Alt Asset Allocation ep 51 - All Things Crypto with Dan Hannum
Primer: This episode is about veteran VC and investor, Dan Hannum, who is the COO of ZenLedger. Read about how he came into the crypto scene as he recollects the nuances of the crypto space and how it changes from 2015 until now. Dan also shares how ZenLedger can simplify crypto tax reporting for investors and tax professionals.
Who is Dan Hannum?
MBA in University of South Carolina
Started off in traditional finance, worked at Wall Street
Last worked in TD Ameritrade as a buy-side analyst and as associate Portfolio Manager on equities
Not willing to sit there for 40, 50 years waiting to become a partner
Started as an analyst for Blockchain Capital
Became ICO advisor to GEAR in 2017, together with Larry King, Stan Bharti and Jim Rogers.
GEAR is a green energy and renewable token
Started his own fund in 2016, capped at 25 million
Larry King invested in it, and most importantly, opened a lot of doors because of his connection
COO of ZenLedger
Crypto space from 2015 to 2017
Ethereum ICO in 2015 is his 2nd or 3rd ICO - seen a lot of what is happening in the crypto space since then
"I mean, we joke all the time that crypto is kind of like dog years. So you know, every one year is like seven years. It rings true, you know, the longer that you stay in this industry."
- Dan Hannum
The cool thing about crypto is that we have these protocol layers that allow things to be built on top of them
Have this small close-knitted community that shared information freely and was very interested in building the future, around 2015-2016
Back in 2015/2016, VCs are focused on just 3 questions, mainly on the infrastructural type of investing:
How to get people into crypto?
Once in, what do they need?
How do they get back into dollars?
Eventually, there is a hype of 2017 where crypto went mainstream
However, the space is not ready yet- it is just a lot of speculation of price action without much development
"And I think that was, the really cool thing for me, is to see the smartest people in my networks, in my world, were starting to come into crypto. Whether it was on the fun side or on the entrepreneur side or on the trading side or starting their own fund, they were just flooding into the space."
- Dan Hannum
The good thing is that there is an amazing flow of human capital into the crypto space, so the technology still remains after the bubble had burst
Crypto winter of 2018
The bull run of 2017 positioned the whole crypto space for 2020/2021, after the winter of 2018
A lot of pioneers in the space have done very well and are now more interested in building something that can change the world
The charlatans coming to make a quick buck went out during the crypto winter of 2018, which is a good thing for the industry
Whoever stays on in 2018 are the tried and true people who really wanted to be here.
A bull market can be a distraction as people are enthralled by the price action and not the technology behind it
"But I think a lot of the people that have been early had obviously done very well and are in a position where the extra zero at the end of the networth is not as important to spending their time and energy on actually building something with really smart people that can change the world, whether it's on a very small or large scale."
- Dan Hannum
The crypto winter of 2018 is the time to sit down and build
Dan started investing, through his fund, into infrastructure type plays, like exchanges, custody providers, tax and compliance
Got involved with ZenLedger (a crypto tax software company) when they were raising funds at that time
Jumped on board as the Chief Operating Officer (COO) for ZenLedger
Crypto space from 2019 to now
Around 2019/2020, a lot of decentralized DeFi protocols like Compound, Maker, Uniswap came into the scene
They have no founder, no pre-raise, no venture capital coming in, so this changed the dynamics
His company is now allocating their balance sheet into Bitcoin specifically, so we can see crypto prices are skyrocketing (This podcast is done in Feb 2021)
The crypto space keeps changing so rapidly - he has a book titled Cryptoassets by Chris Burniske, which has cutting edge research framework in 2017 but all of it is probably outdated now
The disparity between capital and value has closed since 2017 - less occurrence of overfunding into a protocol that does nothing for years
Once the infrastructure is set up, other companies come into the space to build products and services on top of it so the ecosystem grows dynamically and bigger
The funds that sprung up began investing in technology and infrastructure first, then next comes ICO funds, STO funds, DeFi funds, NFT funds, social tokens funds
The current state of things (in Feb 2021)
The crypto space is still very early and it's still largely a game of who knows who, who knows what, and who can get in before others
Still largely a transition of wealth from the early and smart investors to the late laggards
A lot of hubris in the art markets
A lot of celebrities getting involved reminds him of the ICO bubble
But the real change, where artists and creators retain ownership of their end product without centralised control, will remain long after the bubble had burst
How to curate your information feeds?
In this digital age, need to know who to follow, who to listen to, who to spend your time with - essentially curate your information feeds
Learn how to form a reputation in the crypto space, especially for accounts that are anonymous
"Like, you can really own a topic and own a piece of crypto and become part of that thought leader in the space pretty easily if you really do the research, and the work, and then share your thoughts and ideas. And I think that sharing is something that's not natural to most people, because it's like, I did all this work. I'm going to keep this like secret internally, but it's like, the more you share your thoughts and ideas, the more people start being like, oh, he knows what he's talking about."
- Dan Hannum
Andrew Steinwold (Zima Red podcast) did a good job in the NFT space - went into a niche area early and became a thought leader in that space
Cooper Turley also did 100 different things in crypto like Audius
"I have a lot of people that I speak with, on like on a daily or weekly basis that I've never met in real life, that are probably some of the smartest people that I ever will meet in real life." - Dan Hannum
Use Twitter to get access to all the smartest people on the planet sharing their real-world insights and knowledge
Follow a few people and see who they follow - a great resource for learning and sharing information
Follow Bankless podcast and their YouTube channel - did a great job at making things easy for people to absorb and trying to stay neutral on things
Clubhouse app - takes a lot more time to build friendships and connections, but still provides good value, gives a lot more nuance and context
The Defiant newsletter - by Camila Russo, who also wrote a book called The Infinite machine
Good also to listen to the people who take the opposite side of the view you are used to so that you can have a balanced perspective
What is ZenLedger
No brainer investment - because it sits at the intersection of tax (which you can't avoid) and crypto, so have a huge addressable market
A lot of people are going into crypto and making a lot of money, so the government will want their cut too
In the tradfi world, accounting is inbuilt into the centralized platform, but none of this exists in crypto even after 4 to 5 years
Tracking across exchanges and across wallets was virtually impossible
"An accountant doesn't want your receipts. They don't want a shoebox full of random forms. Most accountants don't understand crypto. They don't want to understand crypto and that's kind of been, you know, as we get into ZenLedger a little bit, that's been like a huge aspect of our business providing tax professionals with a very easy to use a suite for their tax professional needs where they can add in clients."
- Dan Hannum
ZenLedger makes it easy for tax professionals to use a suite so that they can add in clients, do their tax without really knowing what crypto is
Able to work with companies that do on-chain data analytics to provide services to governmental bodies in federal and state contracts
So expanded from doing business on the retail side to the institution side, based on their strength as a really great and easy to use tax and accounting software
From a tax perspective, IRS views crypto as a piece of property, not currency or commodity.
If you're trading one token for another, you're essentially selling a piece of property to acquire another one
This means that every trade is a taxable event
Fiat currency to crypto is not a taxable event - hence you hear people saying buy and hold Bitcoin for long term
If you stake, earn an income by depositing in Blockfi or Celsius, it is a taxable event
Going from crypto back to fiat currency is a taxable event
All information presented above is for educational purposes only and should not be taken as investment advice. Summaries are prepared by The Reading Ape. While reasonable efforts are made to provide accurate content, any errors in interpreting and summarizing the source material are ours alone. We disclaim any liability associated with the use of our content.