From: thepipeline_xyz
Dan Matuszewski, co-founder of CMS Holdings, shares insights from his extensive experience in the cryptocurrency market, covering its evolution, trading strategies, and key advice for participants. CMS Holdings is a VC firm specializing in financial services, big data, fintech, and particularly blockchain and cryptocurrency [00:00:13].
Early Engagement and Market Evolution
Dan’s journey into crypto began in late 2012 and early 2013, while working at a hedge fund with Julian, the “S” in CMS [00:09:24]. Bitcoin was then known in the trading community but was still primarily pitched as a payments system, with companies like BitPay being prominent [00:09:56]. The “store of value” narrative was present but not dominant [00:10:07].
He started engaging in automated trading on exchanges like Mount Gox, which dominated about 80% of the volume [00:10:49]. The market was inefficient, with small aggregate trading volumes [00:10:40]. Many early exchanges, including Bitfloor and some in Canada, blew up due to hacks or banking issues, leading up to the major collapse of Mount Gox [00:11:13].
The period from 2014 to 2015 saw a significant lull in the market. Total aggregate trading volume on the top exchange, Bitfinex, was less than a million dollars per day [00:12:46]. This quiet period led some companies, like Circle, to move away from crypto at the time [00:12:54].
The market shifted significantly with the rise of Ethereum (Eth) and the ICO boom around 2017 [00:13:00]. Before this, companies like Circle only traded Bitcoin [00:16:04]. Eth’s popularity made it impossible to keep up with all the information, and other assets became crucial to trade [00:15:53]. This marked a horizontal growth, where the industry broadened, and tracking all information became impossible [00:16:59].
Current Market Dynamics and Hot Takes
Dan believes that current narratives about one blockchain fixing another’s problems are “bullshit” [00:20:11]. He attributes recent asset performance to their inherent beta, meaning assets that suffered more in the bear market have rebounded faster [00:20:17]. This is seen as typical bull market behavior rather than a new regime change [00:21:13].
A continuing challenge in the market is the lack of clear visibility between Asian and Western trading sessions, which can lead to information asymmetry [00:14:34].
The Bitcoin ETF
Dan views the Bitcoin ETF as “big” due to the potential for passive capital flows from traditional finance products like equities [00:23:14]. It opens up a new pool of buyers who were previously unable or slowed down from owning the asset [00:23:38].
However, he cautions against extrapolating too much from the initial inflows in the first few weeks, as it takes time for RAs and other funds to integrate such products [00:24:23]. He sees it as a “long tail boom” for the asset class, bringing additional passive money into the ecosystem [00:24:27]. The competition among providers for AUM will lead to significant advertising, providing valuable “non-sketchy” exposure for crypto [00:26:30].
For future ETFs, Dan predicts a cadence where CME futures trade for a year or two before an ETF is approved [00:28:38]. He estimates a 75-80% probability of an Eth ETF within a year if the Bitcoin ETF performs well [00:29:01], but he is skeptical about ETFs for other altcoins like Solana in the near future [00:29:06]. The Eth ETF will be complicated due to staking considerations [00:29:21].
Institutional Adoption
Institutions view crypto as an “uncorrelated asset” with “Alpha” [00:30:17]. For large asset managers aiming to beat benchmarks like the S&P 500, adding uncorrelated sources of alpha like Bitcoin is appealing [00:30:44]. It can be shoehorned as a minority position into existing fixed income and equities portfolios, adding performance over time [00:31:16].
Trading Experiences
Dan identifies the COVID-19 crash as the “craziest period of trading” he’s ever seen [00:32:07]. During this time, Bitfinex experienced issues, and FTX stopped working on the lows [00:32:11]. Eth basis went to extreme levels, moving ±20% in half an hour relative to the underlying [00:32:38]. Counterparty risk was immense, with no clear idea who was solvent [00:32:53].
Another “weirdest period” was the 48 hours after FTX was effectively shut down, where CMS tried to strategically lose money in their FTX account to gain it elsewhere, as a way to extract funds [00:33:53].
Trading Philosophy
Dan highlights two important trading tropes:
- “Hot Ball of Money”: This concept, often used for the Chinese market, describes how capital moves dynamically from one asset class to another (e.g., equities to real estate to commodities) [00:35:00]. In crypto, this is evident in how capital flows after Bitcoin and Eth rip, then disperse into other corners of the market [00:37:49]. The challenge is identifying what matters in each cycle, as this changes [00:37:58].
- “Do you want to make money or do you want to be right?”: This emphasizes not fighting the market [00:35:24]. Even if fundamentals suggest something is wrong, the market might act irrationally, and attempting to short it can lead to significant losses [00:35:28].
Key Trading Advice
Cut the Leverage
Dan strongly advises against using excessive leverage, especially for young traders [00:48:26]. He recounts how CMS was negatively impacted by lenders failing in 2022, forcing them to unwind positions at disadvantageous levels [00:48:35]. The second and third-order effects of leverage in markets are often unclear, and the failure of one lender can cascade across the entire ecosystem [00:48:57]. While stories of people making it big on leverage circulate, hundreds or thousands are carried out, creating a selection bias [00:50:16].
Trade Less
Dan’s second piece of advice is to “trade less” [00:49:15]. If one has a thesis, it’s often better to hold rather than constantly trade. He reflects on past experiences where simply holding assets like Eth would have been easier and less stressful than active trading [00:49:41]. Many people in the industry tend to overtrade, undoing their own correct decisions [00:49:51].
Reflections on Monad (Parallel EVM)
Regarding Monad, a project generating significant interest for its parallel EVM narrative, Dan notes the high level of community interest, with most views being positive [00:39:21]. However, there’s skepticism, particularly from Solana users who view it as a potential threat [00:39:33]. He mentions that highly technical people tend to be the most skeptical [00:40:08]. He draws a parallel to the launch of Eth, where Bitcoin developers were initially dismissive, and later Eth developers doubted Solana’s scalability [00:40:31]. He suggests that advancements sometimes require “a new crop of people” and time to be accepted [00:41:12].