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Northern Trust Is Helping Hedge Funds Invest in Cryptocurrencies

U.S.-based custody bank Northern Trust is helping traditional “mainstream” hedge funds expand into cryptocurrencies, Forbes reported Tuesday.

Northern Trust’s president, Pete Cherecwich, told the news organization that the financial services firm is working with three hedge funds – whose names he declined to provide – to add cryptocurrency investments to their portfolios.

To that end, Northern Trust has reportedly created new administrative tools and services specifically for cryptocurrency assets. These include tools to price and trade cryptocurrencies, according to the report.

Cherecwich said:

“You can take anything today. You can take movie rights, you can take all sorts of entities, and you can create a token for those. We have to be able to figure out how to hold those tokens, value those tokens, do those things.”

Ultimately, he said, he believes governments will digitize currencies on a blockchain. As such, many of Northern Trust’s efforts to integrate blockchain services are part of preparations for when fiat currencies are digital tokens.

The firm has been integrating blockchain services for over a year now. Most recently, the bank partnered with Big Four firm PriceWaterhouseCoopers to launch auditing technology for data stored on a blockchain. The project is aimed at streamlining audits by granting specific individuals a node on a bank’s private blockchain, allowing them to follow data as it is stored.

Northern Trust image via Steve Heap / Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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Hedge Fund Billionaire Steven Cohen Is Getting into Crypto

Billionaire investor Steven Cohen, once dubbed the “Hedge Fund King,” has reportedly entered the crypto space.

According to a Fortune article published July 12, Cohen has invested in cryptocurrency-focused hedge fund Autonomous Partners through his VC firm Cohen Private Ventures.

Autonomous Partners was founded last December by Arianna Simpson, a venture capitalist with a history in the bitcoin space, including a time at bitcoin wallet startup BitGo. Her crypto fund has already secured investments from big names including Coinbase CEO Brian Armstrong, Union Square Ventures and Craft Ventures.

While the size of the new investment was not revealed, it’s not the first time Cohen Private Ventures has invested in Simpson’s projects. In 2015, her venture fund, Crystal Towers Capital, also received an investment from the firm.

Simpson told Fortune that Autonomous Partners is currently concentrated on smaller, “next generation” cryptocurrencies, though it invests to some extent in major cryptos like bitcoin and ether.

She also suggested that among blockchain’s many use cases, two were not in doubt:

“It’s still up in the air if people want to do a number of thing on the blockchain. We’re still figuring out what needs one and what doesn’t. But It’s clear they want to trade, and they want to play games.”

Her primary concern in the nascent space appeared to be regulation – a reason she will not touch XRP in case the U.S. Securities and Exchange Commission rules it a security.

“I think the whole space is still waiting for a bit more clarity,” she told the news source.

Cryptocurrency-focused hedge funds have rapidly grown in number over the last year as entrepreneurs move satisfy the increasing demand from traditional investors.

According to data from Autonomous Next, of an estimated 251 crypto hedge funds with $3.5–5 billion in assets under management, 175 of them were only established in 2017.

U.S. dollars image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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Bitcoin Performed Better than Cryptocurrency Hedge Funds, Says Pantera CEO

It seems the cryptocurrency hedge fund honeymoon is over. After a stellar 2017, revenue appears to have dwindled significantly. Recent reports indicate that the losing trend of these firms continued through May 2018.

Pantera Down by 26 Percent and Crypto Prices Continue to Decline

According to Dan Morehead, Bitcoin, the number one cryptocurrency, performed better than his hedge fund in May 2018. Morehead is the Chief Executive Officer of Pantera Capital, a cryptocurrency hedge fund company.

In a letter to the fund’s investors on June 19, Morehead said, Pantera declined by 26 percent in May. This dip is in contrast to the April surge that was about 50 percent. In total, the Pantera CEO said that the fund is down by 51 percent since the start of 2018. When compared with BTC, it appears the cryptocurrency fared significantly better. BTC prices dropped by only 15 percent in May 2018.

