Interview with BitBull Capital CEO Joe DiPasquale (VC Lab Alum)

My name is Dustin Betts. I'm the content editor at the Founder Institute, and I'm here this afternoon with Joe DiPasquale. He's the founder and CEO of Bitbull Capital. It's a Founder Institute VC Lab alum. The fund's focusing on multi-strategy crypto active investment. Joe DiPasquale, thanks so much for joining me today.

Thanks for having me, Dustin. It was so great to go through the VC Lab program with Bitbull. We really enjoyed it and got a lot out of it.

Awesome. Before we dive into it, I want to ask first just a little bit about your own background story. What were the experiences, professional or personal, that led you to founding this fund focused on cryptocurrencies and crypto asset investing? Sure.

Well, I had been investing in cryptos for a while, since about 2013. I even started doing interviews with people in the space and had an alter ego, Crypto Joe, and learned— kind of fell down the rabbit hole of crypto investing. And then by 2016, I started full-time focusing on my crypto investments, conceived of Bitbull Capital, and then spun it out as an entity in 2017, actually. And then that brought us to where we are today in already 2021.

Perfect. Yeah. And hitting, you know, we're going to talk all about cryptocurrencies and the market and everything, but yeah, so I'm already a little bit familiar with Bitbull. I'm, you know, on the website, say it's a kind of one of the world's first, if not the world's first crypto fund of funds among many other things, but please kind of, you know, hear it straight from you, the CEO, sort of give us your high-level pitch, kind of like for those totally unfamiliar, what is Bitbull Capital?

Sure.

Well, so this dovetails with your question about why I start a crypto hedge fund. So in crypto, there's many different ways to invest. You can just simply buy and hold an asset like Bitcoin. Bitcoin's one of 8,000 different crypto assets, but it's definitely the largest. Or you can do some active strategies, do things like initial coin offerings, equity deals, and other things. So Bitbull is meant to be a derivative hedge fund. A diverse portfolio of active strategies. And when I say active, what I mean is a number of different strategies that essentially attempt to either profit off of volatility— crypto is known for its unique volatility— or to do strategies that you wouldn't be able to if you're just kind of buying and holding a top coin. And those would really be ICOs, or equity, or kind of some edge-case strategies like arbitrage.

Perfect. Then yeah, just framing up this whole new asset class again by way of introduction for your own clients or your investors at Bitbull, where does or where should crypto fit into an overall healthy investment portfolio today, say for an individual?

The research continually supports the thesis that crypto is uncorrelated with many other asset classes such as equities or even the and assets like gold. So for any well-constructed portfolio, you want as many uncorrelated assets as you can stomach. And so we often tell people that Bitcoin or crypto is on the low side 1% of someone's investable assets, and on the high side, 10%. I'm personally overweighted intentionally because I'm so bullish on the asset class. And generally on technology in general. I'm overweighted in technology myself. But to me, that's exactly right, because I think that the data bears out empirically that tech, and specifically crypto, is a good investment.

Yeah, perfect. No, I really like that. Especially, it's very clear, honestly. And I think for people who are just maybe who aren't currently in the market, having a target like that 1% to 10% for an individual, I mean, that's actually super, Super helpful. This might be a reframing of the same question, but just for people who are new to cryptocurrencies in general, what do you see as the macroeconomic highest-level purpose of the whole new asset class? It's like you said, it's a hedge fund in the sense that it's uncorrelated with other market dynamics, right? Or— Yeah.

Well, so— The hedge fund thesis is a bit different than the crypto asset thesis, because hedge funds attempt to basically, specifically, first of all, cut out downside risk. So a lot of people are saying, OK, Bitcoin hit an all-time high of $40K+. What happens if it crashes? So that's what a hedge fund would try to do, is try to cut down downside risk, or even outperform on the upside. But in terms of your question about why crypto, Specifically, so there are cryptos that do different things. Cryptocurrency would be Bitcoin, but other crypto assets like Ethereum, the second place asset, would perhaps be used for different purposes, and what we could always talk about. But in terms of the currency, people invest in Bitcoin for a couple of reasons. One is that it's a hedge against global inflation. So we've seen that, for example, the US and other fiat currencies like the yuan or the yen or others are printing printing a bunch of new currency. In the US, if you look at the M1 money stock, 60% of all dollars that have ever been in circulation were printed in the last 12 months. And so that's generally expected to lead to wide-scale inflation, so your dollar being worth less over time. And that's one of the reasons that people buy Bitcoin as a currency that can't just be printed more of. There will only be 21 million Bitcoin ever in existence. And it becomes twice as hard to create every 4 years. And then it's also a hedge against global uncertainty and some other things as well.

Yeah, perfect, perfect. No, I love that definition. Next thing I want to kind of ask about for investors who are new to the market, I mean, volatility always comes up, and I think it's a reason that many investors have been slow to enter the market over the past decade, though looking back, they probably wish they had entered sooner. But can you just explain to us, you know, high level, you know, how you look at volatility as a possible positive, right? What are some ways that volatility, especially for your active managed, that it can work to your investors' advantage?

