Singapore is one of the leading global Crypto hubs and therefore it is with great pleasure that we can present you this interview with one of leading local figures; Hayden Hughes, long term trader, investment fund manager and the co-founder of Alpha Impact. Crypto winter errors, anticipated rise of the banking sector and many others local insights, voila:
Fyggex: Let’s start with you, how did you get into the cryptocurrency industry?
Hayden Hughes: In early 2017, I was working in New Zealand in Venture Capital. I had just raised $1 million for one of our portfolio companies when I came across a couple of guys celebrating their Token Fundraising. They had raised $15 million in just 5 days!
If that wasn’t impressive enough, they later managed to raise $60 million in 6 minutes. That convinced me to explore cryptocurrency further. We then managed to raise several hundred million dollars for transactions that same year.
Fyggex: Wait, 2017 was the last hype curve peak time. Didn’t the Crypto Winter start approaching after?
Hayden Hughes: The Crypto Winter started showing signals in July 2018, I started working in crypto a year before. I remember strong enthusiasm in the market until the point when Ethereum’s (ETH) price fell below US$500. That was when I moved from New Zealand to Asia as my company understood the need to quickly diversify our clientele beyond speculators.
I came to Singapore tasked to build a trading desk. My job was to establish an investment pipeline with hedge funds, Venture Capital firms, asset managers, family offices, and accredited investors. We made a hard decision to divert from Crypto to Equity investments, but it was a smart move. We had a good run and wanted to continue the success we had had selling tokens with a growing investor base who were interested in equity investments.
Fyggex: Back then, people were suspicious of cryptocurrency. Today, there are still skeptics. What made you a believer?
Hayden Hughes: There are two sides to that story.
Firstly, I come from the perspective of an investment professional. There is a value storage aspect in Bitcoin. If you buy it and hold it for four years, for instance, it will outperform all other assets, such as stocks, bonds, real estate, commodities. It is volatile but worth it.
We (investment professionals) look at Sharpe ratio when choosing investments, and Bitcoin (BTC) has a far superior Sharpe ratio to anything else. Fyggex.com readers may wish to google “BTC Risk Adjusted Return” to see what I am talking about.
(Editor’s note: Sharpe ratio consists of taking the excess return of the portfolio, relative to the risk-free rate, and dividing it by the standard deviation of the portfolio’s excess returns.)
The second reason is that blockchains offer democratization of the financial industry. Financial services are coming to everyone. A new world is emerging, where you no longer need traditional financial services providers. Most of my transactions are happening with and through crypto. I like the idea that you can have investments, make investments and manage investments in this space without having a centralized intermediary.
To explain in simpler terms: I don’t need a bank to send money to you. Traditionally, if I want to send you Singapore dollars from Singapore to Sweden, it would take at least 48 hours and my bank would charge me for that process. Whereas if I send you cryptocurrency, that can be done in minutes and at a cheaper rate because there is no centralized authority in between.
Another reason is progress. Most finance professionals said Bitcoin was impractical as currency. For example, you won’t use Bitcoin to buy a coffee as the transaction time takes at least 10 minutes. The progress of blockchains have advanced since. Coins like XRP, XLM, NANO have such functionality built-in where you send transactions in and out within seconds.
Lastly, it provides decentralized security. Crypto exchanges have been hacked, but the Bitcoin blockchain has never been hacked.
Fyggex: You sound convinced. What do you say to those who lost money during the Crypto Winter?
Hayden Hughes: It is all about the timing. If you bought at the peak of 2017, you were underwater until December 2020. If you expand the time horizon to four years, you will see that Bitcoin was always a good investment. Cryptocurrencies do go up, but it is extremely volatile.
There are many people who just hold it (Editor’s note: also called HODL in the crypto community) because they believe that it is an excellent store of value for the long term, I mean 4 years or more. Those people are 100% correct. But there is also a layer on top of that, which is speculation.
When coins are growing 10x a day, there will come price corrections along the way. It is important to understand that in the short term, Bitcoin can be a bad investment. In the long term, it has been an excellent asset. It is just a question of timing.
Fyggex: Did you have any difficulties with your crypto journey so far?
Hayden Hughes: When Covid broke out, that was a very scary moment for the crypto world. Bitcoin went down 40% in one day. We saw prices from US$10,000 drop towards US$3,000. Right at the very bottom, I thought that this was it. It is going to drop to US$1,000 so I sold a very big, meaningful part of my Bitcoin portfolio at the worst possible time.
I had no way to make my decisions as I didn’t know who to listen to. Many “expert traders” were saying: Game over. Soon, zero. There was no way to see who was a good trader.
If you had a friend who was a good Crypto trader, then it could have been different, but if you instead listened to a bunch of YouTubers, it is hard to know who is correct. This extreme experience made me want to create and start Alpha Impact!
Fyggex: A majority is still not using Cryptocurrency, what is holding them back?