Diversified Cryptocurrency Investment Portfolio Turning out to be a Problem

Having a diversified portfolio is an age-old investment advice. The logic is that by holding stakes in different assets, a trader can hedge losses in one asset with the gains in other assets. It is supposed to be a safe investment strategy. However, based on the situation with Pantera, portfolio diversification might not be such a good idea.

In the letter to investors, Morehead said the poor performance of Dash, Waves, OmiseGo, and Bitshares were mostly responsible for the decline in the fund’s revenue. Dash has been in free-fall since the start of 2018 and is among one of the worst performing cryptocurrencies in the market. Dash prices slumped by more than 30 percent in May.

Waves is another digital currency that performed poorly, dropping 85 percent of its value in May 2018. Like Dash, Waves has declined significantly throughout 2018 so far. At the start of the year, the 40th-ranked cryptocurrency according to CoinMarketCap was trading at above the $12 mark. By the end of May 2018, prices had slumped to below $5. OmiseGo and Bitshares dipped by 34 percent and 46 percent respectively during the same period.

Pantera Calls Out Warren Buffet

The firm also criticised Warren Buffett for his negative stance of cryptocurrencies saying:

Buffett avoided the dot-coms, but he also missed Amazon, Facebook, Google Netflix, et al. If Berkshire buys Bitcoin as quickly as Apple — it will be in 2045. Buckle in.

Buffett has on several occasions, expressed his dislike of Bitcoin and the cryptocurrency market in general. The Oracle of Omaha has called the industry “rat poisoned,” and “a bubble.” Despite his successes in the financial market, the Berkshire Hathaway chief hasn’t always called it right, missing out entirely on many plum stocks and being to the party as far as investing in others was concerned.

Do you think it is wise to diversify your cryptocurrency investment portfolio? Keep the conversation going in the comment section below.

Images courtesy of Pantera Capital and CoinMarketCap.

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Bank of America Is Closing My Three-Year-Old's Account Over Crypto

Tim Enneking is the managing director of Crypto Asset Management in San Diego, California.


My daughter is 3 years old. Bank of America is closing her bank account on May 4 because of her “risk profile” and, it would appear, her “connection” with the crypto space.

Please let me explain. My management company manages a hedge fund which does indeed routinely invest in the crypto space. Importantly, the management company itself does not trade crypto.

The fund has an account with a bank other than BoA; the management company, my wife and I, and our daughter all have our bank accounts with Bank of America. This has led to some rather curious consequences.

My wife and I opened our joint checking and savings accounts with Bank of America (in La Jolla, CA) about four years ago, well before I founded the management company. We opened a Uniform Transfers to Minors Act (UTMA) account there for our daughter shortly after she was born. We have fifty dollars a month transferred into that account automatically to kick-start her college fund; that is pretty much the extent of the activity in the account.

There have never been any transfers into or out of my daughter’s account other than with the joint account my wife and I have in the same BoA branch. There certainly has not been any activity even vaguely related to crypto assets in it.

On April 4 of this year, we received notices dated two days prior that Bank of America would restrict our accounts in 21 days and close them in 30.

The management company received three such notices (one for each of its two bank accounts and one for its BoA credit card); my wife and I received three such notices (for each bank account and for my wife’s BoA credit card); and our three-year-old daughter received one notice for her account. 

Other than saying that these decisions were “final and won’t be reconsidered,” only the notice canceling the management company’s credit card had any explanation: “because your risk profile no longer aligns with the bank’s risk tolerance” – for a card linked to an account which has had an average six-figure balance since it was opened and for a company which has never had any debt whatsoever and has an eight-figure balance sheet.

It gets better.

Are you now, or have you ever been?

Just prior to our receiving these letters, on March 28, 2018, the Bank of America Money Services Business Control Center sent the management company a Customer Data Form for Money Services Businesses (MSBs), with numerous questions regarding what the management company does.

