Enabling easy access to actively managed crypto hedge funds through AMCs

Many areas across our society and economy are being revamped by this new technological revolution that offers a means of borderless and trustless interaction based on decentralized, code-enforced platforms. An entire new economy is growing, and growing fast, just as the requirement for new talent. An engineer recently told me that while being an engineer was the top career choice in the last decade, being a game developer will be the headliner for the next (the metaverse is calling!).

Given the fast-paced opportunities (as well as pitfalls) growing in this market, it isn’t surprising that crypto funds are also rapidly growing in numbers. In conferring with GenTwo Advisory Board Member and AltAlpha Digital crypto fund of funds co-founder, Marc P. Bernegger, he helped us to outline some of the reasons for growth and the attractiveness of crypto funds.

This still nascent industry has grown rapidly as it services the needs of investors looking for a diversified, safe, and straightforward way to participate in this transformational investment opportunity. The PwC and Elwood’s 3rd Annual Global Crypto Hedge Fund Report 2021 states that assets under management of crypto hedge funds increased to USD 3.8B in 2020 from USD 2B the year before. Most investors in these funds are high-net worth individuals (54%) or family offices (30%) with the median investment being USD 400K and the average USD 1.1M.

What makes the crypto hedge fund so attractive?

First, the strategy starts with the fund managers involved, their abilities and their experience. Many of these managers have spent decades in the traditional finance world running strategies using models and vast data sets, and thus, have a systematic approach to trading. This quantitative approach can be superior to human decision-making procedures given the, at times, irrational and volatile nature of the crypto market. The market is still dominated by traders making decisions by monitoring the price action on charts (e.g., technical chart analysis), which can have a self-fulfilling prophecy effect increasing the strength of trends, favoring quantitative strategies.

Next to traditional price signals, traders can also retrieve specific, blockchain based data known as on-chain metrics (e.g., transaction values, miner fees, etc.). This can further enhance quantitative strategy’s predictability by combining on-chain data with technical price data.

There are additional reasons that make hedge funds attractive, including their informational market advantage, their professionalized risk management, and the hedging capabilities through, for example, derivatives such as long puts that they offer, particularly during down-markets. These funds generally trade very liquid, exchange-listed crypto assets, which provide better liquidity to investors than a fundamental venture capital type investor who targets long term early-stage projects, but then often faces up to four yearlong vesting periods.

Furthermore, the crypto space is wide and rapidly evolving, making it impossible for a single person to keep track of everything in the type of detail required. Single fund managers dive deep into specific areas such as DeFi, Gaming, NFT infrastructure, etc., and build their expertise, systems, and strategies through them. This is where “fund of funds” step in, acting as aggregators from different managers and strategies in one investment vehicle. Their multi-strategy approach to diversify risk, while having a broader exposure to the market, has given them momentum in this developing market.

Now, a new investment vehicle innovation has fueled this growth, especially in Switzerland: AMCs (Actively Managed Certificates). No longer are these investment managers only bound to launching funds, but are also using AMCs, which allows them to launch innovative, novel solutions into the market quicker, while providing their clients with numerous benefits. The benefits include, but aren’t limited to, creating easily accessible bankable solutions which can be purchased with your existing bank via an ISIN (no additional accounts, side agreements, etc.). These strategies often have minimum entry points as low as CHF 10’000 versus most other hedge funds that normally start at USD 250’000, if not more.

In summary, the crypto space is exciting and full of possibilities. But it is also risky, volatile, and demanding if you manage everything yourself. Until this industry matures, actively managed investment solutions, like AltAlpha Digital’s fund of funds using an AMC structure, provide for easy bankable access for investors to take a diversified position within this emerging technology.

Read the German version on Moneycab: https://www.moneycab.com/finanz/der-einfache-einstieg-in-aktiv-verwaltete-krypto-hedgefonds-mithilfe-von-amcs/

About AltAlpha Digital

AltAlpha Digital is crypto fund of funds and a product of BFI Consulting, a wealth advisory boutique domiciled in Switzerland. BFI Consulting is a member of VQF, a Swiss self-regulatory organization registered with FINMA, and part of BFI Capital Group, a family holding with a variety of private equity holdings and ventures focused in the area of finance and technology. Overall the group of companies controlled by the BFI Capital Group employs over 40 people, with approx. $2 billion in placed assets, and $1 billion of assets under management.

About the author

Marc D. Seidel
Co-Founder at AltAlpha Digital