CRYPTO ASSETS

EXPLAINED
Understanding the Basics of a New Asset Class

presented by
 “ For people who can
afford to invest a little
in bitcoins, it’s worth
looking into
— Sir Richard Branson

2 Crypto Assets Explained

CRYPTO ASSETS EXPLAINED
Understanding the Basics of a New Asset Class

“Virtual Currencies”, “Digital Currencies,” “Digital Assets,”

“Crypto Currencies.”

Crypto Assets are known by a variety of names. However you refer

to them, crypto assets are a groundbreaking technology that have the
potential to re-shape everyday commerce. Unfortunately though, they
are not well understood. Most people simply dismiss crypto assets as a
new toy for computer geeks and criminals, rather than making the effort
to learn about them.

We hope this short e-book helps demystify crypto assets and answers
some of your questions about this fascinating technology.

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 WHAT ARE CRYPTO ASSETS?

A crypto asset is a digital asset which

utilises cryptography, peer-to-peer
networking, and a public ledger to
regulate the creation of new units, verify
transactions and secure transactions
without the intervention of any
middleman.

4 Crypto Assets Explained

That’s a big definition. Lets break it down.
Cryptography Peer-to-peer networking Digital Asset

Crypto assets are powered by Crypto assets use the internet and Crypto assets empower
cryptography, the science of secure peer-to-peer networking to process participants to create, send, store
communication. Cryptography has transactions without the need for a and transact with unique digital
traditionally been used to keep trusted third party or middleman. assets that cannot be copied or
secrets from adversaries, such as This is one of the ways in which stolen. This is another way in which
communicating military commands crypto assets are a breakthrough crypto assets are a breakthrough
during war times. Nowadays technology. If we compare technology. Let’s compare a simple
cryptography is used to power transferring money through a bank image stored on a computer. It is
everyday commerce, including transfer, we need the consent and easy to copy this image many times
keeping credit card details safe input of both the sending user’s over and send it to thousands of
when making purchases over bank and the receiver’s. With people. Crypto assets, through the
the internet. Cryptography is the introduction of crypto assets, combination of computer science
fundamental to the process in which users can now transact peer-to- and cryptography, allow us to
crypto assets are transacted, stored peer, without the approval of a create digital assets that cannot
and secured. middleman or the fees they charge. be duplicated. The implications of
scarce digital assets are enormous.
Public ledger

Crypto assets use a public ledger So there we have it, easy!

or record of transactions to verify
the ownership of assets. In the
case of Bitcoin, all transactions
ever recorded on the Bitcoin
blockchain are publicly viewable.
This, combined with the power
of cryptography, allows network
participants to verify ownership
of assets.

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Crypto assets are scarce digital assets, that are stored, secured and
sent to other network participants through a peer-to-peer network
across a public ledger, powered by the wonders of cryptography.

To put this definition into context, let’s dive into an example: Bitcoin.

BITCOIN INNOVATION
Bitcoin was the first example of a We can think of Bitcoin as digital From the humble beginnings of
scarce digital asset. Bitcoin is a money, or more specifically, Digital Bitcoin in 2009, we have seen a
unique digital asset with a finite Gold. Investors from around the wave of innovation that has built
supply that can be transacted peer- world have come to value Bitcoin on the technical breakthroughs of
to-peer, with transactions being for its unique properties, many of digital scarcity and peer-to-peer
validated and executed through the which are similar to gold. Gold and networking. This innovation has led
Bitcoin blockchain. Bitcoin are both scarce, portable, to other crypto assets with unique
storable and fungible. However, and valuable characteristics. We
Let’s imagine that we are trying Bitcoin is better than gold. It is more have Smart Contract platforms,
to create digital money, a pursuit scarce, easier to send and receive, where users can execute contracts
which started in the early 1980s. easier and cheaper to store, easier automatically. We have privacy-
The most important design element to divide, programmable and im- focussed assets, allowing users
of digital money is preventing par- portantly, unseizable. Bitcoin, and to own their financial freedom
ticipants from duplicating or printing other Crypto Assets, are the first as- and transact privately. We have
money. If this were allowed, every- sets in history that cannot be seized collateral lending platforms, where
one would print as much money by anyone else, including nation users can borrow automatically
as they like and the whole system states or dictatorship governments. against other crypto assets without
would become worthless. With involving a bank or financial
crypto assets, this problem is solved institution.
as we now have scarce digital
assets. We expect the pace of innovation
will only accelerate.

6 Crypto Assets Explained

 What’s the big deal?
The opportunity currently within crypto assets lies at the
intersection of three important forces.

TECHNICAL TALENT
Many of the world’s best software
engineers are leaving Silicon Valley’s
biggest tech companies to work in the
crypto industry

INVESTMENT
OPPORTUNITY
TECHNICAL CAPITAL At the intersection of a
BREAKTHROUGH groundbreaking technical
An estimated USD 28.2bn* has
A new computing platform for trust breakthrough and investment of
been injected into crypto projects
enormous amounts of human and
financial capital lies one of the
biggest investment opportunities
of our life times.

We humbly admit that we don’t know how exactly crypto

assets will develop and mature. Just as we weren’t sure
how the revolution of the internet would play out, it is
impossible to forecast the future. However, one thing is
known: there is enormous potential for innovation driven
by the combination of a technical breakthrough, vast
amounts of financial capital and the attention of the
world’s best computer scientists.