All of the questions were related to specific monetary transactions (transfers, exchanging currencies, issuing travelers checks), except the last one: “Does the Business engage in virtual/digital/crypto currency activity?”

To such a broad question, we answered yes – and duly completed the entire questionnaire and sent it back the same day.

When the cancellation notices arrived less than a week later, we were very impressed with the alacrity with which BoA operated.

Hardly…

Let me emphasize: the management company doesn’t deal in cryptocurrency. It doesn’t act as an exchange. It doesn’t act as a money handler. Its primary role is processing payroll for management company employees.

However, the word “crypto” does appear in its name. That apparently is a mortal sin in the eyes of BoA.

Two days after we received the notices of all of these closings of various accounts, I received a call from a woman who introduced herself as an employee of the Bank of America MSB Control Center.

She wanted to discuss some queries she had regarding our replies to certain questions on the Customer Data Form. I politely explained to her that her company had already told us that it was closing all of our accounts irrevocably, to which she blithely replied, “Oh, does that mean you don’t want to answer my questions?”

Somewhat nonplussed, I said, “What would be the point? Is there a chance that BoA then won’t close our accounts?”

To which she replied: “Oh, I have no idea about that. Are you sure that BoA is closing your accounts? If so, we’ll still close them, but if you answer my questions, we’ll have the information necessary to complete our records.”

I declined as politely as I could at that point and that was the end of the conversation.

Knee-jerk reaction

So, aside from the fact that the right hand of Bank of America clearly does not know what the left hand is doing, it would seem to me that BoA has gone a bit far in what is clearly a knee-jerk reaction to all things “crypto” and all things related – no matter how indirectly – to crypto.

My three-year-old daughter has a risk profile which does not align with the risk tolerance of Bank of America? In that case, I’m amazed BoA has any clients at all.

Dear fiat-centric people: Please stop being so paranoid.

Please stop trying to swat a fly with a sledgehammer (if you must treat crypto assets like a fly). Using a firehose to put out a match (sorry to mix metaphors) is simply bad business. The crypto space is expanding faster than any other segment of the financial sector.

Beware: One day, you will need it more than it needs you and you will regret such un-nuanced behavior.

In the meantime, the management company, my wife, daughter and I have all opened two new sets of accounts – with different banks, just in case.

I have, however, realized what the motto of Bank of America should be:

“Ready, fire, aim!”

Child playing with abacus image via Shutterstock.

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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Report: 9 Cryptocurrency Hedge Funds Have Closed in 2018

At least nine cryptocurrency-focused hedge funds were shuttered in the first three months of 2018, Bloomberg reported Monday.

The closures include the Crowd Crypto Fund and Alpha Protocol, the news service reported. While Crowd Crypto Fund shut down all of its digital platforms, including its social media presence, Alpha Protocol simply announced it was refunding its investors all of their funds. According to the fund’s website, the refunds were completed on March 31.

Even hedge funds that are more firmly established have seen decreased interest from investors. Bloomberg cited as an example Multicoin Capital, whose co-founder, Kyle Samani, told the news organization that “new capital has slowed, even for a higher-profile fund like ours.”

The news comes amid a broader decline in the returns these funds receive, the news organization said. Cryptocurrency hedge funds are seeing their returns drop an average of 23 percent, a figure which is not helped by a bear market which brought token prices down to some of the lowest levels since last year.

Indeed, only two of the top 25 cryptocurrencies by market cap saw gains in the first quarter of 2018, as previously reported. The overall market capitalization fell from $830 billion in early January to $251 billion last week.

Bloomberg noted that more than 200 cryptocurrency-related hedge funds have launched over the last several years. The article quoted Lex Sokolin, global director of fintech strategy at Autonomous Research LLP, as predicting that roughly 10 percent of these will shut down by January 2019.

Stock drop image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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Wall Street Vets Raise $50 Million for Crypto Fund of Funds

Sitting at his desk at Credit Suisse, Sina Nader watched the bottom fall out of the global economy.

