Breaking Into Crypto: Investment Analyst

Level 2 - Value Investor

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Today, we are excited to present a DeFi Education guest post (rare!). Last month, while collecting feedback from members of our Academy, we received a particularly insightful review from an analyst working at a crypto fund.

Our experience in recruiting for TradFi roles has shown us how valuable firsthand accounts of day-to-day work can be in helping individuals decide if a role is right for them. Inspired by this, we wanted to provide similar insights for those interested in careers in crypto.

We are pleased to introduce Michael McCann, a crypto analyst at Outerlands Capital. He has generously offered to share his experiences of working at a fund and will provide guidance on how to pursue a career in a crypto fund for those who are interested.

Who are you and what is your career background?

I attended the University of Notre Dame from 2018-2022, graduating with a degree in finance. I’ve worked in crypto since graduating college and initially discovered the industry at the end of the 2017 bull run. While looking online for career guidance, I found some of BTB’s early posts on crypto, which became a key inspiration for me to research further and purchase my first BTC and ETH soon after. At the time, I was intrigued by the concepts of smart contracts and non-sovereign money and figured it made sense as a high-risk and potentially high-reward investment. I continued to dollar cost average over the next couple of years while keeping light tabs on the space. With that said, I did not expect to be working full-time in crypto only four years later.

When I arrived at Notre Dame, I initially intended to work in investment banking or a TradFi investing role after graduation. An internship at Chatham Asset Management summer after my sophomore year gave me exposure to high-yield credit, and I decided to continue down that path. I landed an offer at Bain Capital Credit for that next summer, at which point I started spending significant amounts of time investing in and researching crypto. It was late 2020 at the time, and I – like everyone else – found myself stuck in my apartment, so all things crypto became my primary hobby. This went on for the remainder of the bull market, and I became increasingly convinced that a full-time career in crypto was possible.

After my summer at Bain Capital, I decided to pursue a full-time role in crypto with a focus on investing. I tried a few part-time roles to gain experience while recruiting, including working as a Hub Analyst at Messari and contributing to a group called Analyst DAO. Towards the end of my senior year, I accepted an offer at a Layer-1 blockchain company called Horizen Labs. While there, I worked on the Strategic Investments team, helping evaluate investment opportunities for the balance sheet and advising on tokenomics for client launch partners. That team spun out to start Outerlands Capital Management.

Where do you work and what is your current role?

Today, I work at Outerlands Capital, a digital assets investment manager using factor investing principles to construct diversified portfolios of liquid tokens. I am an investment analyst, where I primarily focus on the firm’s fundamental research. My responsibilities include performing diligence and staying up to date on the 100+ tokens that I’m responsible for. This involves monitoring daily news and upcoming catalysts, active communication with project teams, and deep research into their business models.  The diligence culminates with detailed investment memos for each token with ongoing recommendations. I also contribute to the firm’s public-facing research pieces and perform tokenomics advisory work for partners.

Can you tell us about the firm?

Our philosophy as a firm centers around a few key ideas:

1. First, we believe that blockchain technology has begun a decades-long journey of spurring innovation across industries, generating tremendous gains in efficiency and productivity. We are champions of the asset class.

2. Second, we think that crypto markets have matured to a point where there are many legitimate projects. One of the firm’s core ideas is that blockchain technology will produce winners beyond Bitcoin, Ethereum, and other current mega-cap tokens.

3. Third, we think most of the value from this innovation will accrue to tokens, as they will serve as the primary value capture mechanism for the underlying product/service offering when properly designed. 

Because of these ideas, we think that the best way to invest in blockchain is through broad exposure to a portfolio of 50+ tokens. In terms of our investment philosophy, we employ factor investing principles. The foundation of factor investing is data-driven analysis seeking to quantify fundamental investment themes across a large universe of investable assets (in our case, liquid tokens). Underpinning the factor analysis is rigorous, bottoms-up fundamental research on individual tokens.

In terms of firm structure, the team is split between two distinct yet complementary groups, titled “Systematic” and “Fundamental”. I briefly explained my role on the fundamentals team in the previous answer. The systematic team primarily focuses on the firm’s data strategy and factor research, which involves scraping the vast universe of open-source blockchain data to formulate economically driven factors. The teams work together to create a “virtuous cycle” of collaboration where the fundamentals team’s research assists in the factor ideation process, while our research and analysis benefit from the conclusions of the systematic model.

What is an average day in the life of a crypto analyst?

Part of what makes the job so interesting is that there’s much more variation than I’d get in a more traditional investing role. With that said, here is the general flow of my average day.

Morning:

I typically wake up at 7:30 AM, get ready, eat breakfast, and take a quick walk outside before starting my day. Once I sit down, the first thing I do is check email/work messages to catch up on any major news from overnight. Since crypto is a 24/7 market, I have to be on the ball as soon as something comes out.

