Dan Tapiero on private equity and blockchain

Dan Tapiero, founder, CEO, CIO and managing partner of 1RoundTable Partners & 10T Holdings, joins Opto Sessions to discuss his own journey into blockchain investing, and his bullishness about the space. He also discusses Animoca Brands, which is one of his favourite investments, in part because the company itself is something of a venture capital portfolio for the blockchain space.

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Dan Tapiero is the co-founder, CEO, CIO and managing partner of 1RoundTable Partners & 10T Holdings, the latter being one of the world’s only private equity funds dedicated to investments in the digital asset space.

Over the span of 25 years, Tapiero had the opportunity to work with five of the ‘greatest of all time’ in their respective sectors: Julian Robertson, Michael Steinhardt, Steve Cohen, Stanley Druckenmiller and Lord Jacob Rothschild.

The experience of working with these greats has honed Tapiero’s personal approach to investing, but he is clear that their influence has been fused with his own process. “I have my own 16-year track record of managing a portfolio,” he tells Opto Sessions.

Tapiero’s investment strategy is highly value-driven. None of 10T’s investments were purchased for more than 10x earnings.

This caution around entry price has paid off in several instances recently, as it meant that the equity fund turned down both FTX and Celsius Network. Another example is Ethereum development studio ConsenSys. Having originally wanted to lead an investment round at a $2bn valuation, Tapiero passed twice as other firms invested at a $3bn and then a $7bn valuation.

“Now we can buy it in the secondary market closer to where we originally had wanted to buy it,” he says.

Tapiero’s work in digital assets dates back to 2014, when his business at the time, Gold Bullion International, merged with Bitreserve, which rebranded as Uphold the following year.

“We were the first place in the world that you could buy or sell gold [and] buy or sell bitcoin and ripple,” says Tapiero. However, having struggled to understand the technical aspect of cryptocurrencies, he didn’t take a position, instead watching on in anguish as the market rose over the following years, before crashing in 2018.

“In traditional markets, I’ve seen that many times: markets have massive moves up and then drop 85%. What happens after that is, usually, the asset goes to zero, or it’s the buying opportunity for the next bull run.”

The 10T thesis

Having returned to researching bitcoin for six months, the concept finally resonated, and Tapiero began buying stakes in the companies which, ultimately, led to 10T — named for his conviction that the fund could reach a $10trn valuation within 10 years.

10T was founded in 2020 and invests in a portfolio of “picks and shovels”, private companies in the digital asset ecosystem (DAE). The fund currently manages some $1.2bn in committed capital.

The company’s three funds hold stakes in 26 businesses. These include DAE gateway businesses like eToro, blockchain infrastructure companies like Bitfury, next-gen financial services like Prime Trust, new-era DAE businesses like Babel Finance, DAE infrastructure companies like QuickNode, and metaverse and non-fungible token (NFT) businesses like Animoca Brands.

“I don’t do venture,” says Tapiero. “I don’t invest in the cryptocurrencies themselves. I’m not trading — it’s a private equity fund with a 10-year life.”

Animoca Brands

One of Tapiero’s favourite investments is Animoca Brands, a developer of educational mobile games and apps for Europe and Asia. This is 10T’s largest position, and Tapiero is highly bullish about it: “If you’re going into only one business in the blockchain, gaming, metaverse, NFT space, it’s Animoca.”

Two aspects of the business stand out to him. Firstly, its revenue grew in 2022 compared to 2021. “Everyone’s complaining about the bear market and how diabolical it is — yeah, this company made multiples of revenue in 2022 versus 2021.” Tapiero credits this to Animoca’s strong leadership team.

Secondly, it has, in its own right, a portfolio of investments within its industry, a “broad, diversified portfolio of venture-type investments”, as Tapiero describes it. This makes it a go-to for investors who are bullish about the space in general, but who lack detailed knowledge or conviction about its various components.

“For me as an investor that just wants to get broad exposure to the space, because I’m not going to be able to pick which blockchain is going to be successful… I just know that if this space is going to grow as I think it is, I’m pretty sure Animoca is going to be at the centre of it.”

FTX fallout and bullish divergence

While his approach is value-driven, Tapiero is able to take a technical perspective to identify good value when appropriate. He invested $120m into eight different blockchain businesses in the immediate aftermath of the collapse of FTX, based on the price movements of cryptocurrencies.

“On the announcement of that news,” he says, “the Ethereum price couldn’t make a new low, the bitcoin price went down, but then came back. As old-time, traditional traders know, that’s what’s called a bullish divergence: the selling has dried up, because you’ve had the worst news possible, and the price of the underlying asset can’t make a new low.

“That generally means the bear phase, which we’d been experiencing for over a year, was finished.”

Tapiero compares the most recent crypto bear market, which bottomed in October, against the previous one in 2018 to demonstrate how far the space has come.

At that time, “people were worrying that Ethereum and bitcoin were going to go to zero. At the end of the day, you’re not hearing that now.”

While the narrative is less pessimistic, Tapiero still doesn’t believe that the mainstream media understands the blockchain space well enough to communicate the innovation going on within it.

He points to use cases such as the California Department of Motor Vehicles putting licensing information onto the Tezos blockchain. “It’s innovation happening all the time,” he says, “unfortunately, the traditional media has failed to do the work. They don’t understand the space. In fact, I haven’t read a single article by any journalist that I think understands the breadth and scope of the innovation that's happening.”

For investors seeking informed viewpoints on blockchain, Tapiero recommends Blockworks, The Block and Cointelegraph.

AI and the Fed

Tapiero’s bullish outlook on cryptocurrencies and technology stocks is bolstered by his take on the macro outlook.

“The invertedness of the yield curve is something I’ve been expecting for a while,” he says, “and it tells you that the Fed has overtightened. I expect growth and inflation to come down every quarter for the remainder of the year.”

Part of the cause of this easing will be the deflationary pressure that generative artificial intelligence has brought to the equation. “Productivity will go up. Unfortunately, unemployment will go up a little bit. But this is going to put a dramatic pressure on wages and prices more generally. You can do a lot more now with fewer people.”

“Central bank digital currencies have a place, but remember, we have the option not to put our savings in those. [...] So that to me is not such a horrible thing. I know people are panicked and worried about central bank digital currencies, but I think it’s just the natural progression.”

Nevertheless, Tapiero takes aim at the traditional Fed approach to managing inflation by raising interest rates.

“I don’t understand why we need to put people out of work to manage the macroeconomic cycle. I know the unemployment rate is low, but putting people out of work as a way to control the CPI number just seems like a 20th-century kind of policy structure.”

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