Scaramucci Crypto Pivot Comes With An Eye On Assets Tripling

(Bloomberg) — Anthony Scaramucci, whose curiosity about cryptocurrencies began during his short stint in Washington, now plans to pivot his SkyBridge Capital into digital assets after years of focusing on high-profile hedge funds.

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Nearly half of SkyBridge’s $3.5 billion under management is tied to crypto assets, including Bitcoin, the Algorand protocol, Ethereum and publicly traded crypto-related stocks, according to Scaramucci, who has returned to management money in his New York-based company after 11 days as SkyBridge expects the focus on crypto could help triple assets to $10 billion, with digital assets accounting for the majority of these funds. “We are so committed to this opportunity that we have adapted and repositioned the company to eventually become one of the leading cryptocurrency asset managers and advisors,” Scaramucci said in an interview.

Scaramucci spoke this week ahead of a SALT event co-sponsored with crypto exchange FTX that is expected to draw nearly 2,000 people to the Bahamas.

Here are comments from Scaramucci’s interview with SkyBridge executive John Darsie, who helps organize SkyBridge’s SALT conferences, edited for length:

BLOOMBERG: When did you make the decision to go crypto?

ANTHONY SCARAMUCCI: We made the decision during the pandemic to question our entire portfolio. There is a pre-pandemic world and a post-pandemic world, and a post-pandemic world has a lot more public deficits – it has a lot more growth-related uncertainty.

If you just look at the 10 years of GDP growth, it’s about 1.6%, which is below trend. I’m not saying inflation is forever, but if you’re going to have high inflation, at least temporarily—which I would define as 18 to 36 months—you have to put yourself in a position to be in a very high position- growth-oriented places. For us, we believe the cryptocurrency markets represent huge growth. It comes with volatility, sure, but I think over three to five years we would like that trajectory.

A defining moment for me, however, was working in Washington, as I spent some time at the Export-Import Bank. It’s hard to believe it’s been five years now, but in June 2017 I was at ExIm Bank in a meeting where Treasury officials were talking about the potential digitization of the dollar. And I was like, OK, well, how are you going to do this? Above the blockchain.

So when I walked out of that meeting, it was kind of an epiphany for me: what the Winklevoss twins are talking about, what my friends like the Mike Novogratzes of the world are talking about, I have to take it more seriously. So when I got kicked out of the White House, back to SkyBridge, I bought the URL.

Our friend Michael Saylor started making very large bitcoin investments in August 2020. For SkyBridge, we made our first large investment in December, where we invested around $270 million as a macro investment in our Series G fund Our average price was $18,500, which turned out to be a pretty good entry point. But, okay, there has been tremendous volatility. It’s not for the faint-hearted – it’s a long-term strategic decision.

JOHN DARSIE: Historically, in terms of strategy from a yield perspective, it was more credit-driven. We alternated between different types of hedge fund managers depending on market conditions, but especially over the last seven or eight years, I think our orientation was much more value-oriented, where we were trying to get returns from 8% to 10% to somewhat replace fixed income securities in an investor’s portfolio, given that traditional fixed income yields were very low. What we ultimately determined was that due to the pandemic, we had a huge drawdown in the credit portion of the portfolio.

More generally, we have simply decided to adopt a little more growth orientation in the way we have structured the fund, rather than trying to allocate and replace this type of fixed income yield. We wanted to invest in more growth-oriented managers, both in crypto and outside of crypto.

We are obviously extremely optimistic about the sector. And so what we decided to do is that some of that capital that was previously allocated to credit managers was invested directly in crypto assets like bitcoin and ethereum, but also rotated capital into crypto asset managers like Multicoin, Polychain, Pantera, people of that character.

Role of the SEC

BLOOMBERG: You were among the first to be denied a cash ETF for Bitcoin by the SEC. How do you expect the SEC to handle its handling of crypto regulation?

AS: We’ve taken the position that the government is going to be, let’s call it, mother bear regulation. They won’t over-regulate the crypto space, they certainly won’t under-regulate it.

We think we are ahead. So if we’re right, and you get a cash ETF, that opens the floodgates for more institutional and retail investing. We try to condition our clients to be with us early. So that makes sense. Our request was denied alongside Fidelity and several others. So it wasn’t specific or personal to us.

I think the SEC takes the position that because bitcoin spot trading happens all over the world, they don’t have a single market clearing for all buys and sells. So they are worried about price manipulation. But over time, because of the transparency of the markets, I think they will become more comfortable with it.

Now the Big Kahuna is the Grayscale Bitcoin Trust. They basically filed for a conversion of their trust, which is trading at a discount. They want to convert to ETFs, which would lower their fees, but it would just be better for customers. They’re out there publicly saying, if the SEC doesn’t approve it, then they have a July 1 deadline, they’re going to file a lawsuit against the SEC.

Crypto regulation

BLOOMBERG: If Grayscale files a lawsuit against the SEC, would you somehow agree to sign it? Would you support her in any way?

AS: The short answer to that question is no, we will not partner with it, as we are in the process of re-filing our Bitcoin ETF application with the SEC. I’m taking the approach that the SEC will eventually get to the position where they will allow a Bitcoin cash ETF. So I don’t think we need to be that aggressive.

There is a frustration in the industry, that our regulators seem to lag behind other regulators. That said, they are concerned about investor safety. So we are very much in favor of regulation. We also believe they will come out on the right side, which is why we encourage our clients to come now, ahead of the additional waves of demand and investor interest that come post-regulation.

It’s a risky strategy—let’s be very frank with you, it’s a risky strategy. But we’re known for that, okay? I want to be a Swiss army knife in the markets, I want to be adaptable. I want to see where the markets are – not how they once were, or how I would like them to be – and I want to adapt our business. But we are aware of our risks in our approach.

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