Two Prime Embraces Crypto Trend-Following Strategy

Two Prime is placing a bet on its ability to derive alpha by following sector trends as markets roil, via the formation of the digital assets investment manager’s latest vehicle.

Two Prime, which runs crypto strategies for accredited investors, kicked off trading for its trend-following product with proprietary capital within the last month, according to a source familiar with the matter and marketing materials obtained by Blockworks.

The strategy of the emerging fund, Trend Alpha Crypto 100, is an eponymous one, according to its marketing materials. Its intention is to “act as a liquid venture capital fund for altcoins” via a long-only approach that looks to snap up bargains out of a broad basket of distressed crypto assets, by way of its underlying algorithms.

The vehicle, like most trend-following plays, is designed to move into cash when markets move against its long only mandate.

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Two Prime Chief Investment Officer Nathan Cox confirmed the fund’s formation in an interview. Cox declined to comment on specific details, including his firm’s marketing efforts, citing private placement regulations.

A number of cryptocurrency-focused asset managers in the wake of the industry’s disastrous fourth quarter have turned to trying to capture trends, touting their own version of Wall Street’s long time retort to chaotic markets: Catch the next upside, and move into the safe haven of cash before whatever collapse is coming.

“It’s not a revelation in terms of what fund managers are trying to do here,” Cox said. “We have put our own spin on the trend.”

Two Prime for its Trend Alpha Crypto 100 “really started with this idea that altcoins have been an alpha generator for crypto investors, obviously, since the beginning,” according to Cox.

“They provide an asymmetric return for a lot of investors — [like venture capitalists who] typically do not have the liquidity that they want,” Cox said. “We saw an opportunity for us to fill a void.”

Cox has chosen an equal-weighted rebalancing mechanism, as opposed to organizing assets by their market capitalization.

“It wasn’t a difficult choice for us,” he said. “Risk premia is generally more asymmetric, let’s say, at the bottom 50 [tokens] — if you want to take this [venture] mentality to crypto and apply a fund filter.”

Two Prime’s latest venture marks the firm’s first foray into a strategy that doesn’t trade derivatives. Macro factors, including interest rates and jobs data, are propelling the launch’s timing as risk-on assets are reentering the financial limelight.

The vehicle, according to its marketing materials, imposes fees of 2% and 20%, which are still steep by digital asset standards. It imposes a minimum investment of $1 million and has a self-imposed initial capacity of $120 million.

“The timing is critical,” Cox said. “Not to say we’re successfully going to call the bottom, but it certainly seems right now that the majority of risk is behind us — especially in terms of FTX.”

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