Seattle-based Makara wants to decrypt crypto making it more approachable and less confusing for new investors. Makara is the first-ever SEC-registered robo-investor for crypto, and they offer automated services for investors who want passive exposure to cryptocurrency via thematic baskets.
I recently had the chance to chat with Sadie Raney, co-founder of Makara. Raney shared what millennial investors need to know about crypto, concerns about the environmental impact, Bitcoin’s potential, crypto security, and more.
Hi Sadie, welcome! Can you start with your background in crypto?
The first time I ever bought crypto was in 2015 at a prior company (Blue Box). It was for a marketing giveaway at a conference. We purchased 2 BTC and gave one away each day. The winners never claimed them despite multiple efforts to contact them. I always wonder if they have been kicking themselves since.
I decided to go into crypto full-time at the end of 2017. Jesse and I launched our first crypto investment company, Strix Leviathan, in January of 2018. It has been 100mph every day since in these markets. I have been working full-time in crypto now for 4 years, and as many will say, that feels like 40.
Oof, I can’t imagine how those winners feel now. So after Strix Leviathan, what led to Makara?
The main catalyst for me was the lack of investment options for everyday investors. There are hundreds of venues to buy, sell, and trade crypto now, but there are very few investment options.
Buying and holding a couple of the larger cryptos is definitely a good idea, but it is an incomplete investment portfolio. We identified this gap in the market, determined we had the software to make Makara a reality, and we built it.
Investing apps and robo-advisors are breaking down many of the barriers we’ve seen with investing, especially for millennials, from a lack of knowledge to a perceived lack of funds. What kinds of barriers do you see with crypto, and how are you actively working to break them down?
Crypto is confusing. We have many brilliant friends who are doctors, lawyers, etc., and they always tell us that they find crypto confusing. Nobody likes that feeling.
It takes a lot of time to research where and how to buy crypto, and busy professionals don’t have that time. We are working really hard to help people understand crypto by producing blogs and other educational content that puts crypto into everyday language. We are also very focused on making Makara a user-friendly tool for all users.
How do you see millennials and younger investors fitting crypto in with traditional retirement planning?
For younger generations, it is a critical piece of retirement planning.
Younger workers need to think about their retirement goals and needs, and a diverse investment portfolio is crucial. The pensions and retirement plans of our parents and grandparents generations are gone. Social Security’s trust is due to run out of funds in 2034, which will result in workers getting paid out less than they are entitled to.
As some of the retirement options of prior generations look less reliable, investors need to look at new investment options coming in to take their place. An appropriate allocation to digital assets can lead to long-term gains that will bolster a retirement portfolio.
Besides figuring out how to save for retirement, younger investors are also grappling with student loan debt, inflation, record-high housing prices — meaning they’ve already got a lot on their plates — how does crypto investing fit in with all of their other obligations?
Young investors today are juggling so much, and they are in an economy that has a lot of looming concerns. Cryptocurrency markets are wildly confusing and overwhelming and these young investors have NO time to keep up with them.
However, the diversification of a crypto investment is extremely important for young investors. This is why we built Makara so that investors can get broad exposure to digital assets without needing to spend five hours a day keeping up with the markets.
As I mentioned previously, pension plans and Social Security will be obsolete or cut back to nothing by the time this generation wants to retire. Cryptocurrencies are in their infancy. I truly believe that a young investor can allocate a portion of their income to a diverse set of digital assets right now and reap the benefits down the road.
Even with just a small investment, most young investors will stand to benefit from the miracle of compound interest and form a habit of saving money now.
There have been a lot of predictions that Bitcoin will hit $100,000 at some point soon. How are new investors supposed to take that news? I mean, it sounds exciting and like there’s still room for new investors to profit, but is that prediction just noise or a signal of real potential?
Bitcoin at $100k is a very real possibility.
It will likely continue to grow in value, but more importantly, it has no deflationary mechanism so as the US dollar continues to lose value, relatively, the notional value of BTC will increase.
There are a lot of narratives and predictions of when the price will reach a certain “exciting” level, but as we have seen in the past, accurately forecasting cryptocurrency prices is nearly impossible. This market is still too volatile, so any prediction on when Bitcoin will be $X is largely estimated. I strongly believe in the growth of this industry; however, I do not believe anyone has a solid grasp of the timeline for that growth as it relates to prices.
Speaking of industry growth, more and more brokerages are growing their socially responsible offerings to meet the interests of young investors. How does crypto fit into an SRI approach?
The potential social benefit of blockchain is one of the reasons that I absolutely LOVE this industry. From cross-border payment systems to supply chain visibility to food safety, there are dozens of interesting projects in blockchain.
