Michael Bodley

Kevin Zhou of Galois Capital has been prepping his next industry move, according to two sources directly familiar with the matter — though the co-founder of the shuttered crypto hedge fund firm says that starting a new venture isn’t on his mind.



Yet Zhou has spoken to a number of crypto industry participants in recent weeks about either starting or joining another investment operation, both sources said.&nbsp;



“I’m not currently starting a new investment firm,” Zhou told Blockworks in an April 5 email following multiple attempts to contact him.



Zhou, who worked as <a href="https://blockworks.co/tag/kraken">Kraken’s</a> head of trading before departing to set up Galois in 2017, did not return an additional request for comment.&nbsp;



Zhou’s plans, according to both sources, have been in flux since he told investors last fall that he would <a href="https://blockworks.co/news/crypto-galois-capital-winds-down-ftx">shutter Galois’ flagship quantitative digital assets vehicle</a> after nearly half of its assets were frozen on FTX.&nbsp;



But he’s made it clear to a handful of market participants that one option for moving professionally forward would be setting up a family office, proprietary trading firm or a similar entity. Two additional sources confirmed having heard indirectly about similar deliberations.&nbsp;



Another option said to be on the table, per one source: creating or joining a crypto market-making entity that would tap Zhou and his team’s quantitative investment prowess as centralized exchanges have <a href="https://blockworks.co/news/sec-crypto-enforcement-actions-accelerate">increasingly come under US regulatory pressure</a> amped up by the <a href="https://blockworks.co/tag/sec">SEC</a> and the <a href="https://blockworks.co/tag/cftc">CFTC</a>.&nbsp;



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">Saw some commentary on us closing down and just wanted to clarify two things. First, we are not starting a new fund. I don’t think it would be fair to effectively reset the high water mark for current investors. <a href="https://t.co/6CAj4pwD4F">https://t.co/6CAj4pwD4F</a>&mdash; Galois Capital (@Galois_Capital) <a href="https://twitter.com/Galois_Capital/status/1627742285004693504?ref_src=twsrc%5Etfw">February 20, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
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<h2 class="wp-block-heading">Options on the table</h2>



One source said Zhou and his team have also considered joining an established investment firm in a senior role, which would likely involve a pod structure in which he could bring his own team, run his own book and have back and middle-office functions handled by the firm.&nbsp;



That multi-strategy setup has become increasingly appealing over the years to established traders looking to focus on investing and hand over the other day to day tasks of running a fund to their employer — providing the right compensation structures are in place.&nbsp;



Hedge fund billionaire Steve Cohen, who also owns the New York Mets, has pushed into digital asset markets over the last year, including via his <a href="https://blockworks.co/tag/point72">Point72 Asset Management</a>. Macro investment firm <a href="https://blockworks.co/tag/brevan-howard">Brevan Howard</a> has also gotten into digital asset markets in a big way.&nbsp;



<a href="https://blockworks.co/news/bad-for-crypto-good-for-traders">Read more: What’s Bad for Crypto May Be Good for Crypto Traders</a>



In one possible arrangement, Galois discussed setting up a separately managed account (SMA) arrangement with a veteran crypto trading firm, one source said. That happened prior to Zhou’s more recent discussions about his next step.



Via flagship hedge fund Galois Capital Alpha Fund, the Galois team developed a reputation for driving substantial deal flow in over the counter (OTC) digital asset markets — as well as taking a quantitative approach to matching cryptocurrency buyers with sellers. 



Buy-side traders in the industry have turned toward yield from making crypto markets as spreads have widened since liquidity started drying up in the fourth quarter of 2022.&nbsp;



It’s possible, both sources said, that the plan for the new entity could be postponed or altered outright. But it’s notable, they said, that Zhou and his team have been putting informal steps in place to make a larger announcement of their return to the industry’s stage.



One source pegged the timeline of those industry conversations starting more than one month ago, and another said they started happening prior to that point.&nbsp;



Sources were granted anonymity to discuss sensitive business dealings and private conversations.&nbsp;



<h2 class="wp-block-heading">“Not starting a new fund”</h2>



Even so, the Galois founder’s early stage attempts to lay out a blueprint for a trading operation, they said, reflects his conviction in opportunities to grow his personal capital — as well as that of his business partners. On Feb. 20, Galois <a href="https://twitter.com/Galois_Capital/status/1627742285004693504">tweeted</a> that the team is “not starting a new fund,” adding that it wouldn’t be “fair to effectively reset the high water mark for current investors.”



None of the three main structures that sources said Zhou has considered — a family office, a prop trading firm or a market-making operation — would reset a high water mark for Galois limited partners. It’s also possible that those three options could be combined in some capacity.&nbsp;



For example: a crypto investment firm that does not take on outside limited partner capital and also engages in making digital asset markets.&nbsp;



<a href="https://blockworks.co/news/what-do-crypto-traders-tell-their-lps">Read more: OK, You Blew Up Your Crypto Fund. What Do You Tell Your LPs?</a>



<h2 class="wp-block-heading">Galois caught up in FTX’s demise</h2>



The Financial Times first <a href="https://www.ft.com/content/726277bb-35a1-4d35-9df9-3e1cca587b77">reported</a> Zhou telling Galois’ investors of the predicament in November 2022, and the firm later publicly confirmed the fund’s unwinding.&nbsp;



The FT also reported in February the fact that Galois would wind down trading and try to return limited partner capital, with investors reportedly set to receive 90% of their capital back that was not stuck in FTX’s bankruptcy proceedings. The firm’s Twitter account later confirmed the news.



