gm Portfolio Goes Long

Yes, we’ve gone long.

Our original thesis was that we are in a tenuous part of the macroeconomic business cycle, and crypto was at risk for a brutal bear market since it has never seen a recession before (Covid doesn’t count).  Our strategy was to wait out the macro flush and buy established category leaders in DeFi.

Change of Direction

We’ve altered course in a major way.

Why?

If it walks like a duck and quacks like a duck, it’s probably a duck.  The market is walking and quacking like a bull market.

What changed?

• Maybe nothing.  Maybe our read of the macro picture was wrong, and this should be a lesson on how much importance to place on the larger economy when investing in crypto.
• Or maybe, our macro view is still correct, but it’s hard to get the exact timing correct.  The flush still awaits but might not take place for 6 months, 12 months, … who knows when?  In cryptoland, a lot can happen in 6 months.
• Things seem to have shifted as a result of the election.  We did not expect this.  Prior to election day, there were roughly 50/50 odds of either candidate winning, so neither result should have been a surprise.
  Yet, in retrospect, there was a surprise: Republicans winning all 3 branches of the government and the popular vote.  Perhaps the extent of their overwhelming victory wasn’t priced in.  Certainly, many of the languishing DeFi tokens seem to have absolutely launched on Election Night.

• A new season of crypto has been born over the last two months: the Agent Awakening.  Beginning with the endorsement of the $GOAT token by the Truth Terminal agent on Twitter, an incredible proliferation of AI agents, tools, and platforms has occurred.  We have seen nothing like it since DeFi Summer.
• We believe there is a significant misunderstanding of the space which has led to possible mispricing of the leading project tokens.  The misunderstanding is that these agents are merely “memes that talk” rather than useful entities that can provide utility.  Most of the current agents are indeed simply talking pets, but they are evolving every day, and progress in the space is almost too rapid to keep up with.

Positions TakenIn our $6M portfolio, we have taken roughly $2M positions in both of the AI agent frameworks Virtuals and AI16Z.  The former has clear product-market fit as well as an embedded revenue model.  The latter also has product-market fit, with a vast ecosystem of teams and projects working on its open source framework, but has no embedded value capture for their token, which makes it more risky in our view, but worth taking a chance on.How do we win?For the most optimistic bull case for these tokens to play out in our favor, some things need to happen.

• If 2023 and 2024 were the years of LLMs, hyperscalers, and Nvidia clusters, then 2025 would be the year of AI agents, both on-chain and off.
• Builders in the larger tech community outside of crypto would come to crypto to work on agents due to the open rails sandbox crypto provides.  It also provides ambitious builders better and more immediate economic incentives in the form of project tokens.
• Conversely, on-chain agents would extend their influence into the off chain world.  This is already happening with Luna broadcasting on TikTok and Youtube, AIXBT positing on Twitter, and Zerebro putting out music on Spotify.
• The market would see that the agents created on Virtuals and AI16Z are not just digital pets that talk but can provide actual productive value.
• Virtuals and/or AI16Z get repriced as the “Ethereum of Agents”.
• There is a hunger among TradFi investors to put their capital to work at reasonable valuations since the existing choices all generally involve multi-trillion dollar market cap public equities.  And not everyone gets an allocation to OpenAI.  This pent up desire would find an appealing outlet in AI agent crypto tokens, of which all but one is still available at a sub $1B market cap at the time of this article’s writing.

Whether any of this plays out will determine the outcome of this trade.
Note that we have a hard conviction approach in our investing: concentrated bets on a large part of our portfolio.We have kept $2M in cash for two reasons:

1. Margin of error.  We might be wrong on the timing of the cycle.  Indeed, many a cycle has peaked when the last holdout bear throws in the towel and goes long.
2. Optionality.  We might find other tokens worth investing in.

Remember kids…As always, none of this is financial advice.  There’s still a looming macro overhang. The 3M-10Y yield curve just uninverted a few days ago, and the US economy seems to be undergoing a hiring freeze. Our trade could be the signal that there are no more bears left to capitulate.This is meant to be a fun experiment using on-chain data to show portfolio performance transparently in real time.Where to trackOur portfolio holdings are at:

Ethereum:https://app.zerion.io/0xc612cd1f0c00e8b9f186104ed33eec45dd11b8b3/overview

‍Solana:https://app.step.finance/en/dashboard?watching=EQXMMMrw67waupwJhWRN7R24vgvF1RgKeQbYFQxQgdku