion: $500,000 - Gare mentions this to show potential upside for Bitcoin price. Bitcoin annualized volatility (last year): 60% - Gare discusses the maturation of the crypto market and decreasing volatility. Bitcoin annualized volatility (current, on a good day): 40% - Gare discusses the maturation of the crypto market and decreasing volatility. Bitcoin annualized volatility (current, given drawdown): 50% - Gare discusses the maturation of the crypto market and decreasing volatility, noting a recent drawdown has increased it. Percentage of open interest/volume Hyperliquid has taken from Binance: 25% - Gare notes the market share Hyperliquid has captured. Bitcoin's volatility relative to S&P 500: 2 times (twice the volatility) - Gare mentions this to show how Bitcoin's volatility compares to traditional markets.

Pivotal Quotes: "But when you have drawdowns of 80% after a year of up 300% that don't correlate with your index or with your benchmark, that becomes a real problem." — Sam Gare: Sam Gare explains why institutions are hesitant to allocate to many crypto directional funds despite being comfortable with the asset class's beta and drawdowns. "I had what I called my Cortez moment, where when Cortez came to the new world, the first order that he gave his men once they came ashore was to burn the boats." — Sam Gare: Sam Gare describes his decision to fully commit to crypto, drawing a parallel to Hernán Cortés burning his ships to force his men to succeed. "You know what your benchmark is? It's Bitcoin. Guys, it's Bitcoin. You're at a party, people are talking about crypto, they're talking about Bitcoin." — Sam Gare: Sam Gare argues that the industry standard for a crypto investor's benchmark is Bitcoin, similar to how an equity manager is compared to the S&P 500.

Implications: This podcast provides strategic insights for asset allocators and fund managers. It suggests that the maturation of crypto will reward disciplined, institutional-style approaches over high-beta directional bets, and that the convergence with TradFi will accelerate, creating new opportunities in cross-asset strategies and digital asset treasuries.