It also in a Feb. 20 <a href="https://twitter.com/Galois_Capital/status/1627742288611840011">tweet</a> referenced “the selling of the FTX claim,” adding that a “strict NDA from BTIG” was in place regarding that sale.



An additional third source without knowledge of the new venture said there’s been some recent murkiness around how the unwinding is playing out among institutional limited partners.



Galois had at least 11 employees at its peak, according to data provided by <a href="https://www.thetie.io/crypto-sigdev-terminal/">TheTie</a>.



A number of the identities of those employees or partners were learned by Blockworks and are not being disclosed in this story, because it’s not clear which would join Zhou in an emerging venture.&nbsp;



Galois was known as a top flight crypto investment manager before its closure started playing out. Zhou developed a reputation for <a href="https://blockworks.co/news/crypto-skeptics-were-right">being willing to take on contrarian market bets</a>, including calling out the Terra ecosystem’s collapse <a href="https://twitter.com/Galois_Capital/status/1508665460824309766?s=20">publicly</a> in March 2022 — before it happened.



The US-headquartered Galois terminated its registration with the SEC on Dec. 22, 2022. It had previously stated in filings that the firm had more than $100 million of regulatory assets under management.&nbsp;



Its sole reported fund available to outside investors, Galois Capital Alpha Fund, disclosed 55 investors at the time, and Galois flagship vehicle required a minimum investment of $5 million.&nbsp;



Though just 1% of the vehicle’s ownership was attributed to fund of funds operators, Galois and related general partners told the SEC that they owned 38% of the fund — and 46% of the vehicle’s interest was attributed to investors based outside of the US.&nbsp;



That designation requires certain types of traditional finance and digital asset managers to fill out an annual SEC disclosure, which typically does not take leverage into account in terms of regulatory assets.&nbsp;



On its most recent disclosure form, representatives for the firm said Galois Capital was running $205,000,089 of regulatory assets on behalf of just one client: a pooled investment vehicle.&nbsp;&nbsp;



<h2 class="wp-block-heading">Galois Twitter going strong</h2>



Galois has maintained an active presence on Twitter, including <a href="https://twitter.com/Galois_Capital/status/1643122977859424256">tweeting</a> what appears to be a cryptographic key on April 4.&nbsp;



“Yeah, no way that’s a coincidence,” one source said of the firm’s continued social presence.&nbsp;



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">When you get to the front, you want people standing behind you. If not, bad deal. <a href="https://t.co/4V1p6Skf6o">https://t.co/4V1p6Skf6o</a>&mdash; Galois Capital (@Galois_Capital) <a href="https://twitter.com/Galois_Capital/status/1646342591556747265?ref_src=twsrc%5Etfw">April 13, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



On Feb. 20, — the same day Zhou confirmed the FT’s reporting — Galois <a href="https://twitter.com/Galois_Capital/status/1627579155712823299?s=20">tweeted</a> that the window marked “an end of an era,” adding that the work we have done together for the past few years has not been in vain.&nbsp; I can’t say more than this for now. Stay tuned.”&nbsp;



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">I appreciate the outpouring of support today when the FT article came out. Thank you all for the kind words. Yes, it is true that our flagship fund is shutting down.&mdash; Galois Capital (@Galois_Capital) <a href="https://twitter.com/Galois_Capital/status/1627579151052902400?ref_src=twsrc%5Etfw">February 20, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



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Sources Say Galois Head Finalizing Next Move, Zhou Says ‘Not Currently’

<div id="highlights-block_62ffd497c649d" class="highlights">
 <ul>
 <li>Cohen&#8217;s new crypto-focused entity, which is still in its early innings, is dubbed &#8220;On-Chain Investments&#8221;</li>
 <li>The endeavor builds on his widespread venture capital-style, having backed crypto startups personally via his family office and Point72 Ventures</li>
 </ul>
 
</div>



Steve Cohen has hired self-styled cyberpunk and reformed hacker &#8220;Acidphreak&#8221; as the first — and, so far, only — portfolio manager to lead investments for his <a href="https://cms.blockworks.co/steve-cohen-building-out-crypto-investment-firm/" target="_blank" rel="noreferrer noopener">new crypto-only asset manager</a>.



Elias Ladopoulos, better known as “Acidphreak” from his time leading the New York-based “Masters of Deception” hacker collective, joined Cohen’s On-Chain Investments unit in June, according to two sources familiar with the matter.&nbsp;



The sources, who were granted anonymity to discuss sensitive business dealings, categorized the hire as “somewhat surprising” for Cohen, noting Ladopoulos’ relative lack of Wall Street ties.



It indicates Cohen, a hedge fund billionaire, is prioritizing bring crypto natives on staff at On-Chain — a departure from most of Wall Street’s digital asset dealings. A number of rival multibillion-dollar firms have instead turned to traditional finance talent with some element of crypto experience to build out their operations in the space. 