This comes up all the time, Dustin. Even because the run-up a week and a half ago to $41K, I talked to a CoinDesk reporter, popular crypto outlet, the next day, and he was asking me, will crypto crash? And my answer was, Of course, it's unique. That's why I love the crypto asset class and why I like the hedge fund lens in the space because we attempt to, of course, repeatedly buy low and sell high. And I had called it to him as $28K, but then it went down actually to $30K by 4 days later. So it's a couple thousand off, but the volatility is going to remain. But overall, If you believe, as I do, that over the next several years, crypto and Bitcoin specifically will continue to go up in value, then it doesn't matter too much if you buy it at $40K, if it goes to $80K or $30K, it's still going to be an appreciating asset.

But it has run up a bunch.

And so that's why with our hedge fund, we are trying to protect any downside at the moment, actually.

Yeah.

So I don't know if that answers your question, but certainly I think a buy at any level now, given that I believe it'll be at $80K within a few years, is fine. But can you get it at a more aggressive price?

Yes.

Does it mean that you might then miss that buy-in point? Also yes.

Yeah. Yeah. I think that's perfect. I mean, I really just, I think that framing works. It's like you're basically As long as you have— it's not necessarily buy and hold for super long term, but you just have to be willing to ride out the market dynamics. It's not something that you're going to actively day trade and beat it as an individual. You're just not that kind of active investor, probably. I don't know. Yeah.

It's almost impossible, if not impossible. And really the mistake that we find there is that people have these lines like $30K to buy in. And for example, the dip that happened a week ago went to $30,100. So maybe it wouldn't have hit your buy-in, you wouldn't have bought in, and already now it's back to $36,000. So you have to— it's very hard to— it's impossible to do a perfect job.

Right, right. Perfect. Well, okay. I want to ask next about blockchain technology sort of apart from cryptocurrency. So putting aside Bitcoin or any other kind of altcoin that's really more like the currency, other kinds of tokenization of other types of assets, assets. What are the ways that investors can take advantage of blockchain, say, based utilities or value in things like the smart contracts, the ledgers? Do you point to Ethereum, or are there other ecosystems that are places that you think people should look for that?

Absolutely. So at its core, blockchain is simply a data—

it's a database.

It's a store of information. It's an immutable store of information based on consensus. So we see a lot of blockchain, actually IBM, for example, is one company pioneering a number of blockchain applied to supply chain management, for example. You mentioned Ethereum. Ethereum has one of its major use cases right now is applied to decentralized finance. So for example, in derivatives markets, Ethereum has a smart contract ability where you can settle, let's say, a derivatives contract automatically. So there are uses in anything where you can take out the middleman or escrow in Ethereum. So whatever that is, finance is really the first large application of it, but people are trying to do other applications with the blockchain of any sort of secure need for a secure database, and it can fit into any product well.

Yeah, perfect, perfect. The next thing I want to ask you about, sort of related, is the ICOs and the startup fundraising. I think with all the talk the past year about, you know, are the markets frothy, like companies are going public with direct listings and with the special purpose acquisition companies, you know, is there a place for the ICO, I guess, in the future? And maybe related, you know, are there other types of SAFE tokens or securities fundraising mechanisms for companies whose core competency or their product offering is not primarily crypto or blockchain-based?

Absolutely. In terms of the ICOs, I know our fund invested in several that just launched this year. ICOs, there was so much news about them years ago, but we did ones this year, like Filecoin, Polkadot. DFINITY is one that's just launching. Tezos launched about a year ago. So definitely, ICOs are something that your company can do. And it's very similar to venture capital investing, investing in these unlaunched crypto assets, because they're going to look at your team. I mentioned Polkadot. So that one had a co-founder that also was a founder of Ethereum, for example. So they'll look at your team. Do you have experience in this area or in the specific vertical you're doing? And apply the same exact metrics that any traditional venture capitalists would to investing in an ICO. And to your question about, would it make sense for someone outside of maybe blockchain to do this? Well, there are actually a lot of blockchain-adjacent industries that are in the crypto space. So I guess when I say that, for example, we also did an equity investment in Coinbase. Coinbase is not a blockchain company, actually. I mean, they are trading crypto. It's like picks and shovels. But there's a lot even around crypto that you can do, or even in other assets like carbon credits. I've heard applications there. And just there's a whole— there's a whole gaming, of course gaming, so anything to do with virtual goods. So there are many, many applications of ways that you can use crypto, or ICOs, or blockchain technology.

Yeah, I love that answer. Love the carbon credits thing. Like, I'm very intrigued right away. I'm always— the one application I've thought about a lot is like the tragedy of the commons, like certain, you know, spaces that it's sort of up to everybody, like recycling or pollution, to like to do their small part. And I'm waiting for like what's the blockchain technology in these kind of common spaces, because it just seems like a market that the blockchain could do something with. But yeah, I don't know. Personal rabbit hole.

