Zima Red ep 113: Eric Golden - Transitioning From Billion Dollar TradFi Investments to Web3
Primer: Eric Golden brings with him 16 years of experience from TradFi. How does TradFi and regulators view Crypto, DeFi, and NFTs and what can crypto learn from TradFi? He covers these topics and more in this episode of the Zima Red podcast.
Background
From TradFi. Been at Fidelity for 16 years
Analyst —> Portfolio Manager —> Started the Separately managed accounts (SMAs) business for Fidelity
SMAs involve managing individual portfolios for people
Grew the Fixed Income SMA business from $0 to $18 billion AUM with only 5 people on their team
Left TradFi in March 2021
Spent the past year immersing in crypto, DeFi, and NFTs
Thought Process On Why He Wanted To Work In Finance
Was one of the kids who wrote a letter to Peter Lynch to thank him
Was always on his mind to work in Fidelity
“I was one of those weird kids who definitely dreamed about working there [Fidelity] someday.”
- Eric Golden
Got an internship in the Corporate Finance group
Convinced them to give him a shot in the investment team
How Did He Launch The SMA Business?
The SMA business has been growing in the industry for years
Customers wanted the product
He always wanted to start a business and solve problems
SMAs could not scale and he became obsessed with trying to solve that problem
His core partner was a quant and helped with the optimization and the backbone of the system
The young people they hired came with different backgrounds:
Computer Science
Investing
“And so I considered my team to have this Navy Seal-like attitude, like you're going to build your own weapons and fire them. And so you're going to need to learn both [Computer Science and Investing].”
- Eric Golden
His team consisted of strong investment professionals that also have a strong technical background
Investment Style
Enjoys it when the fundamental team and quantitative team work well together
In Fidelity, quantitative investing is more embedded within fundamental investing compared to other firms
Thought Process When Leaving TradFi
Crypto was something he had been interested in
As he dove deeper into crypto, he realized that the crypto market is evolving at such a rapid pace
Started to understand the potential and impact of this technology
What Was The Spark That Got Him Interested In Crypto?
When he first found out about Bitcoin, he was skeptical that it could replace the reserve currency
“I would say that's obviously one of the biggest regrets of my life. Of not digging in deeper and being so skeptical. I think that being a skeptic will always sound smarter. And being an optimist will make you look like a fool and naive at times.”
- Eric Golden
At Fidelity, Matt Walsh explained Bitcoin to the top management
Matt walked him through Bitcoin but he still did not understand it
Only when he read the Bitcoin Whitepaper for himself did he understand it
Matt Walsh and Nic Carter founded Castle Island Ventures
Web3 Breakdowns Podcast
💡 Eric started a podcast called Web3 Breakdowns. Subsequently, he teamed up with Patrick O’Shaughnessy. Patrick has his own podcast called Invest Like the Best.
Met Patrick back when he was at Fidelity
Patrick suggested that he should start sharing about crypto
Started their first episode in Nov 2021, where Patrick interviewed him about Bored Ape Yacht Club
The point of the podcast is to expose people to things that he is learning about
His audience comes from a variety of industries and are not crypto natives
How Do TradFi People Perceive Crypto Now?
They are concerned about exposure to risk and regulatory compliance
Knows top traders and investors who have exposure to crypto in their personal accounts
There is tremendous demand to get into this asset class over time
Retail institutions would want professional management of this asset class over time
What Can Crypto People Learn From TradFi?
TradFi people are good at risk management, portfolio sizing, and understanding how to think about risks and balance out against the return potential
People who have been in crypto before 2018 have seen complete cycles. Have seen them developing a risk management background that comes from being an investor
TradFi people have experienced more market cycles. They can speak of market dynamics, market structure, etc.
Is Web3 Recreating The Same Issues TradFi Has?
It’s part of growing pains
Society will find new ways to harness technology and create new things
Can The US Regulatory System And Web3 Coexist?
Will find a way for this new technology to exist in a regulatory framework
The crypto industry is starting to get better at educating officials and regulators
From the regulator’s perspective, there’s a lot of scams in crypto
Scamming and money laundering is overplayed by the media because it gets headlines and clicks
What Will Happen When Large TradFi Firms Enter Crypto?
It will be a lot less fun for people as those firms are very good at what they do
They drive bid-ask spreads more tightly and offer more liquidity
Guessed that we have 2-5 years to make money before the big firms enter
“This is completely guessing, but two to five years away at minimum, by this Goldilocks period where if you have the time, energy and skill, you can probably still make money before a lot of the big guys come in, like when I hear Citadel or RenTech involved, that's not a market I want to play.”
- Eric Golden
As a curious investor, he wants to go where people aren’t looking at
Thinks that these large firms will eventually be trading NFTs
Thoughts On The Current NFT Market
NFTs are further out on the risk spectrum mostly because the illiquidity premium is not fully realized
If an entire NFT collection is sold, it will break the floor price. Hence, when valuing your NFTs, you have to apply a haircut as to what it’s really worth
His framework for NFTs is that he own things that he genuinely enjoys
Your key job is to avoid scams — e.g. doesn’t make sense to have 400k people in Discord but only have 300k OpenSea wallets
Thoughts On Quant Strategies In The NFT Market
Echoes a lot from TradFi. Hard to separate skill from luck with regards to quant strategies
The NFT space is speculatively-driven momentum trading
Does He Differentiate Between NFT Subsectors?
💡 The virtual land and gaming market could potentially generate yield. Andrew enquired whether does he differentiate these 2 markets from the other NFT subsectors.
Never got into land. Is a huge fan of the gaming side
For a virtual world to work, you have to go there and be there. If you miss an event, you don’t get to experience it
For gaming, he has spoken to Jiho of Axie Infinity. Finds play-to-earn mind-blowing
“I joke with my mom about this because she was a big player of FarmVille and she had a lot of friends on it and played it all the time. And we just thought it was such a silly waste of time. Now my mom would kill it at NFT gaming today, because that's what you're doing.”
- Eric Golden
Thoughts On The Decorrelation Of The Crypto And NFT Markets
Did not expect it
His guess is that more retails are being onboarded to the space
Another possible reason is that not a lot of people who own traditional assets also own NFTs
Grand 5-10 Year Vision
Doesn’t know the answer
He knows that he wants to continue working
Single Favourite NFT
A CrypToadz that one of his children picked out for him
Most Controversial Thought On Crypto
A lot of people are trying to avoid securities law by saying governance tokens has no value
If He Could Improve Something In The Space
A decentralized communication platform that is censorship resistant
Who Is Someone He Looks Up To And Why
Chris Dixon — he writes in a clear way that makes him think what the space could be
NFT Ecosystem In 3 Years
Will be wildly different than what it is today
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