A spokesperson for Cohen, who runs Point72 Asset Management and has backed crypto startups via his family office and the multi-strategy hedge fund firm’s venture capital arm, declined to comment. 



“It’s Web3, and [Cohen’s] obviously connected in the space and knows his stuff,” one source said. “Honestly, hiring TradFi [traditional finance] guys that think they know crypto is probably the dumb way to go.”&nbsp;



<h3 class="wp-block-heading">&#8220;Acidphreak&#8221; dabbled in venture capital before working for Cohen</h3>



The Masters of Deception, dubbed “The Gang That Ruled Cyberspace” in a 1995 biography, developed innovative techniques to breach private networks of major corporations, eventually getting entangled with authorities, including the FBI.



Ladopoulos has since served as a prized white-hat hacker — former bad actors hired by corporations and blockchain startups to probe for vulnerabilities in their code — and acted as a consultant for a number of high-profile businesses and even governments.&nbsp;



He “remains a leader and mentor to a younger generation of hackers today,” Ladopoulos wrote on his <a href="https://www.linkedin.com/in/eliasnyc/details/experience/" target="_blank" rel="noreferrer noopener">LinkedIn</a>, where a descriptor for his stint as “Acidphreak” says, “Too much to explain here, Google it…”



A longtime quant and blockchain aficionado, Ladopoulos has already invested in venture capital plays via firms such as Raptor Group. He also has extensive experience with artificial intelligence, including machine learning techniques.&nbsp;



At On-Chain, Cohen has tasked him with backing promising crypto startups and building out the firm’s quant digital asset spot and derivative trading strategies, Blockworks has learned. It’s a time-consuming and pricey process — especially given the rapid rate of alpha decay in the sector as crypto markets have quickly become more efficient.&nbsp;



On-Chain, which is still in its early stages, is an entirely separate entity from Point72, Point72 Ventures and Cohen’s personal family office, which itself commands billions of dollars. There are no plans to accept outside capital from the jump, but sources dubbed the initiative as allowing Cohen to build out a platform and snap up talent, which has become more abundant during the <a href="https://cms.blockworks.co/crypto-prices-collapse-across-the-board-dragged-by-bitcoin-and-ether/" target="_blank" rel="noreferrer noopener">crypto bear market</a>.&nbsp;



<h3 class="wp-block-heading">On-Chain exploring DeFi yield ahead of the Merge</h3>



Conservative sovereign wealth firms wary of digital assets, coupled with regulatory concerns — particularly <a href="https://cms.blockworks.co/new-cftc-bill-could-overrule-sec-but-leaves-fate-of-many-crypto-tokens-unresolved/" target="_blank" rel="noreferrer noopener">uncertainty</a> between the role of the SEC and the Commodity Futures Trading Commission in the US — has rendered multi-strategy operators hesitant to include cryptocurrency, or even related derivatives, under their flagship hedge fund umbrellas.



In addition to venture and spot investments, On-Chain is planning to put capital to work in decentralized finance (DeFi) <a href="https://cms.blockworks.co/what-is-yield-farming-what-you-need-to-know/" target="_blank" rel="noreferrer noopener">yield farming</a> opportunities, as well as staking plays, leading up to Ethereum’s highly anticipated <a href="https://cms.blockworks.co/the-investors-guide-to-the-ethereum-merge/" target="_blank" rel="noreferrer noopener">Merge</a> to proof-of-stake, sources told Blockworks.



Staffers at the entity have also been engaging in preliminary due diligence conversations with outside crypto-focused hedge and venture portfolio managers. That could involve potential seed deals and give On-Chain a chance to vet alternative investment strategies and potentially bring new traders in-house.



Cohen has also been backing outside managers via his family offices, in addition to the firm’s focus on direct venture investments. He’s notched a number of notable hits — and a miss (or two) — including recently <a href="https://cms.blockworks.co/billionaire-steve-cohen-ditches-crypto-startup-radkl-report/" target="_blank" rel="noreferrer noopener">pulling out of</a> proprietary digital asset trader Radkl.



Point72, for its part, has been working on <a href="https://cms.blockworks.co/point72-asset-management-in-early-innings-of-big-crypto-push/" target="_blank" rel="noreferrer noopener">setting up its own</a> internal blockchain-focused team. Traders there have already been investing in crypto derivatives and institutional trust products, including Grayscale Investments’ bitcoin and ether vehicles, GBTC and ETHE.



The firm had $26.1 billion in assets under management as of July 1.



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Steve Cohen Taps Hacker ‘Acidphreak’ as First Trader for Crypto Startup 

<div id="highlights-block_62f57ecfa84b2" class="highlights">
 <ul>
 <li>The move builds upon Point72 Asset Management’s forays into crypto derivatives </li>
 <li>The endeavor would require substantial resources in terms of employees and operational expenditures</li>
 </ul>
 
</div>



Hedge fund billionaire Steve Cohen is laying the groundwork for an investment firm focused exclusively on cryptocurrency, according to four sources familiar with the matter.