[Speaker:IAN Formigle] Absolutely, Dustin.

I think one of these—

so Andreessen Horowitz recently launched an equity fund for blockchain ventures. And when I listened to Ben Horowitz speak once, he was talking about how it's a new platform, much like your iPhone. And in the beginning days of your iPhone, no one knew that it'd be like Uber and other things launching on it, but blockchain is a new technology where you can improve the common ways in which we live, and whether it's carbon credits or other things. There are just a lot of— We're really at the very beginning stages, so we're just being used as in finance or as an alternative to currency. Bitcoin itself is not actually that technologically advanced of a crypto asset. There are people who are trying to do a lot more things, but we're really at beginning stages of even adoption at the moment.

[Speaker:STIG_BRODERSEN] Yeah, absolutely. Really exciting stuff. You've obviously done a huge amount to build and establish Bitbull to the success you're seeing today. Could you talk to us about some of the biggest challenges that you feel you've faced and overcome as a new fund manager?

Ian Formigle Yeah, I think absolutely. Well, I think part of what we try to do as well is a lot of education of our investors. So you mentioned we've also in the past run a fund of funds, and so we do see deals that bubble up to the top from There's actually a couple hundred different crypto funds. By evaluating, having done diligence ourselves on more than 100 and invested in more than 10, we try to— I guess one is education for our investors. That's not a challenge, but the challenge there is making sure that whenever you're investing on behalf of someone, you want to make sure they're very well aware of the decisions because no decision is perfect. You inform them of what your outlook is, and then you execute on that outlook. And I would say that still, I think, what's the challenge there? The first challenge is usually convincing someone that it makes sense to do any sort of allocation to crypto. And for people, I generally advise— because any hedge fund is a specific thing where you have to be an accredited investor to invest in any fund, and then there are minimums, things like that. But I encourage people simply to, if they use PayPal, just buy $1 worth of it on PayPal so you start. Listening and learning and having something invested in this industry. So challenge number 1, convincing people that crypto is here to stay. Challenge number 2, helping people understand the volatility and the ways to profit, of course, off that volatility.

Perfect. Perfect. And do you have any other advice that you would offer to other would-be new fund managers or somebody just getting started, specifically in the crypto asset Absolutely.

I think, so we've been doing it for several, I guess, years now. So it's, there's a lot of learnings that come with that. One is definitely make a decision about how liquid your fund is. For us, because we're a hedge fund, we're a liquid fund where people can enter any month or redeem any quarter. But other people who do venture funds, they have, which is often for family offices or institutional investors, prefer equity. They have obviously a longer outlook. Equity is usually an average of a 7-year investment cycle, so not liquid, really. So I think know your investor audience. Are you going to be investing on behalf of people who want liquid investments, such as crypto and hedge fund, or illiquid, such as equity and venture capital? And then you can back into that by, I guess, structuring your fund. But when you get into structuring your fund, there's so many things. For us, for example, we have a US-based entity and a British Virgin Islands-based entity depending on where our investors are coming from. Gosh, you also need to understand that those people, how much they— the spread of assets. So for us, a minority of our investments are in Bitcoin, and the majority are in alternative assets. Bitcoin did 300% in 2020, but others like Ethereum did 500%. So it just depends on what the focus is of your investors. I think it's really about getting to know who you're investing on behalf of and optimizing for that. But yes, there are a lot of decisions along that way.

Perfect. Yeah. Awesome. Final question is kind of just, where is Bipple Capital headed next? Any other updates you want to share with the FI community or any asks for the audience watching the video?

Yeah.

I think we're always looking for compelling deals.

We focus—

so we focus not on equity investments, even though we've done some. Mentioned the Coinbase one, but we actually focus on large liquid crypto investments, crypto assets, and actually getting them at a discount. So we call our method of investing value-based investing, where we're attempting to do things like buy out stakes in existing funds or side pockets, but at a discount to their current market value. What that gives us, and usually in exchange for some liquidity, so exchange for waiting 6 to 12 months. So I would say next step for Bitbull is continuing to outperform.

So that's of course performance is at the core.

And then looking for these additional deals that take some elbow grease to find the deal itself and looking into the markets and seeing Is anyone who's selling these assets maybe in a way that they, for whatever reason, want to get out of the space, and then we can get it as a fund in a discounted way, whether it's getting Bitcoin at a discount, Ethereum at a discount, or anything else.

Perfect. So if that's you and you're listening, get in touch with Joe. Yeah, that's perfect. This has been really interesting for me, learning a bit about crypto and how it's stacking up against, you know, versus the traditional investment landscape and how it's different. We're all really looking forward at Founder Institute to keeping up with Bitbull Capital and, uh, and where you're headed next. But, um, uh, for now, Joe Di Pasquale, thanks so much again for joining us today.

Thanks, Dustin. Great to be part of the VC Lab and Founder Institute family.

I appreciate it.