- David Kay is the CIO of the crypto litigation finance firm Liti Capital.
- He said the SEC’s approval of a bitcoin ETF will impact meme tokens like dogecoin.
- Kay also broke down 3 ways that crypto investors can improve their existing portfolios.
The overlap between crypto and litigation is a growing theme in the digital assets space, according to Liti Capital’s chief investment officer and executive chairman David Kay.
“Crypto litigation finance is about equalizing, or levelling the playing field,” he told Insider in a recent interview. “It’s about providing an outlet for people who would otherwise not have justice; we finance their claim, we provide expertise and strategy, and we try to drive a conclusion.”
Litigation finance, also known as legal finance, provides third-party funding for lawsuits. Kay’s firm, Liti Capital, helps to finance legal appeals for crypto investors. Retail investors can buy equity in the firm through their blockchain tokens, LITI and wLITI.
Kay is currently representing over a thousand retail investors who lost crypto during May’s Binance outage, with the group seeking at least $20 million in damages. He told Insider he believes the world’s largest cryptocurrency exchange will “fight to the absolute death” when charges are brought against them.
Insider also spoke to Kay about the impact that the SEC’s approval of ProShares’ bitcoin ETF will have on the crypto space, and he listed three considerations for investors looking to build a well-rounded crypto portfolio.
Bitcoin ETF is bad news for meme coins
ProShares’ ETF pulled in $1 billion of investment on its first day and helped propel bitcoin to an all-time high of over $66,000.
Kay said he expects US Securities and Exchange Commission approval to be followed by further regulation – but predicted this will occur over a two- or three-year period.
“By this time in 2022, I’m not actually expecting a huge difference,” he said. “This is probably a two- to three-year process whereby governments are not going to regulate crypto and the blockchain, they’re going to regulate the advisors and individuals that interact with it.”
Professional investors can now buy bitcoin as it is packaged in a fully-regulated ETF. Kay said this would bring institutional investment into the sector, which would encourage crypto analysis based on tokens’ use cases and technical applications.
“It’s like the internet in 1999 – you see similar patterns with any disruptive technology,” he said. “The regulators come in, there’s a tsunami of capital into the space, with asset managers and banks looking for places with reasonable and experienced managers, and business models that make sense.”
Kay warned this could spell the end for dogecoin and other ‘meme coins’. Dogecoin is beloved by its fans – including Elon Musk and Mark Cuban – but it has no real-world utility or unique features.
“After 1999, the make-believe companies got crushed,” Kay told Insider, referring to the dot-com crash of the early 2000s. “Dogecoin has played a role in bringing money and attention to the crypto space, but I think we’re now in the beginning stages of seeing the billion-dollar ideas start to go away and the billion-dollar companies start to come in.”
Kay shared three tips to build a smarter crypto portfolio with Insider.
First, retail investors should always be looking to diversify their portfolios due to crypto’s volatility. Even bitcoin, which is one of the more stable tokens, has fluctuated between as little as $30,000 to almost $67,000 this year.
“Just like anything else, your assets should not all be in one space, because that space is still largely unregulated,” he said. “No matter how much protection you take, there is more risk in putting money into crypto than anything else.”
Secondly, retail investors need to be wary of scams.
“If something seems too good to be true, it’s almost always too good to be true,” he said, citing “dust attacks” as one example. In these attacks, a trace amount of a crypto is sent to an investor, with the scammer gaining access to that investor’s wallet when that token is sold.
“People wake up with a new token in their crypto wallet, get excited, and sell the token,” Kay told Insider. “The minute they make that sale, they’re giving the fraudster access, and they can drain an entire wallet.”
Thirdly, Kay said investors should take time to properly understand individual tokens. He returned to the example of meme coins to illustrate this.
“At the end of the day, meme coins are just an exercise in having fun and playing around,” he said. “It’s like going to the casino, and some people paint that as a negative – it’s not negative, it’s fun, and you can make money, but your money could also disappear overnight.”
Because it does not have any technical applications, dogecoin lacks any underlying value and so is more volatile than the tokens linked to layer-one blockchains. This year, its price soared fiftyfold from $0.01 to $0.57, before collapsing back to $0.25. Kay said investors who understood this innate volatility could build stronger crypto portfolios.
“If you understand what you’re investing in, you’ll have a much better gauge of how much to put in and when to take capital out,” he said.