Though the new entity is in its early innings, sources said the business plans to trade spot cryptocurrencies — a segment Cohen’s multi-strategy hedge fund firm, Point72 Asset Management, has yet to touch. It would also trade digital asset derivatives, as well as look to write checks to outside digital asset-focused hedge fund managers, including possible seed deals.&nbsp;



The name of the startup — which is set up separately from Point72, Point72 Ventures and Cohen’s family office — isn’t known. But Cohen himself has played a key role in its formation, which would require substantial expenditures when it comes to staffing, not including pricey trading infrastructure and operational needs.



It’s the latest indication that Cohen, who has snapped up stakes in crypto startups he deems promising, is becoming more bullish still on digital assets. A growing number of deep-pocketed traditional financiers are weighing deploying big-time capital in the space, cognizant of bottom-basement prices as markets continue to roil following the <a href="https://cms.blockworks.co/tag/Terra" target="_blank" rel="noreferrer noopener">collapse</a> of Terra stablecoin UST and the demise of crypto lenders including <a href="https://cms.blockworks.co/tag/celsius" target="_blank" rel="noreferrer noopener">Celsius</a> and <a href="https://cms.blockworks.co/tag/voyager" target="_blank" rel="noreferrer noopener">Voyager</a>.



A spokesperson for Cohen and his asset management firms declined to comment. Sources were granted anonymity to discuss sensitive business dealings.



In addition to trading more vanilla spot cryptoassets, the new firm would likely dabble in decentralized finance projects, including <a href="https://cms.blockworks.co/what-is-yield-farming-what-you-need-to-know/#:~:text=Yield%20farming%20is%20the%20process,can%20employ%20more%20complex%20tactics." target="_blank" rel="noreferrer noopener">yield farming,</a> one source said. The up-and-coming business line would also look to engage in staking, an area drawn into the spotlight leading up to Ethereum’s pending transition from <a href="https://cms.blockworks.co/proof-of-work-vs-proof-of-stake-whats-the-difference/" target="_blank" rel="noreferrer noopener">proof-of-work to proof-of-stake</a>.



Though it’s thought that the startup has no immediate plans to accept outside capital, the endeavor is a mechanism for Cohen to start laying the foundation for a future broad-based crypto trading platform. Even during the bear market, competition for top-tier talent has intensified as Point72 multi-strategy hedge fund rivals, such as Millennium Management, have increasingly devoted resources to the sector.&nbsp;



Even Citadel’s Ken Griffin, long a skeptic who last fall dubbed cryptocurrency a “<a href="https://www.bloomberg.com/news/articles/2021-10-04/griffin-sees-crypto-mania-as-jihadist-call-against-the-dollar" target="_blank" rel="noreferrer noopener">jihadist call</a>” against the US dollar, has reversed course, acknowleding digital assets are here to stay.



That said, the space is ripe with regulatory concerns, as well as conservative sovereign wealth fund limited partners that have urged caution about crypto. Both points are rationale for multi-billion hedge fund firms, for the most part, to refrain from trading spot crypto products via their flagship vehicles, sources said.&nbsp;



“They’re still working through the details, but the plan was to not put all the bread in the flagship fund,” one source said. “They clearly have a lot of learning to do about the space. [Probably] are not ready to make that call just yet.”



The <a href="https://cms.blockworks.co/sec-orders-crypto-startup-to-register-ico-tokens-or-face-31m-fine/" target="_blank" rel="noreferrer noopener">regulatory uncertainty</a> between the SEC and the Commodity Futures Trading Commission (CFTC), in terms of whether the likes of bitcoin and ether are securities or commodities, has heightened tensions.



“The regulatory stuff is something they’re concerned about, as well,” one source said. “They’re worried about how they actually touch this asset class.”



Backing outside traders would be another way to pick up intelligence on viable — and, crucially for the asset manager, scalable — strategies, without the complications that would come with directly investing in digital assets internally.&nbsp;



It’s altogether a <a href="https://www.theblock.co/post/104522/steve-cohen-point72-crypto-market" target="_blank" rel="noreferrer noopener">natural extension</a> of Cohen’s angel investments into blockchain companies. Not all have panned out, including <a href="https://cms.blockworks.co/billionaire-steve-cohen-ditches-crypto-startup-radkl-report/" target="_blank" rel="noreferrer noopener">ditching his stake</a> in proprietary digital asset trader Radkl, but Cohen still enjoys preferred access to dealflow, by traditional finance standards.



“[It’s probably] what all these other guys are doing,” one source said. “The firms are not in crypto, so they tell investors, but the founders are.” Point72 has $26.1 billion in assets under management. The firm is looking to hire a host of candidates for its own <a href="https://cms.blockworks.co/point72-asset-management-in-early-innings-of-big-crypto-push/" target="_blank" rel="noreferrer noopener">developing internal crypto operations</a>.



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Steve Cohen Quietly Setting Up Crypto-only Asset Manager

<div id="highlights-block_62ebeac6ba7c4" class="highlights">
 <ul>
 <li>The inaugural fund’s performance has held up quite well, on a relative basis to the market, sources said</li>
 <li>Brevan’s strong digital assets push reflects what is likely the most substantial foray into crypto for a traditional finance firm</li>
 </ul>
 
</div>



Brevan Howard Asset Management has pulled off the largest crypto hedge fund launch yet.