Once I get through the morning news, I immediately jump into my most important task for the day/week. This can vary between several different items, but is usually one of the following:

• A short diligence report on a new token that has jumped onto my radar.

• Research on major events (tech upgrades, regulatory news) impacting my coverage universe. If it changes my fundamental view of an asset, then discuss potential changes with the team and come to a group decision.

• A longer-form research piece covering Outerlands Capital’s opinion on a digital asset, sector, or trend.

Most mornings also include some sort of team standup, which can range in size between the entire company and just the fundamentals team. We use these to communicate with each other on action items for the day/week, offering updates on key accomplishments and upcoming priorities.

Afternoon:

Sometime between 12:00 and 1:00 PM, I’ll eat lunch and grab a coffee before getting back to the desk. This is typically my longest “deep work” session of the day, where I continue working on the highest priority item from the morning. If I finish whatever I’m doing, I’ll start catching up on the daily news early.

Throughout the afternoon, I’ll also typically have a call or two with external parties. This can range between fundamental diligence calls with project teams, introductions to other industry peers and potential service providers, or tokenomics consulting calls.

Once my most important tasks are completed, I read through emails and newsletters from the day to make sure I’m up to date on important news and developments from projects in my coverage universe. I’ll also sometimes browse X for 15-30 minutes during this period, as it’s a great place to get a pulse on the market and learn what other investors are thinking about.

Evening:

After eating dinner, I begin closing out other tasks from the day and responding to one-off requests from teammates. I keep a running list of topics I find interesting but don’t know much about, so some days I use the evening hours to go down a research rabbit hole. Recently, I’ve spent a good amount of time getting up to speed on the Solana ecosystem and deep-diving the rollup infrastructure landscape.

I typically wrap up around 8:30 PM, at which point I head to the gym. If it’s busy, I’ll sometimes have to log on after getting back, but I’ll usually wind down by spending some time on a hobby (currently learning Spanish) or reading a book.  I try to be asleep by 11:30 so I can get my 8 hours and perform at my best the next day.

What does analyst comp look like in crypto?

You have to be comfortable with volatility. Expect higher risk for higher reward relative to what you’d make in TradFi. There are opportunities in crypto for more compensation upside (including equity), although, at a legitimate crypto shop, your base will likely be a bit lower than you’d get at a similar role in TradFi. Also, if you/the market has a blowout year, you will have a far higher bonus ceiling. On the flip side, you may get no bonus in a year like 2022.

DeFi Team Note: For context, TradFi hedge funds in NYC will generally pay between $150-$300K a year for junior analysts depending on the fund, years of experience (post-college vs. post-IB), etc. Based on numbers we’ve seen, crypto funds tend to pay on the lower end or even below this range for cash comp. Larger funds tend to pay more than small ones, and funds in NYC / SF tend to pay more than funds in Asia and London. There can be a ton of variability on compensation between funds, particularly on the hedge fund side.

What did the recruiting process look like? What do you wish you knew when trying to get into the industry, and what do you feel helped you land an offer?

The recruiting process in crypto is unstructured compared to most industries. Companies mostly hire on an as-needed basis and the interview process reflects those ever-changing needs. I’ve experienced everything from standard TradFi interviews (first round, second round, superday), to investment case study presentations, to a single 30-minute video meeting. Crypto is a young industry where there is an emphasis on the ability to add value from day one; a professional resume and a good degree do not matter as much. This took some adjusting for me coming from TradFi where everything is on a set cycle until 2+ years post-college.

Your network is important. When I started recruiting, I had the impression that crypto was a small industry where none of my existing connections would matter. This is far from the truth, and several people with whom I had crossed paths when recruiting for a TradFi career helped connect me with people working in crypto. I ultimately got my first job in the industry as a result of several casual conversations about the industry with a former finance professor of mine.

Second, my active participation in the industry before joining full-time undoubtedly helped.  Everyone will tell you that this is important because you need to put work out in public, and that is true, but I found what I learned and the people I met to be even more valuable than this. I was able to connect with several people already working in crypto at Analyst DAO, most only a few years older than me. This helped me learn more about career opportunities in crypto and the niches that other smart people were looking at. I didn’t spend a ton of time at Messari before joining Horizen Labs, but their research framework helped increase the number of projects I could look at each week and improved the quality of my analysis.  My part-time experience also signaled active interest and conviction in the industry to potential employers, something they highly value.

How does a finance guy get up the curve on tech? What have you personally found helpful?

In short, you have to do a lot of reading, writing, and using the products you want to learn about. I write in-depth analyses on every token I cover, which is the result of hours or days diving deep into project documentation, its use cases, and fundamental data. I find learning through teaching to be a powerful tool, so I cater these reports to someone with little pre-existing knowledge. Whenever possible, I actively test products to see how certain features work in practice, stack up to the competition, etc.

The same framework holds for broader topics. If you want to get up the curve on a concept like MEV, get your hands on as much high-quality research as possible, and then try to explain it in writing to a beginner. There’s no substitute for putting in the work, especially when learning dense technological concepts that might not come naturally.