As a junior associate helping manage a $100 million portfolio of equities, he had a first-hand view of the 2007-2008 collapse from the Swiss bank’s Los Angeles offices and recalls frantically taking screenshots of the price as Lehman Brothers’ stock collapsed to “essentially zero.”

“My first thought was, ‘Holy shit, some traders just took out Lehman,'” Nader told CoinDesk. “My next thought was, ‘Holy shit, if the fifth-largest investment bank in America can be taken out like this, is the banking system actually safe?'”

Likening it to the feeling kids gets when they learn Santa Claus isn’t real, Nader says that the day changed him forever – and eventually sent him into the wild world of cryptocurrency.

After going down the crypto rabbit hole, Nader, who’s also worked for Morgan Stanley and Goldman Sachs, teamed up with a former private wealth analyst at Morgan Stanley, Jacob Kirschenbaum, to launch Cryptolux Capital, a crypto fund of funds.

And revealed exclusively to CoinDesk, Nader has secured about $50 million of the $100 million the fund is seeking.

While the number of crypto hedge funds has grown from about 124 in October to 175 today, Nader positions his experience in one of the traditional financial system’s worst hours as the key to Cryptolux’s success.

“I look back to what I saw in the financial services world, and that really sets the stage for me to be excited about crypto,” Nader said. “When you’re watching the five biggest investment banks in the country either go out of business or change their entire business model, you realize that the banking system is not as strong as many people may have believed it was.”

He continued:

“I’ve got this view that this banking system is not infallible, and wouldn’t it be nice if there was a system that went around, or was outside of the banking system for the use of wealth?”

Have some humility

According to Nader, Cryptolux is designed specifically to take advantage of the lessons he learned, in an effort to offset the downside risks of the volatile cryptocurrency market.

At the heart of that is Nader’s captivation by bitcoin’s ability to store value outside the traditional banking system. If the financial sector buckles again, bitcoin won’t go down with it.

But as he started looking at crypto hedge funds more broadly, he saw a number of cryptocurrencies and funds diversifying in the cryptocurrency space outperforming bitcoin itself by as much as 200 percent.

So, he started talking to other investors and coming up with a strategy that would capture those huge gains.

And Cryptolux believes it’s found it in a targeted fund-screening process that looks for an attribute he contends is all too rare among today’s cryptocurrency speculators, just as it was in investors before the financial collapse: humility.

“Anyone who really claims to know exactly what is going to happen in the crypto space is probably misguided at best,” Nader said, adding:

“So I think it’s important to come at this space with a strong amount of humility, because I think it will inform your investment strategy and ultimately your trading.”

Look to the futures

The second way Nader aims to offset downside risk is by further hedging with cryptocurrency futures options.

Nader said, initially the fund will establish short positions in the nascent bitcoin futures market. In the event of a market correction or pullback, he expects the bitcoin futures position will increase, providing Cryptolux with a buffer against the dips.

Currently, Cryptolux is only investing in bitcoin futures, but Nader expects to add ether futures should that product get approved by regulators.

Hinting at which hedge funds Cryptolux is mixing into its fund of funds, Nader said he’s “excited” about Silver 8 Capital and MultiCoin Capital, though he’s keeping an eye open for changes in the strategies of the fund managers over time, and could modify his own fund’s composition accordingly.

And going forward, Nader said the firm will be exploring the possibility of expanding its investments to include proprietary positions in crypto startups and other blockchain-related companies.

For interested investors, there’s a $1 million minimum to join, with a 1 percent management fee and a 15 percent carry on money made from the investment. By early next month, Nader expects to reveal further details about the company’s risk management program along with other new features.

And if all goes as planned, he hopes to raise a second fund targeting $125 million.

According to Nadar, he’s primed to do it, saying:

“Our view of what our value-add is we give you a diversified portfolio and we take care of the risk management component on top of that.”

Image via Sina Nader

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Disclaimer: This article should not be taken as, and is not intended to provide, investment advice. Please conduct your own thorough research before investing in any cryptocurrency.