The firm’s flagship digital assets-focused vehicle raised more than $1 billion from institutional investors, according to four sources with knowledge of the matter — with the vast majority of the lofty haul timed with the fund’s launch earlier this year.&nbsp;



The fundraise by BH Digital, the unit that oversees Brevan’s voluminous crypto trades, would rank annually among the upper echelons of even conventional hedge fund strategies. By digital asset standards — considering overall market capitalizations are far lower — it’s an “absolutely massive” result, one source said.&nbsp;



What’s more, early performance has trounced the competition, according to another source.



The commingled vehicle, Brevan Howard Digital Asset Multi-Strategy Fund, lost a scant 4% to 5% from inception through the end of June, according to the source — even as the one-two punch of the implosion of <a href="https://cms.blockworks.co/tag/terra/" target="_blank" rel="noreferrer noopener">Terra</a> stablecoin UST and the insolvency of crypto lenders, such as <a href="https://cms.blockworks.co/tag/celsius/" target="_blank" rel="noreferrer noopener">Celsius</a> and <a href="https://cms.blockworks.co/tag/voyager/" target="_blank" rel="noreferrer noopener">Voyager</a>, locked price action and liquidity into respective death spirals.&nbsp;



“Their returns, relative to the market, are unbelievable,” a source said.&nbsp;



Sources were granted anonymity to discuss sensitive business dealings. A spokesperson for Brevan declined to comment.&nbsp;



Employing a multi-manager and multi-strategy approach, the flagship puts limited-partner capital to work via both venture capital-style plays and liquid cryptos. More than 60 staffers run BH Digital’s operations, up from <a href="https://cms.blockworks.co/sources-brevan-howard-launches-first-digital-assets-fund-in-massive-crypto-push/" target="_blank" rel="noreferrer noopener">25 employees in January</a>, Blockworks previously reported.&nbsp;



Strategies — including quantitative trades and relative-value plays — are implemented by teams of portfolio managers structured in so-called “pods” that feature supporting analysts and engineers. The division, additionally, now has more than 20 external blockchain engineers working under full-time retainers.&nbsp;



<h3 class="wp-block-heading">Brevan Howard still has dry powder ready to deploy</h3>



It’s by far the largest commitment to crypto by a traditional finance asset manager. The global-macro-focused Brevan runs about $23 billion overall across a wide range of asset classes.



The scope of the pricey nascent operation reflects founder Alan Howard’s longtime and deep rooted bullishness on digital assets, even as Howard has <a href="https://www.bloomberg.com/news/articles/2022-04-20/as-brevan-howard-s-gains-mount-founder-cuts-back-on-trading" target="_blank" rel="noreferrer noopener">stepped back</a> from day-to-day oversight. His family office has <a href="https://www.crunchbase.com/person/alan-howard-2" target="_blank" rel="noreferrer noopener">invested</a> heavily in a slew of now-high-profile crypto startups, including Polygon.



BH Digital hasn’t fully deployed its capital — in part, perhaps, explaining its relatively strong performance — but its portfolio managers have evidently put to work substantial sums.&nbsp;



There’s “not enough liquidity” in the market now for $1 billion to be “deployed in liquid strategies,” one source said, unless it’s a “plain vanilla” approach, including long-only and trend-following tactics.&nbsp;



Cryptocurrencies — especially moving away from industry stalwarts bitcoin and ether — often are akin to small- or medium-cap equities. Building a sizable long or short leg in such an asset is tricky to pull off in quick fashion without impacting its acquisition price in a meaningful way.&nbsp;



The evergreen fund has an initial capacity of up to $1.5 billion, crypto-focused business development executives have told deep-pocketed investors. But that ceiling is expected to soon rise as the unit adds investment professionals and brings fresh sets of strategies to market.&nbsp;



Brevan Howard Digital Asset Multi-Strategy Fund remains open to external capital, pursuant to a minimum check of $5 million. Its limited partners include a number of the world&#8217;s largest and most sophisticated hedge fund investors, including entities that have historically exclusively backed traditional financiers.&nbsp;



“That’s the thing about Brevan: [Limited partners] that haven’t touched crypto with a 10-foot pole trust them,” one source said. “The fact that they’re an unproven new launch almost doesn’t matter. If I’m an endowment, who am I going to trust with my money? One of the world’s smartest macro guys? Or a crypto native who doesn’t speak my language?”



<h3 class="wp-block-heading">Timing the market</h3>



The fund’s current assets don’t appear to reflect proprietary capital supplied by BH Digital partners or from Howard himself.&nbsp;



Both pools of money could substantially move the needle on how much the division is actually trading. It’s known the firm has committed at least several hundred million dollars — and perhaps even more — of its own cash to the endeavor. 



When it comes to private plays, the vehicle imposes a cap of 50% of an investor’s total portfolio. Investor returns have been impacted by when they’ve backed the firm, which shifts their exposure to venture stakes. The portfolio overall now consists of less than 10% of venture investments. 



Brevan largely stayed on the venture sidelines before crypto’s crash, wary of sky-high valuations and reluctant to engage in an arms race with established players, such as Andreessen Horowitz (a16z).



All told, the caution appears to have paid off, with Brevan now actively backing startups at much more attractive valuations.&nbsp;



While a number, if not an abundance, of digital asset-focused investments managers oversee funds that now have more assets under management, no known launch has come close to eclipsing Brevan’s fundraising total.



