Off The Chain Capital seeing dollar signs in Mt. Gox payout

The fund has reversed its fortunes from 2022, when it fell 75%

article-image

phanurak rubpol/Shutterstock modified by Blockworks

share

Recovering from a rocky 2022, when crypto markets roiled, value-oriented Off The Chain Capital has stabilized, booking a performance recovery — and the firm is now primed for a likely sizable pending payout.

Before it came into crypto investor fashion, Off The Chain had been snapping up Mt. Gox bankruptcy claims. Brian Estes, the hedge fund firm’s chief executive and chief investment officer, told Blockworks he began buying claims in 2019. 

Off The Chain, which now has $140 million of assets under management, is poised to recoup those claims in September. According to Estes, this will happen as Mt. Gox’s bankruptcy estate returns long-frozen bitcoin and cash deposits stemming from the then-bitcoin exchange’s insolvency last decade. 

Estes said that for the firm’s flagship fund, Off The Chain LP, the Mt. Gox claims now account for about 25% of the vehicle’s portfolio. Investigations into the case have continued to unfurl

The fund, which takes a long-only approach to investing in a mix of cryptocurrencies and privately traded equities, fell 75.1% in 2022, according to a marketing document obtained by Blockworks. The steep downturn included a 33% loss in November, when FTX imploded and digital assets of all stripes tanked. 

“When our [limited partners] came in, I had personal conversations with each one of them, and I told them that ‘even though we’re evergreen — you can get out with a six-month notification — we’re a liquid fund,’” Estes said. “There’s going to be a period where we’re going to drop 70 to 80%. We’ve had people say, ‘Thank you, I appreciate that, and I’m not investing.’ But so many of our investors have stuck around.” 

By December 2022, the fund had to “mark the portfolio down so much that we didn’t want new [investors] to come into the fund, which would dilute the performance,” Estes said. Off The Chain as a result closed its fund to new capital, and it remains closed — except when an investor redeems, triggering a new slot to open up for another potential limited partner to take their place. 

The firm, based in Orlando, Florida, has long invested in equity securities on the secondary market. It has typically preferred to purchase distressed stakes on the cheap from holders who need additional liquidity. 

But Off The Chain’s flagship fund has recovered significantly so far this year, parlaying a 19.5% pop in January to a 23.7% year-to-date performance showing through the end of June. The firm’s $140 million of assets under management remained significantly below Off The Chain’s $500 million peak. 

Off The Chain bullish on Binance

If all goes according to plan with recouping the Mt. Gox payouts, that initial haul ought to rise. 

The asset manager is a registered investment adviser (RIA) with the SEC. When it started to purchase the claims linked in the bankrupt bitcoin exchange — which was a massive player in bitcoin liquidity before its hack in 2014 — they were priced around $500 to $700 per claim. 

Industry participants have highlighted two reasons for the discount on stolen bitcoin recovery from exchanges: general uncertainties in bankruptcy cases, and the unique challenges involved in recovering stolen bitcoin. There’s also the fact that, for years, it was unclear when the Mount Gox case would be resolved. This led to a moving target on when those payouts would happen, with investor cash constrained in the meantime. 

The claims purchased by Off the Chain, many in that $500 to $700 range, entitle the holder to a payout of .1785 bitcoin (BTC) and .18 bitcoin cash (BCH), as well as $700 outright. 

In total, Mt. Gox is set to distribute nearly 142,000 BTC to creditors ($4.3 billion), alongside a similar amount of BCH worth $40.3 million.

Off The Chain, Estes said, is also bullish portfolio-wise on the future prospects of Binance, which has been recently sued by the SEC. Binance’s native token, BNB, accounts for 10% of the firm’s portfolio, he said. 

BNB has tanked to around $230 from a three-month high of $347, though the token has traded in a considerably narrower range for the last 30 days. 

“I’m a huge believer in Binance,” Estes said. “The SEC and the powers that be have been trying to take down Binance over the last year, and they don’t realize you can’t take down a company [which] has no debt and is generating $2 billion in cash flow. They think it’s like FTX leveraged up.”


Start your day with top crypto insights from David Canellis and Katherine Ross. Subscribe to the Empire newsletter.

Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. Subscribe to the Forward Guidance newsletter.

Get alpha directly in your inbox with the 0xResearch newsletter — market highlights, charts, degen trade ideas, governance updates, and more.

The Lightspeed newsletter is all things Solana, in your inbox, every day. Subscribe to daily Solana news from Jack Kubinec and Jeff Albus.

Tags

Upcoming Events

Salt Lake City, UT

MON - TUES, OCT. 7 - 8, 2024

Blockworks and Bankless in collaboration with buidlbox are excited to announce the second installment of the Permissionless Hackathon – taking place October 7-8 in Salt Lake City, Utah. We’ve partnered with buidlbox to bring together the brightest minds in crypto for […]

Salt Lake City, UT

WED - FRI, OCTOBER 9 - 11, 2024

Permissionless is a conference for founders, application developers, and users. Come meet the next generation of people building and using crypto.

Javits Center North | 445 11th Ave

Tues - Thurs, March 18 - 20, 2025

Blockworks’ Digital Asset Summit (DAS) will feature conversations between the builders, allocators, and legislators who will shape the trajectory of the digital asset ecosystem in the US and abroad.

recent research

4.png

Research

This months PPGC covered four main areas. Firstly, debriefing the progress and status of the mainnet implementation of the Ahmedabad hard fork. Secondly, a retrospective on the testnet phase of the Ahemdabad Hard Fork. Thirdly, an update on PIP-36 which involves replaying failed state syncs. Lastly, PIP-47 which pushes upgrades to the Polygon Protocol Council.

article-image

And could BitGo’s offering dump the entire stablecoin market on its head?

article-image

Institutions to test out the settlement of “digital assets and currencies” on a network that annually carries more than 5 billion financial messages

article-image

After Bitwise’s XRP ETF filing this week, one industry watcher notes: “Politics will determine whether this happens soon or in a few years”

article-image

Plus, a look back at some of the SEC’s biggest enforcement moves under Gurbir Grewal

article-image

The forward-looking financial system is being championed by several contributors to India’s UPI digital money system

article-image

Multiple teams are pursuing integration cross-chain and off-chain