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 state of crypto markets, emphasizing that the recent downturn is a culmination of a perfect storm rather than an existential crisis. He argues that institutional adoption is strong and that Bitcoin remains a top-performing asset over five years. Gare details Monarch's institutional approach to crypto investing, including quantitative models, triple-barrier risk management, and downside convexity. He highlights the convergence of TradFi and crypto, the rise of digital asset treasuries (DATs), and the importance of relationships in the crypto space. Gare remains cautiously optimistic, citing macro and regulatory tailwinds, but warns of risks like consumer debt and AI overhiring.

Main Topics: Current Crypto Market Analysis (Priority: 5/5): Analysis of the recent market downturn starting October 10th, including $20 billion in liquidations, poor liquidity, and false narratives (e.g., MicroStrategy forced selling, BlackRock ETF mechanics). Gare views this as a 'perfect storm' rather than a systemic crisis. Institutional Crypto Investing Strategy (Priority: 5/5): Monarch's approach: quantitative views, triple-barrier risk management (take profit, stop-loss, time horizon), downside convexity, and leverage. Focus on liquid, scalable assets with positive expected value. Long-Term Crypto Outlook and Cycle Analysis (Priority: 4/5): Gare argues the four-year cycle may not be over, with potential top in early-mid 2026. He cites institutional adoption, structural drivers (tokenization), and macro factors (deficit, Fed easing) as bullish, but notes risks like consumer debt and AI overhiring. TradFi and Crypto Convergence (Priority: 4/5): Discussion of how crypto funds will increasingly trade equities and vice versa. Gare predicts on-chain clearing of U.S. equities and debt, and that large TradFi funds (e.g., Millennium, Brevan Howard) will go all-in on crypto. Digital Asset Treasuries (DATs) Evolution (Priority: 3/5): Gare introduces 'DAT 2.0', where companies focus on increasing tokens per share rather than engineering a multiple of NAV. He criticizes DATs with no cash and flawed capital structures, advocating for opportunistic buybacks and staking. Importance of Relationships and Talent in Crypto (Priority: 3/5): Gare emphasizes that crypto is more relationship-based than TradFi, with collaboration between funds. He notes difficulty competing with TradFi for top talent due to lower compensation, but sees this changing as the industry matures. Technology and Infrastructure in Crypto (Priority: 3/5): Critique of exchange technology (e.g., lack of cancel-replace orders, non-standardized order formats). Praise for Hyperliquid as a decentralized exchange with deep liquidity and user-friendly experience. Discussion of co-location and latency improvements needed.

Key Arguments: The recent crypto downturn is a 'perfect storm' of liquidations, poor liquidity, and false narratives, not an existential crisis. Institutional adoption is strong; Bitcoin has outperformed gold and the S&P 500 over five years (up 394% vs. 134% and 87%). Monarch's triple-barrier risk management (take profit, stop-loss, time horizon) is essential for institutional-grade crypto investing. The four-year cycle may not be over; a top could occur in early-mid 2026 due to structural and macro drivers. Crypto funds must evolve to offer institutional-quality return streams (e.g., 80% of upside, 20% of downside) to attract large capital. Digital asset treasuries (DATs) need to evolve from 'DAT 1.0' (engineering NAV multiples) to 'DAT 2.0' (increasing tokens per share through opportunistic buybacks and staking). Crypto is more relationship-based than TradFi; collaboration between funds is common and beneficial. Exchange technology in crypto lags behind TradFi; improvements in standardization, co-location, and latency are needed for further institutionalization.

Data Points: Bitcoin 5-year return: 394% - Compared to Solana 306%, Gold 134%, S&P 500 87%, Ethereum 439%. Crypto market cap vs. U.S. equities: $3 trillion vs. $70 trillion - U.S. equities lost $5 trillion in value during Liberation Day week. Stablecoin market cap: $1.1 trillion - About to become the largest holder of U.S. Treasuries. Gold market cap vs. Bitcoin market cap: $27 trillion vs. $2 trillion - If Bitcoin reaches $10 trillion, price would be ~$500,000. Bitcoin volatility decrease: From 60% to 40-50% - Volatility has decreased year-over-year, indicating market maturation. Bitcoin price at time of recording: ~$90,000 - Off all-time highs but still resilient. Number of death crosses since 2023: 4 - Each coincided with a bottoming area. Hyperliquid market share: 25% of open interest and volume - Taken from Binance and other exchanges.

Pivotal Quotes: "The one thing that institutions who control vast amounts of the investable capital, probably the majority of investable capital in the world, the one thing that they hate is volatility over charge streams." — Sam Gare: Explaining why institutions are hesitant to allocate large capital to crypto directional strategies. "If you would have invested in Bitcoin, $100,000 in 2017, you'd be up about 535%. If you would have invested $100,000 at the same time in a directional hedge fund in crypto in 2017, you'd only be up about 211%." — Sam Gare: Highlighting the underperformance of crypto directional funds compared to simply holding Bitcoin. "I had 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. And what that signified to them is that there's no way back and that they've got to make it work." — Sam Gare: Describing his decision to go full-time into crypto, selling his software and leaving TradFi behind.

Implications: For investors, the key takeaway is that crypto is maturing but still volatile; institutional-grade strategies with risk management are crucial. The convergence of TradFi and crypto will accelerate, creating opportunities in digital asset treasuries and cross-asset trading. The industry's infrastructure and talent pool will evolve, making it more competitive with traditional finance.