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<li><a href="https://blockworks.co/newsletter/forwardguidance">Forward Guidance</a>: Reporting and analysis on the growing intersection of crypto and macroeconomics, policy and finance.</li>



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</ul>

Brevan Howard Scores Largest Crypto Hedge Fund Launch Ever

<div id="highlights-block_62e07fd29d87e" class="highlights">
 <ul>
 <li>The startup will, for the first time ever in digital assets, allow limited partners to write their checks via digital asset derivatives</li>
 <li>The unique setup likely comes with a number of tax advantages, at least when compared to traditional fiat contributions </li>
 </ul>
 
</div>



A veteran derivatives trader is readying the launch of a cryptocurrency-focused hedge fund firm with a unique twist, according to three sources familiar with the matter and marketing materials sent to institutional investors obtained by Blockworks.



What’s different about the startup led by John Kramer — who last headed up over-the-counter and derivatives trading for digital assets firm GSR — is that the firm, Dual Finance, is giving its prospective limited partners the greenlight to make their contributions in derivatives. 


<div class="wp-block-image">
<figure class="alignright size-full"><img loading="lazy" decoding="async" width="246" height="392" src="https://blockworks-co.imgix.net/wp-content/uploads/2022/07/telegram-cloud-photo-size-1-5116505612883176022-x.jpg" alt="" class="wp-image-24743" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2022/07/telegram-cloud-photo-size-1-5116505612883176022-x.jpg?w=246 246w, https://blockworks-co.imgix.net/wp-content/uploads/2022/07/telegram-cloud-photo-size-1-5116505612883176022-x.jpg?w=188 188w, https://blockworks-co.imgix.net/wp-content/uploads/2022/07/telegram-cloud-photo-size-1-5116505612883176022-x.jpg?w=161 161w, https://blockworks-co.imgix.net/wp-content/uploads/2022/07/telegram-cloud-photo-size-1-5116505612883176022-x.jpg?w=164 164w, https://blockworks-co.imgix.net/wp-content/uploads/2022/07/telegram-cloud-photo-size-1-5116505612883176022-x.jpg?w=137 137w, https://blockworks-co.imgix.net/wp-content/uploads/2022/07/telegram-cloud-photo-size-1-5116505612883176022-x.jpg?w=50 50w, https://blockworks-co.imgix.net/wp-content/uploads/2022/07/telegram-cloud-photo-size-1-5116505612883176022-x.jpg?w=31 31w" sizes="auto, (max-width: 246px) 100vw, 246px" /><figcaption>Dual Finance&#8217;s John Kramer</figcaption></figure></div>


The unique arrangement, sources said, could be attractive to deep-pocketed investors accustomed to conducting due diligence on equity derivative strategies. The investment approach, made possible by sizable advancements in the depth and breadth of crypto options that have hit the market of late, also could have certain tax and liquidity benefits.&nbsp;



“Normally if a team is paid in tokens, even over a lockup it’s possible individuals may be subject to income taxes in their jurisdiction on the market-to-market value at the time of receiving the economic benefit,” the marketing materials said. “This model is analogous to standard long term incentive plans for corporates, who pay employees and executives in stock option grants, rather than shares on the stock.”



It’s executed through the firm’s proprietary in-house token, which confers governance benefits and may transition into a decentralized autonomous organization (DAO) structure down the line. The initial fundraise is essentially akin to a seed private token round, with liquidity expected in terms of trading on the secondary market.&nbsp;



Kramer is dubbing the token issuance as the “first and only” token launch without “having directly sold any tokens.” That could be a boon to savvy crypto native investors — of whom, sources said, make up a sizable portion of the firm’s likely day-one limited partners — who have long been skeptical of founder-friendly new tokens that don’t necessarily benefit outside buyers.



There is risk.&nbsp;



“The principles Dual Finance will follow to achieve this are experimental and risky; they represent a paradigm shift in tokenomic designs, but if successful a potential blueprint for other projects to follow,” the marketing materials said.&nbsp;



Tokens earmarked for seeders make up just 5% of the DUAL token under a total supply of 1,000,000,000. All tokens are set to be distributed via staking options — which is how the firm avoids selling tokens directly to investors who are not in the staking game.&nbsp;



All told, the setup appears to play into Kramer’s background: Before GSR, he helped build out Consolidated Trading’s crypto investments and spent time trading equity derivatives at Wellington Management. Kramer is joined by co-founder Britt Cyr, a former classmate of his at MIT. Cyr has worked as a lead developer at Youtube, following stints with Google and Facebook.



Kramer, according to the pitchbook, specializes in illiquid crypto derivatives trading — a niche but expanding field — as well as devising bespoke lending products and related exotic, off-the-run digital assets. He oversaw all risk functions for a portfolio of more than 300 illiquid token derivatives with collective assets under management somewhere in the billions.&nbsp;



The firm is additionally looking to hire a handful of engineers. Indications are the co-founders are closing in on terms with a couple, with the full day-one staff makeup contingent upon how capital-raising goes. It’s set to start trading sometime toward the end of the third quarter or the beginning of the fourth quarter of this year.&nbsp;



Sources were granted anonymity to discuss sensitive business dealings. Kramer declined to comment.



