It’s been a bumper year for bitcoin hedge funds. While the entry of big money from Wall Street into the bitcoin markets is discussed with equal measures of glee and rage in the community, some big-money financiers are already making moves in the cryptocurrency markets.
We’re not talking about Barry Silbert’s Bitcoin Investment Trust or the Winklevoss twins’ bitcoin index fund. No, there’s a new class of funds running money for wealthy individuals, families and institutions, aimed to get these sophisticated investors into the bitcoin game.
Here’s a roundup of the new bitcoin funds so far:
Global Advisors Bitcoin Investment Fund
The Global Advisors Bitcoin Investment Fund, which goes by the catchy acronym GABI, has claimed the title of the world’s first regulated bitcoin hedge fund. That said, it’s regulated in Jersey, the British Crown dependancy that is one of the world’s top tax havens. The fund is due to launch on 1st August, according to Newsweek, and will seek clients in the UK, Europe and the Middle East.
The GABI Fund is run by Daniel Masters, a former energy trader at Shell and JP Morgan, where he rose to run its global energy trading division in the late nineties. In 1999, Masters also co-founded Global Advisors, a Jersey-based commodities hedge fund.
The new fund hasn’t made public its planned fund size, or its likely trading approach, but Newsweek’s Leah McGrath Goodman reports that Masters is bullish on bitcoin’s long-term future and is attracted to the money-making opportunities in its current price volatility.
So what does regulation mean for GABI? According to the Jersey Financial Services Commission, “certified funds” like GABI must adhere to a code of practice established by the regulator that are designed to protect clients. This includes demonstrating the existence of financial resources and adequate insurance, setting up risk-management systems and being subject to future guidance from the commission.
Future guidance for bitcoin funds will be forthcoming, as the commission’s Financial Crime Strategy Group is due to make recommendations on the risks linked to cryptocurrencies by the end of the year.
Pantera Capital brings some serious Wall Street pedigree to the table. The fund, which buys bitcoin as an asset, but also acts as a venture capital backer to bitcoin startups, is packed with a roster of high-profile names from high finance. Its principal is Dan Morehead, a former chief financial officer and head of macro trading at the legendary hedge fund Tiger Management.
Pantera’s fund size is about $150m, which is three times larger than Secondmarket’s Bitcoin Investment Trust, according to regulatory filings. It’s fuelled by money from large institutional investors like Fortress Investment Group and venture capital firms Benchmark Capital and Ribbit Capital. Pantera also counts Mt. Gox and Ripple creator Jed McCaleb among its executives.
The firm put its sizable bankroll to use in search of early-stage company deal flow – even flying bitcoin startups to Lake Tahoe in private jets to be wined and dined, according to Bloomberg News. Pantera emerged as a backer of current top exchange (in terms of US dollar trading) BitStamp, having put in $10m.
It’s unclear how well Pantera has done with its bitcoin holdings so far. However, we do know that Fortress lost some $3.7m on a $20m bitcoin investment in 2013, according to the Wall Street Journal, before throwing its cryptocurrency lot in with Pantera.
One group of traders hoping to cash in on the persistent price differences among various bitcoin exchanges is Bitcoins Reserve. Calling itself a “cryptocurrency arbitrage fund“, Bitcoins Reserve hopes to buy low on one exchange and sell high on another, using automated trading software that it has developed itself.
The fund, a subsidiary of a British Virgin Island-incorporated firm called Chesham Group Ltd, says in its prospectus that it has returned 765% in the 12 months ending April 2014, beating bitcoin’s price movement by more than 200 points.
Bitcoins Reserve is a relative minnow compared to other companies in this article; saying it wants to have just $5m under management by year’s end. The firm hasn’t publicly disclosed its current fund size. It’s worth noting that Bitcoins Reserve was the victim of a phishing attack earlier this month, losing 100 BTC to the scam.
This Canada-based fund began to build a public profile when it was named as an investor in ASIC manufacturer BitFury‘s hefty $20m round at the end of May. The firm is stocked with technology startup pedigree, with Jonathan Teo, who led investments in Twitter and Instagram, as a partner at Benchmark Capital, holding the post of chairman.
Binary also trades on its own account and for clients, however, deploying a range of trading strategies, including arbitrage, according to managing partner Harry Yeh. Yeh wouldn’t say how much he has under management, although he said the fund’s clients tended to be accredited investors.
Coin Capital Partners
Another hedge fund that’s making big investor promises is New York-based Coin Capital Partners. The fund launched in May, promising “hedge fund industry best practices” and “investment grade” exposure to bitcoin.
Coin Capital intends to court accredited investors under the scrutiny of the Securities and Exchange Commission, and says it employs a straightforward buy-and hold-strategy for investors with a “long-term bullish stance” on the bitcoin price.
The firm is run by Samuel Cahn, a lawyer and investment manager who previously managed an arbitrage fund, who told trade title FINAlternatives that his fund has been seeded from a family office. His partners in the fund are brothers Sigmund and Drew Sommer. Coin Capital has not disclosed its fund size.
Falcon Global Capital
Falcon Global Capital is bringing both financial firepower and its powers of professional persuasion to bear for its clients. The firm, which isn’t a wheeling and dealing hedge fund, but rather an asset management vehicle for investors to buy and hold bitcoins, has also launched a lobbying initiative on Capitol Hill to raise awareness of bitcoin among legislators. Falcon’s co-founder is Brett Stapper, himself a federally registered lobbyist.
Falcon, like the other funds listed here, targets accredited investors looking to buy relatively big chunks of bitcoin, but who don’t want the hassle of procuring the coins themselves, or the risk of losing them through a security oversight. The company buys bitcoin for its clients, with the smallest order being $25,000, and uses London startup Elliptic for its insured storage services.
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