Lewis Harland: Analyst of the Month

Welcome to the 16th edition of Analyst of the Month.

For October 2024, we highlight Lewis Harland, Portfolio Manager at Re7 Capital, a team of investors and operators across the digital asset space.

Read on to learn more about Lewis' journey into crypto, his key learnings from working at Re7 Capital, and his most contrarian opinions!

What is your story? What was your journey into investing and crypto?

I suppose I have an uncommon journey into crypto. I graduated from Bristol in 2017 majoring in Psychology and specialising in behavioural cognition (the study of human decision making). After my student work experience at BlackRock, I decided financial markets was my calling. I joined the buy side as the Business Manager for Tilney’s London office, overseeing £3.5b in client assets.

Like many, I soon understood the pitfalls of the incentive structures and inefficiencies of how the financial markets operate.

It was at this time I partook in Oxford’s Saiid Business school’s Blockchain Strategy programme. Learning the technicals of how blockchain technology can underpin a new wave of business models came at a rather poetic time for me.

What was your aha moment?

Being lectured about Bitcoin’s social consensus layer to coordinate and secure a completely permissionless network. Module 2 Unit 1 - I remember it like it was yesterday.

What made you switch over?

After graduating from the programme in 2018, I had a rare opportunity to join a London cryptoasset fund as an investment analyst. I had the option to go down the rabbit hole further. My Matrix ‘pill moment’ if you will.

Being relatively ‘young’ felt like a time to take the calculated risks. I needed to hop on the train that I knew was leaving imminently. Turning work into passion is too rare of an opportunity to not take up.

Over 6 years later, I haven’t looked back once.

How do you apply your Psychology background in the cryptoasset market?

There are two ways I think about the synergies. The first is on the financial market side. Psychological principles have been discussed for some time and written about extensively.

Some principles have made it into the mainstream (e.g. Market Wizards) while others are reference less despite having, I think, an equally impactful utility in my investment career.

For example, the psychology of ‘gut feelings’ can have its merits. Studies by renowned researcher Gary Klein have shown that up to 90% of decisions are based on intuition. And that intuition is grounded in deeper experience.

When a team often deliberates endlessly between sticking with the default or an alternative, oftentimes the best answer is the default. Despite all the analysis and evaluation, if you’re no closer to the answer then the default is your friend. You also have to avoid a sunk cost of feeling like you have to do something - like choosing the alternative. Sometimes not doing something is doing something.

The second, more interesting crossover, is the psychology of incentive mechanisms within cryptoassets. With decentralised blockchain networks, we are prescribing in code about how network stakeholders ought to behave while disincentivizing behaviour that threatens that same network.

In this way, the same psychological principles applied in the financial markets can also be directly applied to crypto networks (“Show me the incentives, i’ll show you the outcome.”)

Equally, these cryptoasset networks are architectured by humans. Understanding humans is to understand motivation. I often apply this to project calls. It’s not just about what you are told but why you are told.

What’s a favourite principle you work by?

In investing, you should resist a sense of belonging. You have to be ok in feeling isolated from the crowd.

Why did you join Re7? What is the strategy of Re7?

I had known the Founder, Evgeny, for some years. His view has been that in order to succeed in Liquid Venture, one needs to be an operator in the space, not just an external investor. Hence Re7 started around DeFi liquidity provisioning, tech etc. Eventually Re7 moved to “Day 2” with a new liquid venture fund and was in need of a Portfolio Manager. The Re7 vision was clear - building the best digital asset ecosystem in the world.

Culturally, this struck a chord with me - be selective in the verticals you choose, go out and be the best in the world at them.

For bold visions you need world class operators. And Evgeny was the best operator within cryptoassets I was fortunate to know.

Re7 had provable experience with a team of operators across 3 market cycles.

Having managed a $75m DeFi fund prior, Re7’s DeFi and Infrastructure expertise was a natural alignment. I joined Re7 in 2023 with the mandate set: Re7 becoming the best liquid fund in the world.

Safe to say the ‘gut feeling principle’ was applied then and proud to say we continue to execute on that very same vision to this day.

What is the future of crypto asset investing?

The crypto will be able to provide an even richer set of investment opportunities across all risk appetites for investors. Asset managers who are trusted, have provable track record, established trust, and differentiated infrastructure.

trusted partner will form their moats.

Ecosystems and projects will leverage dedicated strategic allocators to grow their total protocol value (e.g. TVL) through outlined goals and risk management. These same ecosystems and projects will also look to leverage specialised treasury managers to maximise return with principal protection on their DAO or team assets.

What do you think about specialism within asset managers?

The time for generalist funds is behind us. With the investable universe becoming larger and more sectors emerge, there is a greater need to specialise on specific verticals.