On the software security side, I’ll plug the security sections of the DeFi Academy course, which are easily the best resources I’ve read. It provides a strong framework for reading through audit reports as a non-coder that I consistently use in my research process. While I’m sure learning to code can help with understanding the tech, it’s not something that I feel is holding me back.

What advice do you have for people wanting to become a crypto analyst?

If you’re thinking about becoming a crypto analyst, I’d make sure you check two key boxes before making the jump:

First, you should be intensely curious about how crypto works. While not everyone at my firm was an expert before joining, they were all willing to drink from the firehose as much as possible to get up the curve. Even once you’ve built a strong knowledge base, this journey never ends. Crypto is still young and constantly changing, and no one knows for sure what the end state of the industry will look like. The only way to find the next trend is to enjoy being in the weeds while learning about it. Also, part of being a strong investor is identifying these inflection points early and challenging conventional wisdom.

Second, and this goes hand in hand with the first point, is that you must develop conviction on why you believe in the industry and want to join it. I genuinely believe that crypto is one of the most important innovations of the last century and couldn’t see myself working anywhere else. You might not need that strong of a view, but although crypto is maturing, it is still volatile and not for the faint of heart. Would you survive a brutal bear market like the one we just experienced for a chance at significant upside? It’s hard enough to succeed as an analyst without doubting the future of your industry. If you can’t answer that question, perhaps you’re better off just investing money you can afford to lose for some upside exposure.

If you think the above traits describe you, then you should start contributing to the industry as soon as you can. I assume that if you want to become an analyst, you are already actively investing in tokens and using apps frequently. If you’re not, you should be, since putting real money at stake and being an active user will help you learn quickly. A great place to start is by writing memos on the tokens you’ve invested in. This will help you better understand and communicate how the technology works, the value proposition of the token, risks and merits, valuation, etc. Many reputable firms will also ask for a report on a token you like as part of the application process, so this is good practice.

Utilize your unique skills to make these reports better, if you can. If you have a finance background, you can use your memos to show off your modeling skills and understanding of how different inputs will drive value to a token. If you are more on the tech side, I know from personal experience that there is a massive amount of uncharted territory in data analysis. You will quickly become valuable if you get up to speed on Dune or find other ways to pull hard-to-access information on projects.

I’d also recommend spinning up a Twitter account and posting this research. Use your newfound social media presence to interact with others and build your reputation. Join discords/telegrams of projects you’re interested in and ask questions/be helpful where you can. Become an expert on a sector (could be DeFi, DePin, a specific L1, etc) you find interesting and connect with others that are deep in the weeds. If you’re looking for someone to emulate, check out Jon Charbonneau and the work he’s done on Ethereum and L2s over the past year or two.

What are your general thoughts on the crypto startup landscape?

I think it’s a great time to be a crypto startup. Innovation has continued through the bear market, institutional interest is rising, and the global regulatory environment looks better than it has in some time. There is a strong argument that the downturn we’ve been in may be over, and better times are ahead.

At the same time, there is very little mainstream interest in the crypto markets. This means that tourists and mercenaries have left and mostly not returned, and those looking to move into crypto now or raise money don’t have to compete as much for attention. Of course, the elephant in the room is that crypto fundraising is as low as it has been since 2020. However, while there might be a lot more money flowing around in a full-on bull market, the signal-to-noise ratio is also much worse. Legitimate builders working on differentiated projects with an eye toward the future can stand out. If historical cycle trends continue, 2023 should also be a good vintage for investors compared to the previous two years.

Anything else you’d like to share?

If anyone has additional questions, feel free to post them in the comments, and I’ll answer them to the extent I can. If you’d like to learn more about what Outerlands is working on, I invite you to read some of our research here.

Lastly, thanks to the DeFi Education team for the opportunity to do this post. I can’t recommend the newsletter enough.

As an important disclaimer, the views shared are my own. All such views are for informational purposes only, and do not constitute, and should not be construed or relied upon as, legal, business, investment, or tax advice. Past performance is not indicative of future results. Investors should consult with their own financial, legal, and tax advisors before engaging in any investment strategy or taking any actions based on the information discussed. Any forward looking statements are not guarantees of future performance and are subject to certain risks, uncertainties, and assumptions that are difficult to predict.

And that’s a wrap! Thanks again to Michael for sharing his insights with the DeFi Ed community. You can follow him on Twitter here.

Think you’ve got an interesting career path in crypto that could be helpful to the community? Send a DM to Owl on Twitter and we may feature your story!

Until next time, anon…

Oh, almost forgot — this is a free post. Subscribe to the paid Substack if you want access to two additional posts per week. Every minute counts in a bull market.

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Disclaimer: None of this is to be deemed legal or financial advice of any kind. These are opinions from an anonymous group of cartoon animals with Wall Street and Software backgrounds.

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