By Lucinda Shen
June 6, 2018

The cofounder of hedge fund giant Two Sigma is no fan of cryptocurrencies—though he does see promise in its underlying technology, blockchain.

“I guess I’m a little skeptical that [cryptocurrencies] are going to hold value the way that people expect that they will,” David Siegel, co-chairman of Two Sigma, a hedge fund with $52 billion under management, said at the Bloomberg Invest conference Tuesday.

However, he was careful to clarify that the technology behind digital currencies, an information database called blockchain that is said to be secure and immutable, has promise. “I think the blockchain is a really fantastic technology…the blockchain is really going to have genuine applications.”

When asked if he preferred any specific cryptocurrency, he answered, “They’re all about equal in my mind.” Then he dropped his palm toward the floor, signaling the level of prestige the asset held in his mind. “You know.”

The comments come from a billionaire with one foot in Wall Street and the other in technology. Two Sigma is known for its strategy of trading based on algorithms and artificial intelligence. And unlike many other hedge funds, the firm’s staff is chock full of Ph.Ds. Siegel himself holds a PhD in computer science from the Massachusetts Institute of Technology.

And the strategy has paid off for Siegel. Siegel has regularly been featured among the top hedge fund earners on an annual basis.

Investing in cryptocurrencies has made others wealthy. Over the last 12 months, the value of all cryptocurrency, including Bitcoin, has swelled to roughly $350 billion. While that’s a far cry from its $816 billion peak in January, the value is still roughly three times its $101 billion value a year earlier.

But Siegel thinks this influx of investments in cryptocurrencies—which he thinks would be better defined as crypto assets—are a symptom of a larger problem: Investors storing their money, rather than putting it to work in innovative projects.

“You already see certain kinds of assets inflating in price,” he said pointing to real estate markets and cryptocurrencies. “People are looking for new ways to store value, rather than new ways to invest and create new things. I think there’s a little bit too much interest in storing value, and not enough interest in creating new value and expanding the pie.”

Still, while it is hard to cleanly separate cryptocurrencies from blockchain (many blockchain projects are raising funding by offering the digital currencies), Siegel notes that it is blockchain technology itself, which effectively distributes copies of the same, constantly updating database to multiple parties, that he thinks has the most potential.

“The math behind [blockchain] is pretty cool,” Siegel said. “There’s an awful lot of hype around the blockchain, but think the blockchain will ultimately create new business models. I think it will be particularly helpful in the developing world where registries are not as established as here in the more developed economies.”

In 2018 at least, some investors appear to concur with his analysis. Venture capital funding to cryptocurrency and blockchain-related startups has soared in new heights, reaching $1.4 billion as of June, according to Pitchbook, compared to $964 million raised through all of 2017.

 

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