There are even blockchain projects dedicated to climate change, charitable giving, and allowing donors to see where every penny of their donation is going. I am not implying that all cryptocurrencies have an altruistic purpose; however, the growth of the overall industry is critical to allowing these other projects to continue to grow and survive.
You mention climate change, but I’ve read that a single bitcoin transaction uses the same amount of power that’s consumed by the average American household in about two months. How should environmentally conscious investors proceed?
While there is a large amount of energy consumption, there are some other factors to think about, such as the fact that miners can move easily to take advantage of cheaper energy. Miners also look for energy that would otherwise be wasted. I do believe that over time crypto protocols and mining equipment will get more and more efficient and the energy burden will reduce.
One part of this discussion that I find difficult at times is that we often see statistics presented in a way that doesn’t accurately compare crypto to traditional finance.
Each time the bitcoin network mines a new block, it processes many transactions at the same time that it creates new Bitcoin. I think I read that the average block has over 2,700 transactions. And that is the complete cycle from start to finish for creating new Bitcoin, which happens more or less simultaneously with the transaction processing.
Compare that to the traditional monetary system, but be sure to compare it from start to finish — from the machinery pulling or cutting natural resources from the planet, through the printing /minting process, and then to the massive global banking system used to process those transactions daily (how much energy do hundreds of thousands of banking locations worldwide use?). It’s a really impossible comparison to make because there are so many factors.
At least with Bitcoin, the energy cost is a factor all miners have to consider, so optimizing it is top of mind. Many other cryptocurrencies do not require a large amount of energy, and if Bitcoin doesn’t solve its energy problem, it will likely lose out to them.
Security is another concern for wary investors, and with massive recent hacks ($600 million lost at Poly Network and $196 million at Bitmart), what do you have to say to investors who are worried about security?
I would agree with them. Security is absolutely a concern with any financial institution. Thieves are not a new phenomenon. We chose to partner with Gemini because they are a qualified custodian and we value the measures they take in that capacity to safeguard client assets. Security is extremely important to us and it should be to any investor.
This industry has new and interesting platforms for adventurous investors, and there are more every day. However, it does take a lot of research and time to understand how they operate, how to protect your assets, and best practices with each.
Identifying vulnerabilities is often complex and well beyond the purview of a casual investor. So a savvy investor should be wary when it comes to security, and they should check the security practices of a platform they intend to use.
Besides not doing your research, what’s another major pitfall new cryptocurrency investors should avoid?
There are a few.
Emotional investing — These markets can move very quickly, leading to wild excitement and gut-wrenching drawdowns. My advice is to step back and think about “why” you are making a buy or a sell. If the answer is because you’re afraid of missing out or because there is a lot of buzz in the news about the price, then you’re making an emotional decision. Step back and do some research to make sure the facts support the emotions.
Don’t try to time the market — This asset class is still very volatile and thus very risky. These investments should be made for the long term. Trying to time the market (“buy low, sell high”) is trading, not investing.
Prioritize diversification — A diversified portfolio is critically important. Investors should hold a variety of assets. Not only should an investor diversify across their portfolio, but they should diversify within each type of investment. A diversified portfolio holds stocks, digital assets, bonds, index funds, and maybe even some precious metals. However, within each of those categories, there should be a variety as well.
Emotional investing reminds me of newer crypto investors describing their experience as a roller coaster of emotion. What would you say to those investors?
Don’t get carried away. Start with an investment that is an appropriate size for the risk in the market and try to drown out the noise.
As thrilling as it is to see a digital asset gain 100% in a single day, a long-term approach is the best approach.
There is nothing wrong with putting your latte money into a highly speculative crypto-asset because you feel strongly that it has massive potential. However, don’t mortgage your house to put money into a crypto asset that people are raving about on Twitter. Invest time in educating yourself about these markets and understanding what you can control. You cannot control the price or volatility of crypto, but you can control where and how you allocate your money.
Any final thoughts?
These markets are young, and there are decades ahead for them to grow. I often have people ask me if they “missed the boat” and are too late to make money in crypto. I say, absolutely not.
The speed of innovation in these markets is astounding. Four years ago when I started in this space I had no notion that today we would be talking about yield farming and NFTs. There will be more innovations, more protocols, and more digital assets.
Now is a great time to wade into these markets and grow and learn with them.
Serious industry players, like Makara, are decrypting cryptocurrency and making it more accessible for everyone, and I can\’t wait to see what 2022 brings in terms of innovation and growth for the overall crypto market.