* Source: Coindesk

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Why the bad

“
reputation?
The reason why crypto has a bad
reputation is because people don’t
understand it - it’s that simple.
Crypto is a complex topic that is
difficult to understand. We don’t
trust what we don’t understand,
particularly when it comes to
technology. Society has seen this
repeatedly throughout history, with
Just as I, in my
portfolio, am holding
examples including the telephone,
the motor vehicle and even the
internet. It is easy to forget that
as recently as 20 years ago,
many people were skeptical of
the internet, calling it a force for
about 3.5% in emerging
evil. Eventually society develops
an indifference to the technology,
followed by an understanding of it,
markets, I believe that
followed by an appreciation for it.
Crypto’s reputation has improved one day soon asset
considerably in recent times, but
there is still a long way to go. We
expect this will continue as time managers around the
passes and people learn about
crypto assets.
world will diversify
with crypto
— legendary investor Mark Mobius,
Mobius Capital Partners

8 Crypto Assets Explained

CRYPTO AND THE PORTFOLIO
Crypto Assets are fast becoming an asset class that investors
cannot ignore. Crypto Assets offer tremendous return potential
and low correlation to traditional assets. However, crypto assets
are volatile and investors need to consider position sizing.

Correlation

Crypto Assets show low correlation to traditional assets. Apollo Australian Equities 0.04
Capital has calculated correlation numbers since the start of 2017,
covering both up and down crypto markets. The numbers are Australian Bonds -0.01
calculated from an Australian Investor’s perspective. The holy grail of
a new asset class in a portfolio is immense return potential with low International Equities 0.05
correlation to other assets in a portfolio. Crypto assets offer both.
US Equities 0.02
Position Sizing
International Bonds -0.02
Crypto Assets are not without risk. The technology is young and the
future is uncertain. This uncertainty leads to high volatility in crypto
Gold 0.14
markets. As an example, the Apollo Capital Fund has delivered
monthly returns ranging from +45% to -34%. Correlations of traditional assets to a crypto
portfolio; Weekly data from Jan 2017 to Jun 2019
Investors in crypto assets need to consider position sizing, that is, how
much of their portfolio they allocate to crypto assets. The higher the
allocation, the higher the overall volatility of the portfolio, which might
be difficult for some investors. Cambridge Associates, a respected
Boston-based asset consultant with nearly $400bn of Funds Under
Advice, has studied institutional allocations to crypto assets. The study
suggests that of the institutions that have invested in crypto assets, they
have invested 0.20% to 0.30% of the total portfolio.

“We believe that it is worthwhile for investors to begin

exploring this area today with an eye toward the long term”
–Cambridge Associates

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INVESTMENT OPPORTUNITY
Asymmetric Payoff Venture Capital Investing with Hedge Against Macro
We are at the ground floor of a Public Market Liquidity Uncertainty
technological breakthrough with A multi-strategy fund can take The global economy has amassed
massive upside potential advantage of long and short record levels of debt. The next
timeframes financial crisis may drive significant
Lack of Knowledge crypto adoption given its lack of
Few people deeply understand Inefficiency of Immature correlation with existing assets and
this sector - including governments, Markets its seizure and inflation resistant
business and large institutional Lack of smart money means properties. Bitcoin in particular may
investors inefficiencies are prevalent, be attractive as a ‘digital gold’
including questionable assets with
Idiosyncratic Risk large market capitalisations.
Apollo Capital has studied crypto
return correlations and has found Best Performing Asset in a
that crypto assets have shown little Decade
correlation to traditional assets Crypto assets are the best
performing asset over the past 1, 3,
5 and 10 years

INSTITUTIONS ARE COMING

Crypto markets have historically been driven by retail investors.
In recent times, this has changed as institutional investors have
entered the market.

Fidelity - created Goldman Sachs - ICE (Intercontinental JP Morgan - rolling Facebook - leading Harvard, Yale,
Fidelity Digital invested in Circle, Exchange, holding out first bank-backed the Libra Association Stanford, MIT, Princeton
Assets: Institutional owner and operator company of the crypto asset to develop a crypto - endowments have
solutions for a new of crypto exchange New York Stock asset all invested in crypto
asset class, including Poloniex and other Exchange) - assets
custody and activities in crypto investor in Bakkt,
execution services. Bitcoin Futures and
Custody solution

10 Crypto Assets Explained

“
More information
Apollo Capital is an actively
managed crypto fund offering
sophisticated investors the ability
to easily and securely invest in
I think the fact this promising asset class. Based
in Melbourne, Australia, the Fund

that within the

is run by a team of professionals
experienced in both crypto markets
and traditional financial markets.

Bitcoin universe an For more information about crypto

assets or the Apollo Capital Fund,

algorithm replaces please feel free to contact Tim

Johnston, Managing Director.

the functions of email: [email protected]

website: apollocap.io
blog: apollocap.io/blog

the government is
actually pretty cool.
I am a big fan of
Bitcoin.
— Al Gore

Apollo Capital Management is a Corporate

Authorised Representative (CAR No.1276670)
of Non Correlated Capital Pty Ltd
(AFSL No. 499882).

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