How Matthew Graham from Sino Global Capital Invests in Crypto

by | Blockchain, Investing

Not financial advice.

Matthew Graham is the CEO of Sino Global Capital and launched a new $200m crypto fund in Oct 2021 backed by FTX.

On an excellent interview on the Pomp Podcast, Matthew dicusses the 3 types of investments that his crypto fund invests in. I’d like to dig into this a little more because the implications and benefits for average investors are insane.

3 Types of Crypto VC Investments

1 Tokens

The primary type of crypto investment that Sino Global makes is long-term investments in the form of tokens. The fact that VC firms like Sino Global invest in the tokens directly is pretty incredible.

VC money has outperformed every major asset class for quite a few years now and historically, it has been a very privileged few VC funds that have had access to invest in promising technology startups.

VC outperformed every major asset class the last few years

wdt_ID Strategy 1-year 3-year 5-year 10-year
1 Real estate 2.62 8.24 9.59 12.30
2 Real assets -6.68 1.46 3.43 5.25
3 Private debt -0.28 4.68 5.20 8.30
4 Bloomberg Barclays Global Yield Corporate -0.12 2.98 4.46 6.38
5 Private capital 4.44 9.49 9.78 12.03
6 MSCI All Country World Index 2.64 6.64 7.04 9.67
7 S&P 500 7.51 10.79 10.79 13.87
8 Private equity 8.04 11.82 12.18 13.89
9 Venture capital 13.76 15.85 10.35 13.19

* Source: Pitchbook

To compound the problem, there has been a trend toward the most valuable companies staying private longer.

Sure, the VC funds that invested early in the tech giants of today reaped the most rewards. But the public markets still had access to Amazon when it was valued at $300 million or Salesforce at $850 million.

Companies staying private longer means that private money is soaking up more and more of the gains that once went to the public markets.

By the time the public markets get access to the hottest tech companies, the gains have already been sucked dry. Airbnb effectively went public at $100 billion. Even Uber, with its subpar margins, went public at $75 billion.

So it’s incredibly meaningful that top-tier crypto-focused VC firms like Sino Global prefer and primarily invest in tokens that are equally accessible to everyone.

This is in stark contrast to the status quo of VCs buying preferred shares that come with all sorts of additional benefits and privileges beyond having relatively exclusive access to the investment in the first place.

The average person now has the same early access to many of the same investments that VCs have in crypto… the most innovative, promising sector we’ve seen in years. Let that sink in for a second.

2 Equity Components with Token Kicker

The second most common form of investment for Sino Global is the more traditional equity investment but with a token component.

While not as egalitarian as a pure token play, the token is at least a component of the investment that the whole world has access to as well.

3 Straight Equity

There are many companies in the crypto space that have a more traditional, centralized structure without blockchains or tokens. Centralized exchanges like Coinbase, centralized lending services like BlockFi, and SaaS platforms like TaxBit come to mind.

The only way you get access to investments like these is by either buying the shares on a secondary market, being an LP in a VC fund (the best can be difficult to get into), or investing in a rolling fund on AngelList. All of these options are available exclusively to accredited investors.

Matthew says that straight equity is their least common type of investment and is only considered if they have extremely high conviction in the company and its founders.

Some of the straight equity investments they’ve made include Wintermute and FTX.

Investment Philosophy

Concentrated Bets

Matthew has a very similar investment philosophy to mine. As he put it, he believes in concentrated bets not “spray and pray.”

I really like how Monish Pabrai puts it:

“Few bets. Big bets. Infrequent bets.”

Monish Pabrai

Matthew made a pretty massive bet on Solana when it was well under a dollar and still hasn’t trimmed that position. He follows Paul Tudor Jones’ belief that you add to your winners, not your losers.

But to avoid “FOMOing” into winners, he likes to look for a second “investing catalyst” when adding to a winner. Some kind of additional value-unlock that may happen in the near future.

Market

I also believe that crypto is the biggest, value-unlocking opportunity since the internet in the early 90s.

“We are very early, a thousandth as large as blockchain will be.”

Matthew Graham

Matthew has made 3 really huge, 10-year macro bets in his investment career.

First, he invested heavily in China before its meteoric economic rise.

After China, he began to focus on crypto specifically. He recognizes the tailwinds behind blockchain technology and the amount of value it will create for the world.

His third and most recent macro bet is India. He likes India because it has a:

  • Tech literate population: There are incredibly good technical schools every bit as good as MIT that are creating enormously talented engineers.
  • Youthful population: India has a population that skews young and is increasingly interested in crypto.
  • Rapidly growing economy.

Bottom-up Investing

As you would imagine with a very concentrated portfolio, Matthew chooses his investments in a very bottom-up approach.

He got into NFTs early in the cycle and never would have seen that space was picking up if he invested based on top-down investing theses.

People

Matthew makes investments based on people. He looks for technical expertise and people who are, as he puts it, “amazing humans.”

Specifically, he looks for people who are:

  • Smart
  • Ethical

Pattern Matching

Matthew looks for people who are building a blockchain in a very differentiated way.

He had a very unique way of assessing that Solana was a winner while it was under a dollar.

The analogy he uses is when CPUs began to hit a wall in clock speeds. As CPU manufacturers began to hit the limits for increasing single processor speeds they began to pivot toward a multithreaded model.

He recognized that Solana was kind of like a multithreaded solution to the transaction bottleneck inherent in Ethereum.

Risk Curve

While Sino Global holds some staples like Bitcoin and Ethereum, they like to be further out on the risk curve.

Matthew strongly believes that there will be many important new chains in the future. Every month, they evaluate one or two new blockchains.

They make occasional investments in more established ecosystems like Ethereum but primarily look for new chains and new ecosystems.

Open-Sourced Investment Theses

One of the things I admire most about Matthew and Sino Global is that they open-source all of their investment theses and reports.

There are some well-thought investment theses on projects including:

  • Solana.
  • Zapper.
  • Serum.
  • Bonfida.
  • And lots of others.

You can learn not only what they invested in but why they invested in them. It’s a gold mine.

They also have an in-depth “How to Solana” book and a variety of other insights and learnings in the crypto and investing space.

All this is on their GitHub repo at: github.com/sinoglobalcap. I highly encourage you to get check it out.

There is so much going on in crypto that it can be hard to:

  • Find those promising projects when they are just getting started.
  • Separate the scams from the legitimate opportunities.

If you want to separate the signal from noise and be alerted about promising projects that are already vetted by leading crypto investment funds like Sino Global, Coinbase Ventures, etc. then you may like what I’m putting together.

I’m building a database of leading VC firms in the crypto space to track their investments and create alerts when new ones are made. I’m doing this for myself because I want the opportunity to invest in the next Solana but can’t possibly dedicate the time to sift through the hundreds of new projects and verticals that are popping up every month.

If you’re interested in having access to it I’m happy to spend the extra time to open it up to the public if enough people want it (for free of course.) Hit me up on Twitter at mikewille_ and join my newsletter if you want to be alerted first about when it drops.

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