Hayden Hughes: Unfortunately, there is a wide misconception in the traditional financial community that Bitcoin and cryptocurrencies are used for illicit activity. However, when we look at the actual cases, we find that only 2% of transactions were linked to such in 2018. In 2020 that fell to only 0.3 %. That data comes from a Citibank report.
That is approximately $2-3 billion. In contrast, the United Nations has estimated that global money laundering represents 2-3 % of global GDP. That is between US$800 billion to US$2 trillion. The amount is far less in cryptocurrencies than in traditional FIAT currencies.
The crypto industry is becoming safer as blockchain analytics gives us transparency. When you send me US$100 worth of Bitcoin, I can see every single wallet the Bitcoin once belonged to. We can see the source of funds and trace it back. The crypto exchanges that handle the most volume of transactions, such as Kraken and Binance, are located in jurisdictions where KYC (Know Your Customer regulatory process) is required.
Also, there has been an increasing amount of compliance and blockchain monitoring services available, which explains why the amount of illicit transactions has decreased from 2% to 0.3%. In 2010 that number of money laundering was for sure higher. That is no longer true to the same extent. Using crypto is more likely to be safe than using traditional currencies.
Fyggex: What is your view of the biggest threat to cryptocurrencies?
Hayden Hughes: Number 1 will always be the volatility. The volatility is partly due to stress about regulations, but as American (US) regulators have mentioned in press and industry meetings, “the Genie is out of the bottle and it cannot be put back”.
US regulators have made clear they’re not going to ban crypto. Europe has already permitted, in Switzerland and Sweden, Exchange Traded Products covering crypto. So the Europeans won’t ban it either.China has tried many times to ban bitcoin mining, ownership, and trading. Even India and Nigeria have issued bans. As we have seen, the market has ignored those countries’ attempts to ban the asset.
Number 2 is energy. At present time, it is possible to mine Bitcoin for roughly $20,000 to $23,000, and that is dependent on low electricity production costs. If the price of Bitcoin is US$60,000, it gives me a business case to build or bring online electricity capacity for hundreds of millions of dollars to mine Bitcoin–as long as we see mining price being far below market price, we will see continuous efforts to mine more and more Bitcoin. JP Morgan’s research team calls this Bitcoin’s intrinsic value.
But that will impact global electricity prices. If you look at Bitcoin’s energy consumption worldwide, Bitcoin’s consumption is somewhere around No. 15 in the Global Ranking of Most Electricity-utilising Countries–that’s almost as much energy as the whole of France.
Aside from threats to climate change and utilizing dirty energy, the moment Bitcoin mining starts to demand more electricity than the United States, it will become a National security issue for them. It emerges as a legitimate threat to every other thing that needs energy such as hospitals, traffic lights, or factories; that would be when a ban could happen. It will most likely punish mining, not trading or ownership of Bitcoin.
Fyggex: Would that mean a future for eco-friendly altcoins?
Hayden Hughes: I don’t think Bitcoin mining consumption will match the consumption of 2nd or 3rd Most Electricity-utilizing Countries. Although eco-friendly altcoins will emerge, Bitcoin is always going to remain as digital gold. In theory, Bitcoin could change rules and move to a different consensus mechanism like Proof-of-Stake that would leave miners behind.
If we come to such a peak, there would be challenges to convert miners; that would cause major turbulence to the market. With current Proof-of-work, the difficulty of conversion is high, but at a certain point mining will become easier and you and I will have the possibility to mine bitcoin ourselves. There is a constant push to innovate.
Fyggex: How does your company/service/product/consulting help others in the industry?
Hayden Hughes: We at Alpha Impact are building an ecosystem where everyone will have access to decentralized, trustless investment power. Our API (application programming interface) permits us to execute trades from our customers’ exchange accounts with zero capacity to touch their funds.
We have noticed from global demand that people generally prefer splitting their investments between high risk and steady performance. We want to give everybody access to sophisticated investment strategies without high fees. When we say everybody, we mean, if you have $25 or $25 million, you will have visibility and availability of finding a high-performing trader that works for you.
Instead of finding analysts on Telegram, Twitter or Youtube like most regular traders do, Alpha Impact gives you access to real people’s real portfolio data. In return, traders are incentivized by earning fees for each trade copied by their followers. They can monetize their trading knowledge sharing and activities. We are like eToro but trustless and cheaper.
Trust is one of the biggest problems we face in the finance industry; our approach is that we say ”You do not need to trust anyone. Do not send your money to us”. Customers do not send their cryptocurrency tokens to our platform. Alpha Impact is just an added layer to enable customers to copy their chosen trader.
You could ask how we measure a good trader. Alpha Impact catalogs traders by coin, ROI, risk, trading platform, and consistency so users can choose their investment style. For example, users can select the best low-risk trader on Binance or a Bitcoin trader with a high ROI.
Fyggex: The world has more crypto than traditional currencies (FIAT). Why are there new ones being created?
