John Burbank (Trades, Portfolio) of Passport Capital is joining the select company of guru crytocurrency bulls. It took until 2016 before the first money manager of any fame became involved with cryptocurrencies, that person being Murray Stahl (Trades, Portfolio) of Horizon Kinetics. Bill Miller is another early adopter who got much attention when the hedge fund he manages consisted of 50% bitcoin. Burbank went big, setting up a dedicated cryptocurrency fund, including cryptocurrencies into Passport’s existing special situations fund and launching a crypto fund of funds.
Burbank was interviewed on CNBC last week.
He was asked whether he’s buying equities related to crypto or just the currencies. His answer was somewhat vague:Â "There are all kinds of things you can do."
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He likely answered like that because one of the killer applications of blockchain is its ability to administrate ownership in new and efficient ways. That has opened up new ownership structures, usually through tokens issued in so called ICOs, that don’t fall into the legacy classifications like equity, bond or currency.
Burbank’s biggest position that is crypto-related is Overstock (OSTK, Financial). Overstock happens to be a company that I’ve owned since 2015 and am all well-acquainted with. Back at the first sign of Overstock investing in blockchain technology, I wrote:
"What stood out to me as really quite clever is Byrne decided to go for the secondary applications of block chain technology instead of jumping on the payment train. Things are coming together nicely and, although something of a pipe dream at this time, it is hard to deny if and when to gains national traction as a trading platform, it would be transformative. Meanwhile, if it all turns out as one big failure, shareholders lost a few years of cash flows but still own shares of a growing e-commerce business trading at 0.22x sales and below 1x gross profit, which would be quite profitable if it were not for the investment being made. I'm happy to hold and see how this plays out."
My favorite way of investing in transformative technology is when it’s attached to a profitable, undervalued “boring” company. If you lose, you don’t lose much, but you can still win big. In just a few years, shares went up four times. George Soros (Trades, Portfolio) and Burbank bought in much later, around the $40 level, through warrants, but with the added benefit of much more visibility into the blockchain business which matured much over that time frame.
As far as Burbank’s crypto exposures, he specifies this as his top three:
- Bitcoin.
- Bitcoin cash.
- Ethereum.
But, he added, they own more. Later comments also indicated he likes Ripple.
Burbank believes this is technological change all institutions are going to want to invest in later. Today they have very little exposure. Like I mentioned in the introduction, among guru investors, very few have a deep understanding of the crypto technology and commensurately few have invested. Gurus are among the most savvy investors on the planet who will understand investment applications long before bureaucratic institutions with a goal of not losing too much finally do.
Asked about pureplays into the space, Burbank talked about opportunities in Japan. According to Burbank, Japan is all-in on cryptocurrencies and blockchain. There are much more pureplays over there, at least of the quality he would like to invest in, which is one problem I can attest too. Many of the potential investments in the space are of extremely low quality and should be avoided. Prodded for a specific name, Burbank didn't seem like he wanted to give many, but mentioned SBI Holdings (TSE:8473, Financial), which holds between 9-10% of Ripple.
Burbank anticipates blockchain is going to drive rapid change. He believes in the technology very strongly, and his biggest current macro bet is that technology is going to change every macro sector in the world.
Is this a significant technological change in finance? If it is, it is going to be a massive change in commerce. This is happening all over the world, not just in Silicon Valley.
Institutions have virtually no money in this, and they did not take the time to really understand what’s happening.
Earlier he wrote in a letter to investors (source):
"Technological progress and its non-linear enhancement or deflation of the biggest industries and markets in the world is my choice for what will have mattered most five years from now.
I want to capture these extraordinary outcomes in new ways appropriate to the current era."
