- Mark Yusko is the CEO and CIO of hedge fund Morgan Creek Capital.
- As asset prices surge, Yusko shares with Insider where he’s investing in this ‘wildly overvalued’ market.
- He lays out how the altcoin bull run is influencing his 5-year bitcoin price target of $250,000.
“I absolutely believe that the markets are wildly overvalued and it’s called ‘money illusion’,” hedge fund chief Mark Yusko said.
For months, Yusko has been sounding the alarm over the overvaluation of stocks in the US market.
Back in May, he outlined a number of worrying indicators. But since then, the market has continued to move up — hitting all-time highs, almost on a weekly basis.
The crux of the problem, in Yusko’s eyes, is the heightened
in markets due to the monetary stimulus from the
“I didn’t think we could get to the insane levels of 2000, but we’re rapidly getting there,” Yusko said. ” … I misestimated how much tolerance there was for just ignoring reality, ignoring fundamentals.”
As the CEO and CIO of the $1.7 billion hedge fund Morgan Creek Capital, Yusko fortunately doesn’t need to spend as much time focusing purely on traditional assets, as his firm employs an endowment investing model that uses asset allocation as the main driver of returns.
“I don’t spend the bulk of my time focused on traditional equity markets, I spend more time in the crypto space and so from that perspective, that’s good, because I’d probably be tearing my hair out at this point,” Yusko said.
Yusko is of the belief that the monetary stimulus from the Federal Reserve is not only driving up asset prices, but is also part of a wider strategy to devalue the currency due to the country’s high debt levels.
History has shown over time that every government that is over indebted, destroys the value of their fiat currency, Yusko said in a March interview.
Searching for an alternative, Yusko came across bitcoin and became a big bull. It’s “the perfect storm of value” with all the properties of gold and the next iteration of computing power, he said.
“Bitcoin rising isn’t so much about bitcoin getting better, it’s about the dollar getting worse,” said Yusko in March.
However, bitcoin’s dominance in the crypto market is under threat. Ether (ETH), the ethereum blockchain’s native token, has surged 35% since the London hard fork upgrade on August 5, which aimed to improve the network. This is relative to bitcoin’s 19% price increase over the same time period.
As the first significant crypto bull run of the year raged in March, Yusko predicted bitcoin would likely reach $100,000, potentially even higher, by the end of this year.
Bitcoin (BTC) is currently trading around $49,900 and the outlook appears more challenging, as retail activity has petered out somewhat. Charles Edwards, the creator of the “hash ribbons” metric, highlights how retail participation is often the backbone to rallies in bitcoin.
Yusko still expects bitcoin to remain the largest cryptocurrency, acting as the base layer in a Web 3.0 environment, the next generation of internet technology.
Web 3.0 will rely more heavily on machine learning and artificial intelligence to create smarter applications. The vision is that this new internet landscape will be more decentralized and will allow for the proper ownership and compensation of personal data.
“We still think bitcoin will continue to rise, it will eventually achieve parity with gold, [it’s] basically playing that role of digital gold right now,” Yusko said. “And once that happens, we will have a market cap somewhere in the $4 trillion to $5 trillion range, which gives it that $250,000-plus price target.”
That doesn’t mean other protocols won’t continue to have a role, given that Web 3.0 will operate as a protocol stack.
Yusko envisions bitcoin as the base infrastructure layer, whereas ethereum will parallel the www interface that internet users are familiar with. Filecoin (FIL) will likely take the role of file management, he added.
The open question is the middle set of protocols. Many of these are new blockchains that are battling for leadership, or protocols that provide connectivity between networks.
It’s important to look closely and differentiate between the ones that are foundational and will likely be around for a long time, Yusko said. Right now he’s seeing potential in polkadot (DOT), solana (SOL) and cosmos (ATOM) as has positions in all three.
“We try to get out ahead of all of the interesting developments,” Yusko said. “We’re not going to get every project right. We actually missed a lot of the decentralized finance [projects].”
Yusko’s firm doesn’t only trade crypto. He remains invested in some quarters of the traditional markets.
The firm is overweight energy equities. The rationale was based on no matter how out of favor the sector is, it would still take several years for a full transition to electric vehicles and more renewable energy sources.
“We thought that the energy space, particularly oil and gas space, was very attractive,” Yuskos said. “And it crushed it. It’s our best performing sector this year.”
However it is becoming precarious, Yusko added, as even some valuations in energy equities look high.
“We were wrong on China,” Yusko said. “We really felt that the Chinese equity market was poised for a really outstanding move.”
Some of the firm’s bets on China have been particularly painful, Yusko said. But he still feels strongly there’s outstanding opportunities in some Chinese technology names, such as Tencent and Alibaba.
3) Hedge funds
Using an endowment strategy means Yusko is able to allocate to long/short hedge fund managers and supersize their best ideas.
The current overvalued environment is rich for hedge strategies that take long and short positions that target fundamentals, such as cash flow and profitability, Yusko said. However, investors trying to short stocks purely based on fundamentals right now will get crushed, he added.