Chain Venturer: Ouroboros Capital

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Happy Weekend 🙋🏻‍♂️,

Welcome to Chain Venturer, a series of intriguing conversations with crypto investors. This week, we have Ouroboros Capital.

Ouroboros Capital is a crypto-native hedge fund that specializes in employing liquid fund strategies within the DeFi space across multiple blockchain platforms. The firm is a well known name amongst crypto researchers in Twitter, boasting over 20,000 in follower count.

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In case you don’t know…

I’m an investor at Primitive Ventures. We back founders who believe that crypto represents the new socioeconomic primitive that will redefine individual sovereignty and financial paradigms.

If you’re building an interesting project → DM me here.

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Anyway, enjoy this week’s conversation.

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Ouroboros Capital

Ouroboros Capital is a crypto-native hedge fund that was founded in 2022 by an anonymous group of investors. Ouroboros Capital has a prominent presence on Crypto Twitter with over 24,000 followers. It specializes in employing liquid fund strategies within the DeFi space across multiple blockchain platforms.

According to data from Crypto Fundraising, Ouroboros Capital invested in:

• ALEX: An open-source Bitcoin DeFi platform built on the Stacks Blockchain

• Kodiak Finance: The native liquidity hub on Berachain.

• Infrared: The premier application of the PoL consensus mechanism on Berachain.

• KTX.Finance: An on-chain derivatives and social trading protocol on BNB Chain.

• GammaSwap: The modular scaling layer for DeFi liquidity.

Ouroboros Capital has a research arm called Ouroboros Research which covers Ouroboros top high conviction picks within the crypto space - ranging from large caps to small caps and long-term to tactical ideas. Ouroboros Research shares Actionable, In-Depth and Insti-Grade crypto investment research based on how it deploys its capital.

Here’s my conversation with the founder of Ouroboros Capital.

Quick takeaways:

• Given the speculative nature of the crypto market, where narratives often drive valuations, understanding market sentiment and speculator behaviour is paramount.

• One chart that he particularly loves and believes perfectly encapsulates this visualization is the chart of monetary growth, specifically M2 growth year on year versus crypto price.

• From a monetary supply perspective, he considers that it is unlikely that the Fed will shift back to a rate hike mode, making rate cuts more probable.

• Ouroboros's offering primarily consists of a liquid directional fund, which involves taking directional views on markets and selecting altcoins.

• In their advisory role, Ouroboros primarily assist on the non-technical side, offering expertise in designing tokenomics, modelling tokenomics, and facilitating fundraising from a network of angel investors.

What was the defining moment that drew you into the world of crypto?

The founder of Ouroboros Capital’s journey into the world of crypto was a gradual evolution from a career in traditional finance (TradFi) to exploring new opportunities in the digital asset space. Initially focused on trading equities for several years across different investment banks and hedge funds, He had a casual interest in cryptocurrencies since buying Bitcoin in 2012 during college. However, crypto remained more of a speculative hobby while He remained entrenched in equities trading.

The defining moment: During the COVID-19 pandemic when remote work provided time for exploration. Conversations with friends who found success in crypto investments sparked his curiosity, prompting him to delve deeper into the mechanics of cryptocurrency valuation and investment strategies. While initially sceptical due to the unfamiliarity with valuing currencies, he became intrigued by the concept of cash flow coins, prompting a deeper dive into the crypto landscape.

By 2021, he decided to fully embrace the crypto space, attracted by its dynamic nature compared to the relatively static world of traditional equities trading. The allure of being part of a burgeoning industry where investment and trading strategies were still evolving proved intellectually stimulating. This led him to leave the traditional finance sector behind and explore opportunities in crypto.

Transitioning into the crypto sector presented challenges, as the industry lacked the established infrastructure of traditional finance. Despite initial plans to trade independently while exploring options, he was approached by a previous employer, a TradFi hedge fund, to lead their entry into the crypto market. This marked his first professional foray into managing a crypto fund within a traditional finance framework.

