how-to-trade-crypto-and-make-profit-from-defi,-nft,-gamefi:-hedge-fund-–-business-insider
  • Phil Bonello, who led research at Grayscale, has launched crypto hedge fund Plaintext Capital.
  • Bonello met his three partners from JPMorgan and ConsenSys on Twitter before launching the firm. 
  • He breaks down the key opportunities he’s seeing in sectors including DeFi, NFTs, and GameFi. 

In typical crypto fashion, Phil Bonello met the co-founders of his newly launched Plaintext Capital on Twitter. 

The ex-director of research at Grayscale Investments told Insider he wanted to start his own firm after witnessing how much the crypto market has evolved over the past few years. 

“It used to be a space dominated by bitcoin and then a little bit ethereum later,” he said. “But there’s been so much built out in the last year and a half, specifically from DeFi to this big boom in NFTs and gaming, and now this idea of building up the metaverse using crypto.”

His desire to capture the opportunities in the space materialized into a crypto hedge fund that combines venture and quantitative investing this summer. After months of strategizing, Bonello and his partners Andrés García and Francisco Oliva-Vélez (former executive directors at JPMorgan’s Private Bank) and Cem Özer (who previously worked at ConsenSys as an ethereum core developer) came together to build a firm that offers strategies that aim to satisfy investors’ “strong demand for actively managed products.”

“Because the crypto space is so diverse and there’s so much dispersion among different assets, it’s really difficult for the everyday investor to know what is going on,” Bonello said. “So what we are trying to do is really build a firm that can take advantage of trends and allocate in a responsible manner.”

Taking advantage of trends from DeFi to NFTs

While decentralized finance protocols like Compound (COMP) and Maker (MKR) only exploded onto the scene last summer, crypto traders are already cheering the advent of “DeFi 2.0,” which is driven by the recent success of


liquidity

protocols such as OlympusDAO (OHM), Abracadabra’s Magic Internet Money (MIM), and Tokemak (TOKE).

Bonello views the mini-boom in these more nuanced DeFi protocols as the “next iteration of financial engineering.”

“We are seeing derivatives being built on automated market makers like uniswap, for example. We’re seeing structured products that are then being layered on top of these derivatives,” he explained. “And then we are seeing totally new models for lending and borrowing.”

While DeFi 2.0 promises interesting opportunities, Bonello sees new risks as well. He is more interested in tracking the growth of derivatives in the decentralized space.

In traditional finance, the spot market is much smaller than that of derivatives, which were estimated to be a $558.5 trillion market at the end of December 2019, according to the Bank for International Settlements. In crypto, derivatives volume peaked in May at $5.5 trillion and represented 56.0% of the total crypto market in September, according to CryptoCompare.  

“If you look at the current landscape, in the centralized market, derivatives have probably four times as much volume as the spot market does,” he said. “So we are very interested in seeing that trend move over to the decentralized applications as well.”

Another trend on his radar is the rise of non-fungible tokens, which have evolved into “a representation of internet culture.” But instead of fixating on flipping NFTs, Bonello is more focused on what NFTs can do for user ownership and their flywheel effect on gaming and content experiences.

He points to the rise of NFT gaming metaverse Axie Infinity (AXS) as an example. The blockchain-based game has seen its governance token AXS surge 101,385.2% over the past year, according to CoinGecko pricing. 

Bonello thinks the “play-to-earn” model is a “revolutionary concept” and “we are just seeing the beginning of that trend.” Indeed, since Facebook rebranded its corporate name to Meta, metaverse-linked NFT gaming tokens such as decentraland (MANA), the sandbox (SAND), illuvium (ILV), and star atlas (ATLAS) have been surging. 

He is also interested in seeing the development of music NFTs. 

“We’ve seen visual art really take off from an NFT perspective. I think we will see the same trend begin with music NFTs,” he said. “Right now,


streaming

platforms really aren’t very favorable towards artists. I think artists are going to gravitate towards NFTs because it really gives them ownership over their content and distribution.”