John Song (Yale SOM), Director of Special Situations Investments for Angel Capital and Advisor to LucyLabs Crypto Firm
Mr. Song is Director of Special Situations Investments at Angel Capital Management LLC, where he focuses on real estate, financial assets, and new markets, including an emphasis on the cryptocurrency space. At the same time, Mr. Song works on business development for the Byzantine General digital currency firm and advises LucyLabs, Inc., a CryptoFinance firm building out the full range of investment banking services for the new Crypto ecosystem. Previously, he served as Founder and Chief Executive Officer of an Altpoint Capital-backed, alternative lending company, Advisor to Tiger Asia, where he joined a team to initiate U.S.-focused special situations investments, and Head of Originations at Lone Star, where he fused a team to increase AUM from $250 million to $4 billion. Mr. Song received his MBA from the Yale School of Management.
What’s your background and how did you get involved in crypto/blockchain?
My background is in Special Situations Investments. I’m always looking for off-the-beaten-track areas to deploy capital, and I started looking at crypto about two-and-a-half years ago. First of all, it was just really intellectually stimulating; there are so many different facets. It’s very, very interesting. I just started speaking to more and more people about the investment opportunities. I put some time and money into the space and kept abreast of the entire market and its players.
Which facet did you find most interesting?
Just the fact of this whole economic theory behind the currency. Not to mention, the fact that it could possibly (no discussion on probability) be a rival to Federal Reserve fiat currency.
Tell me a bit more about your investment background.
I’m from the private equity and hedge fund world. I focus on special situations, so I do a lot of fundamental analysis and digging through unforeseen or uncommon sources of value in complex assets
In the hedge fund world, timing is pretty important. What do you see as the timeframe on crypto? For instance, it doesn’t seem like overtaking the Federal Reserve and fiat currency will happen very soon from what I’ve seen.
It’s about understanding the trade and understanding a product, or a pricing scenario, where you’re ahead of the curve. The investment can be a long-term horizon or a short-term horizon. Either way, it’s just about being ahead of the curve.
Right now, I think the time horizon for crypto is pretty far out. It’s not going to occur immediately, especially for people with a U.S.-centric view. With this in mind, you can see a very different perspective from people outside of the U.S.
By outside of the U.S., are you referring to emerging economies or other global superpowers?
I’m certainly thinking about people who are in emerging economies, but I’m also thinking about some of the countries that rival the U.S. China is one of those in the latter category. Chinese citizens think warily of their government and the stability of their currency. In fact, they have more access to Bitcoin than they do to the U.S. dollar. If you’re part of any investment banking program, the first thing they teach you is that U.S. investments are the safest. That’s correct, but that’s not the way that the rest of the world views these investments.
What are you up to currently with respect to the space?
Right now, I just manage a small amount of money dedicated to crypto, and all I do is identify different scenarios which will cause the price of crypto to move in one direction or another.
I used to look at the OTC Market (a financial market providing price and liquidity information for almost 10,000 over-the-counter securities). I was looking for different players and trying to understand different analysis scenarios which would drive the price of one cryptocurrency up or down fundamentally. For example, I’m really looking at the Binance coin, because I think that Binance will be a short-term, mid-term, long-term player, and people will be on the Binance platform in the future. Because of that, I think the Binance coin will rise in price.
How many exchanges also have their own coin like Binance?
Almost all of the exchanges, and certainly all of the ones outside of the U.S.
Why does Binance have a comparative advantage over, say, Coinbase?
Coinbase doesn’t have their own coin. Binance generates so much more activity than Coinbase, and Binance is constantly popping up. If you agree that this movement is going to be more non-U.S. centric than U.S. centric, then Coinbase won’t be the winner since it’s mostly just in the U.S.
How does crypto work in China with companies like WeChat?
You should definitely take a look at those platforms. All of the Chinese technology firms have their own digital currency. They didn’t call them “cryptocurrencies,” and the digital currency makes their ecosystem all-the-more vibrant than those of U.S. technology firms.
I heard that WeChat’s digital payment system developed out of a more altruistic goal of sending money for Chinese New Years. If that’s true, is that a reason why people might be more reluctant to use Facebook’s Libra, which is less altruistic and more focused on accumulating interest on its underlying currency baskets?
I don’t know that WeChat had that altruistic, social equity vision. They were trying to build a pervasive currency in order to infiltrate as much of the economy as they could and acquire as many users as possible on their platform. They’re doing a fantastic job. I think Facebook’s looking at this and saying, “We need to do the same thing, or we’re going to be decimated.” And I think they may be decimated if they can’t get on board.
The difference is that China doesn’t have the regulations that are present in the U.S. It’s the same difference between established countries and evolving ones, and China’s an evolving country. I guess the good thing about China or other nations is that they have a true centralized system which makes it possible for banks to communicate with one another. The U.S. isn’t making up these regulations as they go, but they do have different rules and regulations for each part of the nation and each different branch of technology.
What technological innovation would you compare crypto/blockchain to over the last 20-50 years?
I’m not as well-versed in technology, but what I do know is that it’s kind of a glorified database. The applications of a decentralized database are not very vibrant, I don’t think, and there are so many great reasons to have a centralized, controlled system.
What are those reasons?
First of all, compliance and governance. Number two, the ability to collect errors. In a system where you have millions and millions of transactions a day, you’re going to have errors, and to be able to correct them, you need a centrally-controlled system. The whole idea of Bitcoin is that you cannot correct those errors.
Wouldn’t someone say the idea is to prevent those errors from occurring in the first place through this democratized system of cross-validating blocks?
The idea is that you’re responsible for not making an error, and if there’s an error… That’s it. You’re done. I don’t think those two features are mutually exclusive.
Any final words?
I think there are a lot of applications. The technology can go in a lot of different directions. I think the U.S. needs to get on board. They need to figure out a way to work within the system. That, or they need to double down and say, “Definitely get rid of it.” It can’t be this kind of one-foot-in-one-foot-out approach.