Our approach is predicated on two
almost unfair advantages.
We’ve pioneered the application of behavioral economics in cryptocurrency investing.
Humans make predictable cognitive errors—perhaps with no greater intensity and frequency than when investing. Four Nobel Prizes have been awarded to psychologists and economists who have discovered the impact of these cognitive errors on financial behaviors, including Richard Thaler just last year.
BE-driven approaches have helped Thaler and other behavioral investors like Tom Howard to having amongst the best-performing funds in their classes, and these approaches seem to be even more relevant to digital asset investing. By leveraging behavioral finance, sentiment analysis, and digital asset-specific data points (e.g. blockchain network activity), we can measure and sometimes predict certain psychological aspects of the cryptocurrency markets. We’ve scaled an approach built on a rich academic literature going back decades, enabling us to detect behavioral price distortions and often take advantage of them.
Want to learn more about the underpinnings of our approach?
Others try to appraise the fundamental value of blockchain assets or predict the future of decentralization. We focus on measuring and predicting investors’ behavior.
We have a unique blend of entrepreneurial experience, angel investing success, and behavioral science.
Our team composition reflects the reality that thriving in the blockchain space requires a highly interdisciplinary skill set. We are not new to startups, fintech, investing, or applying behavioral approaches in novel arenas. Chris spent the better part of the last decade helping startups, large enterprises, and public institutions apply behavioral science in a diverse mix of verticals. This included medication adherence with San Francisco’s Dept. of Public Health, enterprise software adoption with Salesforce, voter turnout in the US 2016 presidential elections with Hustle, medical research participation with UCSF, and financial behaviors with behavioral economist Dan Ariely’s Common Cents Lab. Both Chris and Aymard have worked with startup incubators and innovation programs like Y-Combinator and Stanford’s StartX, and both have had successful early or late-stage tech investments with companies like Able Health, Spotify, Circle, Palantir, Cue, and Lark. Applying insights from behavioral economics and tech investing to the blockchain space is not always 1-to-1, but our unique experience set positions us well to think critically about investment methodologies across a range of diverse and sometimes limited data points.
The dynamics of this market create much greater opportunity for behavioral approaches; there is greater market volatility, lower investor sophistication, less fundamental asset value (e.g. no relationship to a company’s present or future earnings), markets that never close, and staggering differences between international crypto market climates.
Moreover, blockchain investors and companies are much more active on social channels, and there is significantly less regulation around information made available about these assets (cf. with quarterly earnings reports). Thus, behavioral price distortions may be more easily monitored, arbitraged, and predicted than with normal stock markets.
Adapting BE strategies that have earned outsized alpha in traditional markets is not always straightforward, but the upsides can be significant.
We look a great deal at underlying network activity on-chain and behavioral indicators of sentiment like on-chain transactions, address trends, and order books. In addition, we use data to assess the macro trends for the market as a whole, like common trends on-chain across top networks, average ICO returns, Google & Baidu search trends, and activity of wallets with large holdings.
Esoteric Capital does not invest in ICOs. That said, with ICOs there are numerous data points you might consider consider, including the hard cap vs. sold tokens (implied valuation), discount (or bonus), founders with previous blockchain or tech experience (e.g. sold/IPO’ed a startup or worked at least VP-level in Fortune 100 company), Github activity, pre-sale terms vs. public ICO price (can indicate foul play or desperation), community size and engagement level, tokenomics, backing from notable investors (who bought tokens, not just equity), industry/vertical, and meaningful partnerships.
We are considering investments starting at $1m USD or its crypto equivalent from philosophically-aligned individual investors, other funds (traditional or crypto), ICO treasuries, and sovereign wealth funds. We accept both US and non-US investors, though Americans must be accredited. Our fees are very much in line with what you might expect if you know about hedge funds.
If you’d like to chat with us about putting capital to work and using behavioral approaches to generate alpha, we’re happy to provide more details and all the documents you’d expect.Get in touch
The materials on this website are for illustration and discussion purposes only and do not constitute an offering. An offering may be made only by delivery of a confidential offering memorandum to appropriate investors.
Want to learn more?
Investing is complex (and behavioral investing is perhaps even moreso). If you’d like to learn more about how we approach things, hop on a call with us.