Hayden Hughes: There is a record amount of money coming into this space. Coins are easy to create, easy to sell thanks to increasing demand. When Bitcoin goes up, people sell Bitcoin and diversify to these altcoins instead.
However, a lot of tokens have no intrinsic value in the first place. It comes down to the fact that it is easy to create coins and you longer need to list on an exchange. You can list any coins onto Uniswap or PancakeSwap.
Over time, people move away from coins with no utility. If you check CoinGecko, you’ll find those zombie coins at the bottom of the list. I am anticipating most coins will not survive the next 10 years.
Fyggex: Which countries/jurisdictions have the most advanced crypto regulation?
Hayden Hughes: There is a fine line between protecting investors and hurting innovation.
Singapore has one of the most advanced regulations in this sector. If you managed to create your business before the rules changed, you are left in peace until new regulations are in place; that allows time for companies to adapt and gives regulators insight to changes in the market. Non-compliant companies involved in scams or illicit activity were prosecuted quickly.
Fyggex: Is Alpha Impact regulated?
Hayden Hughes: Alpha Impact is not regulated today. Our operating activity is not currently regulated, since we are not an exchange and do not sell crypto. We are a technology platform, some might say a social media platform that allows users to follow traders. Because we do not touch our users’ funds and they execute trades from their exchange accounts, we are not treated as a financial service.
As Singapore’s ‘Payment Services Act’ comes into force, we expect that it will also cover our activity. Our legal experts say that there will be licenses to apply for in the future but, rules have not changed yet.
I welcome regulations. I don’t know any serious entrepreneur who does not want crypto to be regulated; it gives security to our customers so it is in our interest as an industry to become regulated. Singapore is one of the best places for it.
Fyggex: How do you see the future of crypto investments in the coming years?
Hayden Hughes: Every month that goes by, prices are moving further North. Citibank once said that the Bitcoin price could go up to $318,000 in this cycle. If you think about the previous all-time high price back in 2017, it went to $20,000 and from there it collapsed to $3,000.
We’ve seen Bitcoin grow 3x the price of its last all-time high. If you accept that as a proxy for what is to come and the price climbs up to $300,000, it could come back to $60,000. Undoubtedly, $300,000 is overvalued for Bitcoin at the current state. It would collapse, causing the next Crypto Winter.
Fyggex: Do you have any cryptocurrencies favorites?
Hayden Hughes: I am very excited about Alpha Impact’s token called “Impact”! It will be listed on Uniswap on June 3rd 2021. It is the one you should watch closely.
Fyggex: What is missing from the crypto industry today?
Hayden Hughes: The industry doesn’t cater to newcomers. Alpha Impact wants to change that. If you are a fresh investor who wants to enter this space, you’ll find a crypto exchange website, only to be extremely lost.
When you enter Binance, for example, the amount of options and buttons available is overwhelming. So, the industry as a whole has done a great job building the technology, but there is still much potential in making it user-friendly. Having a good user interface (UI) and user experience (UX) is critical. We want Alpha Impact to be as minimal as the iPhone interface.
Safety is also extremely important and we have seen that increasing. There are regulated market discovery products and insured custody available.
Fyggex: What can everyone in the crypto world expect in 2021?
Hayden Hughes: Alpha Impact’s token will launch in June and similarly our Alpha Impact platform will launch now in June.
More generally speaking, we will start to see Ethereum climbing. We are almost at 3x the previous all-time high, where we have also been with Bitcoin. This will cause more money to pour in, so I suspect new all-time highs in Q3 or Q4.
There is a theoretical bubble linking to Gas fees (Editor note: transaction fees), that the ETH utility could go up to challenge Bitcoin. The Ethereum blockchain is under regular upgrades. I anticipate the Ethereum 2.0 upgrade to take gas fees down by 2021. Ethereum market value is 2x away from overtaking Bitcoin. Bitcoin has nothing to do with decentralized finance (DeFi), yet Bitcoin remains the leader.
We often see the crypto world moving in 3 cycles. First, it is the rise of “Bitcoin to the moon”. Then, Bitcoin crashes, while Ethereum and all the altcoins go up. Finally, the total crash of everything. And then, the cycle repeats and Bitcoin goes up again.
Fyggex: What do you think is the next big thing with cryptocurrencies?
Hayden Hughes: We will see an increasing number of banks offering cryptocurrencies to their customers. I think a lot of people are put off from trading Bitcoin, simply because it is incredibly hard to start. Even here in Singapore, we are roadblocked with KYC, only allowed to use credit cards, revealing your passport and address, etc.
Compare that with doing the process through your bank who already has your identity checked. They have everything in place. Although banks might charge a high fee, it would massively increase adoption; ease of doing things matters. Enterprise blockchain has not had as much traction, I hate to admit this but the change will be led by the banking sector. Let’s test my predictions in the next 12 months.
Indeed we will! Best of luck to Alpha Impact platform and Token launch Hayden. We will monitor the progress and look forward to meeting you May 31st 2022 to see if your prediction came true. Thank you for these insights, it was great to have you with us!