Just like in traditional finance today, you never come across ‘internet funds’ but rather ‘high street retail funds’. With crypto being 24/7, 365 days a year, generalists tradeoff performance with broader coverage.

Peter Thiel also speaks to this dynamic with a ‘niche team model’. Teams that specialise have reduced complexity, make faster and clearer decisions. These teams become information distillers. They become increasingly effective in relaying information that’s important to other teams.

Re7 teams do just this. 

They are able to go deeper into their specific field, understanding the nuances and establishing relationships with all the stakeholders and operators in that market.

Interesting, can you give some examples?

Take a lending protocol that Re7 market neutral fund is providing liquidity to. The fund team has an established connection with all relevant stakeholders of that network and others in the ecosystem. Then Re7 Labs steps in deploying vaults and acting as a risk curator on top of DeFi protocols. Re7’s liquid venture team can use these initiatives as a key information funnel should that lending protocol launches a native token.

The beauty in the model is that it's bidirectional. The liquid venture team can relay key information should token incentive programmes arise for liquidity providers.

What is your most contrarian view of where the world is going?

We under appreciate the extent in which we are prescribing a world in which to live in. Designing incentive mechanisms within crypto networks is prescribing how decisions are optimally made economically. 

In this sense, technology is pushing humans back to the 1950’s normative models of decision making.

There is increasingly less room for emotional decisions as Khaneman & Tversky would have more recently argued. The application of LLMs exemplifies this further with decision making outsourced further by large language models.

How have you thought about market tooling and intelligence and ingesting onchain and offchain data?

Over 6 years of liquid crypto fund management, I have tested my fair share of using crypto intelligence platforms. All come in different flavours and target different segments of the market.

As an investment analyst in 2018, I was compiling and ingesting on-chain and off-chain data daily. Over time, I realised the real alpha for a liquid investor is to construct ‘composite’ metrics and ratios that combine variables together. I have helped build these metrics within Re7’s proprietary market intelligence system.

What makes it exciting and challenging is how fast the industry moves, requiring you to evolve your tooling over time.

Did someone say specialism?

How does this compare to the buyside tooling / infrastructure?

Data is simply more open and transparent than in traditional finance. Just like in traditional finance though, the edge between investors is in the collection, inference, and operationalisation of the data.

The benefit of open data is the rate of the information flow enabling investors to make faster decision loops. Rather than waiting for quarterly reports for backwards looking measures, we are able to identify trends and adjust forecasts in real time.

Crypto investors can embody Bayesian reasoning in pure form. Update views more frequently based on higher frequency of inputs.

What should people think about blockchain investment frameworks?

It’s often all about network effects. Whether you believe a layer 1 blockchain value is tied to fees or its MEV capture - they are both driven by network effects. the value of a network, product, or service is gained by more people using it.

Tell us about writing research. You are the highest contributor to the OurNetwork publication?

I’ve been writing cryptoasset research extensively since the start of my career. I am lucky to be an early contributor to OurNetwork which has grown to be one of the largest on-chain analysis newsletters out there.

It allows the writing process to never get stale and it keeps you on your toes. Whenever I write, my goal whenever I write is to think of something novel and push the conceptual boundaries of crypto networks. I find it flexes the muscles needed in our day-to-day investment research process.

How have you been able to use Artemis in your fundamental research?

As a key input into our proprietary intelligence tooling system. For example, Artemis has been helpful in establishing KPIs cross-chain that can guide proactive decision making internally.

In 2023, we became deeper operators within the Solana ecosystem across the entire breadth of Re7 products as we were monitoring a wide range of breakout KPIs above the rest of the entire blockchain market.

Artemis continues to expand it’s capabilities in terms of ecosystem support, intra sector metrics, and flow analysis - making it an integral platform for our work. We are proud partners and work with the team actively to push the boundaries of market analysis in this emerging market

Finally, we have to ask, what’s behind the Re7 logo?!

Love this question!

Re7 stands for rook-to-e7. It’s a chess reference - the person who moved their rook to e7 became the world champion and has died undefeated. Our founder used to play chess competitively and that early inspiration stuck.

For Re7, the goal is to win the game.

How to get in touch with Lewis?

You can find or reach out to Lewis on LinkedIn or Twitter.

Artemis Disclaimer: The authors, affiliates, or stakeholders of Artemis may hold interests in the tokens or protocols mentioned in this content. This disclosure highlights potential conflicts of interest and is not an endorsement to buy or invest in any specific token or protocol. The content is for educational and informational purposes only and should not be construed as investment advice in any form.

Readers should approach this information cautiously and consider their unique circumstances before making investment decisions. The views and opinions expressed are subject to change without notice, and Artemis bears no liability for any loss or damage arising from the use of this information.