Dual Finance’s flagship investment product, dubbed Dual Investment Pools (DIP) consist of structured products built upon various cryptoassets — and Kramer, sources said, has been hawking the structure as having substantial execution improvements to current digital asset DeFi options vaults (DOVs.)&nbsp;



The firm also has a tokenomics twist, with Dual receiving referrals from venture capital firms to shore up the tokenomics of their portfolio companies in need of a tuneup, which join Dual Finance’s ecosystem as a result.



The marketing materials pitch the arrangement as enabling startups to “redesign their tokenomics.”&nbsp;



The decentralized investment pools offer live pricing via an API, as well as customizable strike and maturity functions on options. The strike price of an option or derivative represents the point of sale, while the maturity indicates how long the two-sided trade remains open. In the case of Dual Finance’s flagship vehicle, investors would typically buy into a two-year option and would be able to exercise that trade at any time prior.&nbsp;



The setup, which comes without management fees or a fund administrator, uses physical settlement of the crypto instruments. Another asset: options on staking, or a novel structured product Kramer designed to incentivize liquidity in decentralized finance (DeFi) protocols for a profit.&nbsp;



The firm, sources said, is now closing in on a number of partnerships with market makers to carry this and related investment plays out. A number of incentives are in place to ensure their participation.&nbsp;



When it comes to those protocols, Kramer and Cyr have already been working to get involved in governance — a growing field of interest to institutional investors dating back, recently, to Terra’s Anchor cryptocurrency. While activism has long been a strategy in the stock market, it’s much more new to crypto.



“It’s way easier — OK, maybe not easy, but there’s more alpha left there, than equities,” one source with knowledge of the launch said. “The window will close, but, for now, crypto is inefficient. And that’s a plus.”



Kramer is also working on a system to lend DIP’s collateral to certain limited partners, who must repay the loan by the expiry of the contracts. It’s designed to act as a hedge on the main strategy amid broad-based market volatility.



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New Hedge Fund First to Take Investor Checks via Token Options

Ben Strack

<div id="highlights-block_62d1b2837dd3a" class="highlights">
 <ul>
 <li>Recent industry pains will make the crypto ecosystem more resilient, co-founder James Ho says</li>
 <li>The firm raised $20 million from Multicoin Capital, ParaFi Capital, Road Capital and LedgerPrime, among others</li>
 </ul>
 
</div>



Two investment professionals have teamed up to create a crypto hedge fund as they dive into the bear market of an industry that co-founder <a href="https://www.linkedin.com/in/jamesjho/" target="_blank" rel="noreferrer noopener">James Ho</a> said he believes will be “one of the most transformative technologies” of his career.&nbsp;



Ho and <a href="https://www.linkedin.com/in/vincent-jow-61aaa621/" target="_blank" rel="noreferrer noopener">Vincent Jow</a> are the co-founders of Modular Capital, they revealed Monday, a company set to invest in liquid tokens, DeFi protocols and other segments of the crypto space.



Ho most recently worked as a principal at Altimeter Capital, where he focused on public and private investments in the fintech and crypto sectors. Before that he spent about four years at The D.E. Shaw Group, investing in industries such as fintech, payments, media and telecommunications.



Prior to co-founding Modular Capital, Jow was making similar investments at New York-based Holocene Advisors since 2017.&nbsp;&nbsp;&nbsp;



More crypto use cases have emerged in recent years, Ho told Blockworks, noting the growth of DeFi (decentralized finance) and the underlying protocols in the sector that he said have begun to resemble real businesses.&nbsp;&nbsp;



“All of that was really interesting to us in terms of thinking about how you have this rich, growing ecosystem that we think is in its infancy,” Ho said. “We think crypto is going to be a whole lot bigger when we look out five or 10 years right now.”



Modular Capital raised $20 million from backers including Multicoin Capital, ParaFi Capital, Road Capital and LedgerPrime.



<h3 class="wp-block-heading">The fund’s focuses&nbsp;</h3>



Modular Capital is set to include between 10 and 20 core positions in its portfolio, and DeFi — or decentralized open finance, as Ho calls it — will be a key focus.



“I think in many ways you’ll be building the traditional financial stack on rails that are more modern and more trustless,” he said, “especially as you move to a world that starts to look more multipolar and less US-dominated.”



The firm will also seek to invest in primitives that allow applications to build richer experiences for users, such as layer-1 and layer-2 blockchains or various Web3 infrastructure tools.&nbsp;



Ho said the firm will also monitor the role of NFTs, which he expects will be incorporated into various experiences to unlock certain capabilities for owners.&nbsp;



“Obviously basic profile pictures and JPEGs have been the first foray into that over the last year, but I think you’re going to see a lot more interesting things around music, content, concerts, ticketing and gaming,” he said.



