- Mike Alfred is a value investor who bet on bitcoin.
- It presents the ultimate investment strategy that combines value investing and crypto.
- And he shares 3 crypto stocks he thinks are undervalued.
- See more stories on the Insider business page.
Mike Alfred started trading stocks from his bedroom before it got chilly when he was an undergraduate student at Stanford University in the late 1990s, during the boom and bust cycle of dowries. -com.
Experience has taught him to lose and earn money. It also gave him good reasons to reject bitcoin due to its similarities to the speculation of that time.
It was only later, after hundreds of hours of research, that Alfred really began to appreciate the beauty of bitcoin as an investment opportunity. His thesis boils down to the asset’s ability to be a superior form of silver with its native digital qualities and harder than gold.
Most of the risk in investing comes from execution, Alfred said, like the management team and the way the strategy is deployed. Bitcoin completely removes that, he added.
“[With bitcoin] you were just betting that he would continue to be adopted over time, ”Alfred said. “And it was a bet that made more sense to me than almost anything else on the planet.”
Execution is Alfred’s strong suit as a successful entrepreneur. In 2008, he co-founded BrightScope, a company that provided ratings for 401 (K) plans. By 2016, he had sold the company for around $ 30 million. He also co-founded Digital Assets Data, which was acquired by NYDIG this year.
Now, he plans to launch an investment fund in the next year or so that will reflect his own personal investment philosophy, the merger of value and crypto investing. He intends to start with his own capital before taking on sponsorships, according to an interview with The Investor’s Podcast Network.
“Because I’m a long-term value investor, I’m really concerned about long-term returns, the returns that really stick,” Alfred said. “… If you can triple your money in one year, but lose 70% or 80% the next year, I’m not really interested in this type of investment strategy. “
He sees the optimal strategy as a split between 40% bitcoin and 60% value stocks.
“I think marrying a traditional value discipline type approach with bitcoin in a single portfolio is going to generate one of the best risk-adjusted returns you’ve ever seen in a fund structure in the next 20 years,” said said Alfred.
This is because investors will be exposed to an asset that could grow 100 times over the next 10 to 15 years, while securing cash flow from conservative stocks, meaning they shouldn’t need to sell. their main bitcoin wallet, Alfred said.
“If you are able to passively generate all of your cash flow by investing in traditional stocks, you don’t need to breach your bitcoin at all times for any reason,” Alfred said. “This is the biggest risk for most people, it’s not that bitcoin will go to zero… the biggest risk is that they sell bitcoin too early.”
Although he descends further down the risk curve, Alfred believes that value stocks are less risky than bonds, which could lose value if interest rates rise. However, investors will not find riskier crypto assets in the fund, such as altcoins, as Alfred sees them as speculative.
“I have to fundamentally understand why he will both outperform over a longer period of time and why he will maintain that outperformance without the risk of catastrophic loss,” said Alfred. “And with bitcoin I’m very confident that the left tail is gone, there is no outcome where bitcoin goes back to zero.”
On the equity side, however, Alfred sees value in three crypto stocks.
Coinbase (COIN) is a largely misunderstood opportunity, Alfred said.
“Cathie Wood buys a lot of stocks that I don’t agree with, she buys a lot of things that I think are expensive, that a value investor really can’t own,” Alfred said. “But I agree with her on Coinbase. I think Coinbase is a cross between a value style investment and a growth investment. “
Coinbase is cheaper in some ways than other major US exchanges, but with a much more interesting and explosive growth trajectory ahead, Alfred said.
“Coinbase is a great example of a business that could grow 20x, 30x, 40x from here over the next five to 10 years,” Alfred said. “But also today represents something a little below fair value.”
Marathon Digital Holdings & Hut 8
Based on Alfred’s bull bitcoin case, he expects “pretty astronomical numbers” for how much bitcoin miners could grow over the next five to 10 years.
He is convinced that Marathon (MARA) and Hut 8 (HUT) could be 50 to 100 times more valuable over the next eight to 12 years. This is based on the continued strategy of mining more bitcoin, putting it on the balance sheet, and then continuing to issue both equity and debt to buy more machines.
It’s much cheaper to borrow against Bitcoin than against machines. That should mean the cost of borrowing for the business will drop, Alfred said.
“There is a tremendous amount of alpha in finding those few miners who are in the top five or 10% of operators over the next 10 years,” said Alfred. “I’m not sure there is a huge amount of alpha just owning all of the space as an index.”
He expects them to have an unbroken path to greater scale and higher market capitalization, which will be difficult to dispute beyond a certain point.