As he continued to navigate the crypto landscape, the desire to establish a personal brand and venture into entrepreneurship became apparent. Leveraging Twitter as a platform to share insights and engage with the crypto community, he inadvertently gained traction within the industry. This led to collaborations with protocols and entities in the crypto space, eventually culminating in the establishment of Ouroboros Capital's own fund, offering advisory services, research, and investment opportunities.

Despite the relatively short timeframe of two to three years, Ouroboros Capital's journey in crypto has been marked by steady growth and adaptation. Today, with a team of professionals specializing in various aspects of crypto investment and analysis, Ouroboros Capital continues to thrive in the ever-evolving landscape of the crypto market.

What is Ouroboros Capital?

Ouroboros Capital's core focus lies in liquid trading, deeply ingrained in the trader's DNA of its founder. This aspect constitutes the bulk of Ouroboros’s business activities, where directional bets on selected coins are strategically taken. Additionally, Ouroboros also engaged in two other key areas: advisory services and venture investing.

In the advisory capacity, the extensive network of operators, brand presence, and Ouroboros’s influence on platforms like Twitter are leveraged to assist partners in optimizing their projects. The role is often likened to that of an extended team, with expertise in business development, tokenomics, and social media strategy offered to accelerate growth and success.

Ouroboros’s Venture investing complements its liquid trading activities, with a portion of the fund allocated to opportunistic angel investments. However, this typically constitutes no more than 30% of the overall allocation. Successful investing in crypto is viewed as a multifaceted process, akin to a flywheel, requiring not only identifying promising ideas but also effectively timing market recognition and knowing when to realize profits.

Ouroboros’s founder says that In crypto investing, identifying the right idea is often considered less challenging compared to ensuring early market recognition and making timely exits. Given the speculative nature of the crypto market, where narratives often drive valuations, understanding market sentiment and speculator behaviour is paramount. This comprehensive approach forms the cornerstone of the investment style and methodology of Ouroboros Capital.

What's your outlook for the rest of 2024?

Ouroboros is guided by two dimensions: top-down and bottom-up. "Bottom-up" refers to finding the best narratives, identifying what they call the "fastest horse in the race," or the best beta in the broad crypto landscape. Conversely, "top-down" guides allocation based mainly on macroeconomic factors.

One chart that he particularly loves and believes perfectly encapsulates this visualization is the chart of monetary growth, specifically M2 growth year on year versus crypto price. This chart vividly illustrates the high correlation between crypto and money supply, a relationship that makes intuitive sense to him.

This year has been particularly interesting due to the initial expectations of early rate cuts and easy monetary policy. This environment made it relatively straightforward to adopt a bullish stance on crypto, especially with the introduction of the Bitcoin ETF, which he believes further solidifies Bitcoin's position as a macro hedge.

However, what caught his attention was the unexpected rise in inflation in the early part of the year and the challenges it presented to the Federal Reserve. The recent Fed meeting, in particular, was intriguing to him. As a trader, he emphasizes the need to quickly adjust views based on evolving circumstances.

Before the recent market downturn, he admits to having been somewhat cautious due to rising inflation and increasing US rates. However, his perspective shifted during the FOMC meeting when he decided to take a significant long position. He explains that this decision was driven by his belief that the Fed cannot immediately backtrack on its view that it has successfully managed inflation without risking its credibility.

The perceived dovishness of the Fed's recent statements, particularly their decision not to rule out rate cuts, led him to anticipate an "easy mode" environment until the second half of the year when rate cuts are expected. He personally expects a retest of previous market highs during this period, with potential retracements seen as buying opportunities.

From a monetary supply perspective, he considers that it is unlikely that the Fed will shift back to a rate hike mode, making rate cuts more probable. However, the key question remains the magnitude of these cuts and how they are priced into the markets.

Is Ouroboros right now mostly a prop capital? Are you actively raising LPs?

