Transcript
GEOFF MARCUS:  I am Jeff Marcus from AlphaMaven. Today I'm going to be interviewing Charlie McGurraugh, who serves as both the CEO of Altis Partners and as the Chief Strategy Officer for Blockchain.com. Charlie, you're uniquely positioned to talk about the convergence between traditional markets and new markets in crypto. Could you briefly give an overview of your background and how you view the role of a modern trader?

CHARLIE MCGARRAUGH:  Sure. I grew up on trading floors in a traditional investment bank. I spent six years as a trader at Goldman Sachs across credit mortgages and commodities. And so I've seen quite a lot in micro and macro fixed income worlds. And then in since 2016, I've been working in tech startup world first and electronic trading and in sports betting and then in cryptocurrency and, and it's all kind of the same thing, which is, is basically how do we manage risk better with software and, you know, trading liquid markets.

In crypto, it's sort of like you have liquid things. It looks a little bit like foreign exchange or commodity. And then of course in futures it is for exchange and commodities and equity indices and so forth. And so it all comes down to the same principles of basically risk management, risk premia, risk factors and, and managing your bankrolls actively in liquid markets.

GEOFF MARCUS:  Thanks, Charlie. What are some of the biggest market opportunities you're seeing crypto and liquid alternatives?

CHARLIE MCGARRAUGH:  A big piece of it is actually exercising thoughtfully the option to be flat, not just always having necessarily something to bet on. And that's a big part of it.  Yeah, so I think it's a really interesting market environment because the long term asset inflation that has really powered forward markets with a couple of notable blips, namely simple level the dots on prices, the taper tantrum, the global financial crisis, a few of these blips along the way, but basically you've had a 40 year bull trend in bonds that just powered a bubble trend in all financial aspects.

Right. And, you know, additional policy with housing and so forth, we're at the end of that long term, low inflation, excess savings cycle. And rates are going to be higher or at least more volatile, both in real terms and in terms of inflation and risks. Right. So all three dimensions of inflation, novels and the different events, that means that as an allocator of capital, being focused on just holding financial assets while they reflate more is not really going to work, I strongly believe.

And that means that you need to be in the risk moving business, not just the risk storage business, because just having something sitting around doesn't mean it's necessarily going to keep appreciating. So in a world where valuations are more dynamic and less trending over the extremely long haul, buy and hold may be less advantageous. Right? Therefore, you want product that can be short.

You want a product that can be nimble, and you want product that is benefiting from other kinds of risk premium other than just financial asset reflation. You need multiple risk premia and you need to be able to wait between them dynamically and liquidity. And so our systems are really focused on multi-asset risk premium, multiple dimensions of risk premia and then trading liquidity in the world's most liquid markets, which are regularly futures to capitalize on changes in that short time.
Thanks, Charlie. Appreciate the insights. Now, all this recently launched a new global macro strategy, which is live on the platform. CTAs are the best performing asset class this year. Why are they so well-suited for this environment and how long do you think it will continue?
 That's a great question. So most CTAs benefit from primarily one risk premium, which is trend, right.

And trends are, of course, super interesting because they are the process by which markets ingest information and find new price points and they're hard to arbitrage away because they happen on different wavelengths. Like, of course, of news hits all the day. Traders react, but then, you know, they only have so much balance sheet to push the price one direction or the next, and over time, invest equities, reallocate cross-sectoral movements happen and so forth.

So think of trend is like multiple wavelengths of how does a market ingest information. Right. But there is and so the last really since QE [Quantitative Easing] kicked off in a way it's been pretty hard for medium wavelength translators to make money because the Fed anesthetize the market by just providing free money, which meant price discovery didn't happen as much because you know, if the job of a trend followers to take the price where it's predicted it could go by providing your capital.

The Fed just provided all that capital cheaper way cheaper. Right so it didn't work as as a risk premium very well for for the last quite some time now that that liquidity has been removed from the system. The chance to charge capital to where the variance of discovering new prices is basically much higher. The pricing power, and that's likely to persist as long as QE is being rolled back.

On top of that, there are other kinds of risk in the market away from this trend. Things like valuation and intermediately like relationships, and in an environment that is highly, highly uncertain, different classes of participants in the market are going to react at different times. Right, and in different degrees of severity non contemporaneously. And that means that the relationship between the two seems to get quite out of whack for quite some time.

And so the more structural volatility there is in the market, the sort of the greater the opportunity to commit your capital, to provide liquidity to bridge between these things when they're statistically predictable. And because we are likely in an environment of high structural volatility, right. With the resurgence of inflation volatility with far more uncertain policy pathways, not just in terms of monetary and fiscal policy, but also ultimately in terms of like social engineering, a war on inequality, redistribution tax and all that technological change.

All these things are creating a higher degree of flux in the system than we have experienced recently, and that allows for sort of process of relationships to get a lot more out of line. So the combination of trend value and what should should be a very possible thing to provide for for the foreseeable future. 

GEOFF MARCUS:  Charlie, thank you so much.  I appreciate your insights. Thank you so much for joining us today. And we hope to have you back again soon. 

CHARLIE MCGARRAUGH:   Thanks again. I really appreciate the opportunity to connect today.

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