This episode explores the burgeoning BitTensor ecosystem, revealing how strategic subnet investments and emerging cross-chain opportunities are creating a unique moment for early adopters in decentralized AI.
1. Introduction and Background on BitTensor Fund One
- Michael White, manager of BitTensor Fund One, shares his unconventional journey into the crypto space. He transitioned from risk arbitrage trading at Citibank to a decade in ministry, and finally to managing a crypto hedge fund focused on BitTensor. White's entry into BitTensor was sparked by following Matt Hamilton, formerly of Ripple, who joined the Open Tensor Foundation.
- "I saw his post on it and I was like man if he's getting involved in that I should look this up and see what it's all about."
- White describes the early days of BitTensor, where TAO was traded OTC on Discord, highlighting the trust-based nature of transactions then. He formed BitTensor Fund One to pool investments, initially focusing on TAO and now expanding into subnet tokens.
2. Investment Strategy and Fund Structure
- White explains that BitTensor Fund One is structured similarly to private equity, catering to investors with a background in real estate. The fund aims to attract capital that wouldn't typically enter the crypto space, benefiting the BitTensor ecosystem and subnet development.
- The fund initially focused on generating yield through TAO staking, distributing monthly returns.
- With the launch of Dynamic TAO, the strategy shifted to reinvesting yields into subnet tokens, recognizing their long-term potential.
- Currently, 30% of the fund's TAO holdings are deployed in various subnet tokens.
- White emphasizes the importance of understanding the evolving nature of BitTensor and the opportunities within its subnets.
3. The Current State of Subnet Investments
- White and host Mark Jeffrey discuss the current low market caps of subnets, comparing them favorably to angel or seed-round valuations in traditional tech. They see this as a unique, potentially fleeting opportunity for high returns.
- Subnet market caps range from $100,000 to $20 million, significantly lower than typical early-stage tech investments.
- Daily subnet token emissions are around 2.5%, meaning subnets need to grow 75% monthly in market cap to maintain valuation.
- Both White and Jeffrey believe this low-valuation environment presents a "magical time" for investment, similar to early Bitcoin and Ethereum.
- They acknowledge the dilutionary pressure from emissions but believe the low starting valuations and potential for growth outweigh the risk.
4. Investment Approach and Subnet Selection
- White details his risk-adjusted approach to subnet investing, emphasizing the importance of due diligence and supporting the BitTensor mission. He advocates for a tiered strategy, allocating a portion of staked TAO to subnets based on individual risk tolerance.
- Even investors with zero risk tolerance can benefit by reinvesting daily root staking emissions into subnet tokens.
- White stresses the importance of supporting subnets to foster a healthy ecosystem, even if it means accepting short-term dilution.
- "In order for BitTensor to be what it is supposed to be, you have to have subnet investment."
- He highlights the need for subnets to operate as businesses, focusing on revenue generation and attracting users beyond the existing BitTensor community.
5. The Emergence of Cross-Chain Opportunities
- The conversation shifts to the potential for cross-chain integration, specifically through wrapped subnet tokens on Ethereum and Solana. This development is seen as a major catalyst for attracting new capital and driving subnet valuations.
- T শরতbot is introduced as a platform simplifying subnet investment for Ethereum holders, offering a centralized exchange-like experience.
- Concerns are raised about T শরতbot's lack of transparency and the risks associated with a centralized solution.
- Void AI is mentioned as developing a trustless bridge between Solana and BitTensor, with wrapped subnet tokens planned for version two.
- White and Jeffrey envision a scenario where wrapped subnet tokens, trading on popular chains, attract meme coin traders and drive significant, albeit potentially irrational, price increases.
6. Sources of New Capital and Market Dynamics
- White identifies three primary sources of new capital for subnet tokens:
- Institutional Investors: Entities like CZ's family office, already investing in subnets, represent a growing source of demand.
- Cross-Chain Traders: The introduction of wrapped tokens on Solana and Ethereum will attract short-term traders seeking quick gains.
- Existing TAO Holders: As root staking yields decrease, more TAO will flow into subnets, driven by the incentive mechanism.
- "You're going to see an explosion in value. I would not be surprised to see the sum of subnet prices at 10, 15."
- They discuss the potential for exchanges to offer TAO staking and managed subnet investment options, further opening the floodgates for retail capital.
7. BitTensor's Long-Term Potential and Use Cases
- White and Jeffrey express strong conviction in BitTensor's long-term potential, contrasting it with centralized AI solutions. They believe BitTensor's decentralized, open-source nature offers a more sustainable and economically viable model.
- White criticizes OpenAI's structure and Sam Altman's actions, arguing that closed-source AI faces increasing challenges.
- He highlights China's open-sourcing of advanced AI models as a competitive threat to closed-source approaches.
- BitTensor is positioned as the "logical destination" for capital seeking decentralized AI, offering infinite potential use cases.
- They draw parallels to historical technology shifts, such as the rise of Linux over proprietary operating systems, emphasizing the power of open-source collaboration.
8. Onboarding Talent and the Future of BitTensor
- White emphasizes the importance of attracting top engineering talent to the BitTensor ecosystem. He envisions a future where engineers are incentivized to contribute to subnets, receiving real-time rewards for their work.
- Subnets are actively onboarding talented engineers and teams, creating a competitive advantage.
- White suggests partnerships with platforms like Kaggle to attract machine learning talent.
- "We're just on the precipice of all that talent coming onto the network right now."
- He believes a significant exodus of talent from closed-source to open-source AI is imminent, with BitTensor as the primary beneficiary.
9. Tools and Strategies for Subnet Analysis
- The discussion touches on tools for analyzing subnet activity, such as Sword Scan, which tracks social media sentiment. These tools are seen as crucial for identifying early trends and making informed investment decisions.
- Sword Scan's "Mind Share" metric is highlighted as a valuable indicator of subnet popularity.
- The importance of demonstrating a correlation between mind share and price action is emphasized.
- Such tools are essential for navigating the rapidly expanding subnet ecosystem.
- White reiterates his goal of multiplying TAO holdings through strategic subnet investments, advocating for a proactive approach.
The conversation underscores BitTensor's unique position at the intersection of AI and crypto, presenting a time-sensitive opportunity. Investors and researchers should actively engage with the subnet ecosystem now, leveraging emerging cross-chain bridges and tools to capitalize on potentially explosive growth before broader market recognition.