Ouroboros has predominantly operated as proprietary capital. However, Ouroboros recently initiated its fundraising efforts about one to two weeks ago. This fundraising campaign targets multiple limited partners (LPs). Historically, Ouroboros has primarily been a single LP proprietary capital firm. 

Ouroboros's offering primarily consists of a liquid directional fund, which involves taking directional views on markets and selecting altcoins. Additionally, Ouroboros allocates up to 30% of its funds to opportunistic ventures. Ouroboros terms it an "opportunistic venture" due to its unique perspective, stemming from its background as a liquid fund. 

Unlike traditional venture capital funds that often feel compelled to deploy capital quickly, Ouroboros maintains a high standard for venture investments. Liquidity considerations, including vesting schedules and narrative longevity, are paramount in Ouroboros's decision-making process.

Ouroboros has opted not to charge any management fees, as it believes they are unnecessary. Instead, Ouroboros only applies performance fees, set at 30%.

What sectors are you particularly excited about in the coming years?

Ouroboros maintains a sector-agnostic approach, but Ouroboros tends to avoid excessive involvement in DeFi. Despite being well-versed in this sector, Ouroboros perceives it as overcrowded and lacking significant innovation, making it challenging to capture attention and imagination.

Crypto at the end of the day is really about trading attention, Ouroboros seeks projects that can truly captivate people's hearts and minds. Ouroboros finds emerging sectors like AI particularly intriguing due to their inherent complexity, which allows for boundless imagination. Gaming is another sector that piques Ouroboros's interest.

However, delving into these sectors requires caution, especially when lacking specialized expertise. Therefore, Ouroboros approaches such opportunities with careful consideration rather than adopting a "spray and pray" mentality.

Could you offer a couple of tips on conducting research?

Always challenge your own conclusions by playing the devil's advocate. It's tempting to build a compelling case and embrace bold convictions, but scrutinizing your thesis with sceptical questions can reveal weaknesses and strengthen your argument. Through iterative questioning and refinement, you can develop a robust and resilient case. 

However, it's important to note that being a skilled analyst doesn't automatically translate to being a successful investor or trader. Experience plays a crucial role in honing trading instincts, which often rely more on market dynamics than on rigorous analysis alone.

Based on your experience, what are the key areas where founders typically require the most advisory assistance? Is it primarily related to product development, positioning, tokenomics, or effective marketing strategies?

Ouroboros believes there's no one-size-fits-all answer to this question, as every founder possesses unique skill sets and areas of expertise. However, they emphasize the importance for founders to recognize their limitations. They have encountered founders across a spectrum, from non-technical individuals with strong commercial acumen to highly technical ones lacking marketing and business development skills.

In their advisory role, they primarily assist on the non-technical side, offering expertise in designing tokenomics, modelling tokenomics ideas akin to Radiant V2, and facilitating fundraising from a network of angel investors. They also provide general marketing support, helping founders connect with the right people and pitching their advisory services as a warm and well-connected business development service.

Additionally, they are building close partnerships with dev shops to offer technical assistance. Despite common concerns about working with dev shops, they have had positive experiences by clearly defining project requirements, managing the process effectively, and fostering trust between the dev shop and the project team. They are currently experimenting with integrating this technical advisory aspect into their services for select projects.

Rapid Fire Questions

1. What's one piece of content every aspiring investment professional should read/watch?

   • Reminiscences of a Stock Operator by Edwin Lefèvre

2. What’s your biggest investment mistake?

   • Bought Bitcoin in 2012 at $500 but sold it at $300.

3. What’s the most underrated use case of crypto?

   • Permissionless liquidity - crypto allows the creation of markets on everything.

4. What’s your most contrarian view in crypto right now?

   • In this cycle, returns are expected to be largely concentrated in the large caps.

5. What’s the biggest risk that the crypto space is facing?

   • Tether. 

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Disclaimer: All the information presented in this publication and its affiliates is strictly for educational purposes only. It should not be construed or taken as financial, legal, investment, or any other form of advice.