<h3 class="wp-block-heading">Launching into a bear market</h3>



The launch comes as the prices of crypto tokens have plummeted in recent months and companies in the space grapple with liquidity issues.&nbsp;



The bear market persists following the collapse of Terra’s algorithmic stablecoin and LUNA token in May, as well as the struggles of companies such as <a href="https://cms.blockworks.co/3ac-files-for-bankruptcy-as-co-founders-location-unknown/" target="_blank" rel="noreferrer noopener">Three Arrows Capital</a>, <a href="https://cms.blockworks.co/voyager-files-for-bankruptcy-days-after-freezing-withdrawals/" target="_blank" rel="noreferrer noopener">Voyager Digital</a> and <a href="https://cms.blockworks.co/celsius-to-file-for-bankruptcy-imminently-report/" target="_blank" rel="noreferrer noopener">Celsius</a>.&nbsp;



Modular Capital’s co-founders left their full-time jobs in March and have been planning the launch for several months, Ho said, noting that he and Jow didn’t expect to launch right into a bear market.&nbsp;



“I think the reality is crypto ran ahead of itself quite a bit,” Ho said. “By the end of last year you saw a lot of froth in the ecosystem — a number of things that were just heavily subsidized, didn’t have real organic demand, didn’t have real product market fit.”



But the industry has seen “a lot of that air come out of the ecosystem” in recent months, the co-founder added, noting that a bunch of protocols are now getting to more realistic valuations.



Modular Capital intends to initially be patient in terms of its pace of capital deployment and could seek to ramp up exposures over the next three to nine months.&nbsp;



“We are not trying to guess the month-to-month, or even quarter-to-quarter, price action for most of these protocols,” Ho explained. “We’re generally looking to think about [whether] these become real, durable businesses over the course of several years.”



As crypto has been learning the lessons of traditional finance “on speed run” recently, Ho said, rules around uncollateralized lending will likely become more rigid and investors will be more skeptical about algorithmic <a href="https://cms.blockworks.co/tag/stablecoins/" target="_blank" rel="noreferrer noopener">stablecoins</a>.&nbsp;



“I think a lot of these [events] will continue to strengthen and make the ecosystem more robust,” he said. “There are probably still some more shoes to drop over the balance of the year, but I think in general the market definitely has re-set quite a bit for us to kick off our fund.”



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Investment Pros Jump Into Bear Market With New Crypto Hedge Fund

<div id="highlights-block_6279151e68063" class="highlights">
 <ul>
 <li>“If you only think about the old ways of doing things, you miss the new things,” ZX Squared Capital’s CK Zheng says</li>
 <li>The hedge fund aims to reduce risk via options and futures to spur greater crypto adoption</li>
 </ul>
 
</div>



A 30-year Wall Street veteran with a Ph.D. in finance is now focused on offering investors risk-adjusted exposure to crypto.



CK Zheng left Credit Suisse last year to co-found crypto hedge fund <a href="https://www.zx2.io" target="_blank" rel="noreferrer noopener">ZX Squared Capital</a>. 



After working in interest rate derivatives trading at Bank of America and Susquehanna International Group for the first four years of his career, Zheng moved on to Morgan Stanley for five years, where he was an executive director of valuation risk management.



He joined Credit Suisse in 2004 and spent the next 17 years there as the financial services titan’s global head of valuation risk. There, he managed 150 people and focused on assessing risk and value across private equities, mortgages, fixed income, equities and derivatives.&nbsp;



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“The way I see it, crypto is another asset class emerging, and I find there’s a lot of interesting ideas that can combine traditional finance with the crypto space,” Zheng told Blockworks. </blockquote>



Zheng noted that last year was when he first began realizing that crypto was “here to stay” and would “boom” for decades to come.



Crypto received more media coverage in 2021, he noted, and there was a “snowball effect” of more people getting involved.&nbsp;



Bitcoin reached an all-time high of roughly $69,000 last November. The asset last week <a href="https://cms.blockworks.co/bitcoin-hit-hard-by-inflation-fears-suffers-worst-daily-drop-since-january/" target="_blank" rel="noreferrer noopener">recorded its worst daily drop</a> in four months and was priced around $32,900 on Monday morning.



Still, many believe crypto is a scam, Zheng said, noting Warren Buffett’s recent comments. The CEO of Berkshire Hathaway said at a shareholders meeting that he wouldn’t buy all the bitcoin in the world for $25.&nbsp;



“If you only think about the old ways of doing things, you miss the new things,” Zheng said.



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“If you think about a big investment return, you really have to think about the long-term trend and see where that trend leads to not today, not tomorrow, but 10 years down the road.”</blockquote>



ZX Squared Capital is designed for TradFi and crypto-native investors that want exposure to crypto but don’t want to stomach the asset class’s volatility.



The fund uses quantitative strategies with options and futures to reduce its portfolio volatility to a level between 30 to 40%, Zheng explained, versus bitcoin&#8217;s current volatility of between 80% and 100%.



Zheng created the fund with Felix Xu and Yemu Xu, the CEO and co-founder, respectively, of decentralized finance (DeFi) product provider Bella Protocol. Combining their crypto-native minds with Zheng’s TradFi knowledge was key for ZX Squared Capital, Yemu said.&nbsp;&nbsp;



“When [Zheng] brings that profound experience into the crypto space, I think that’s going to be huge,” he added. “Risk management is something that we keep in mind first and foremost.”



The fund’s fundraising target is $200 million in 2022 and $1 billion in 3 years.



<h3 class="wp-block-heading">TradFi versus crypto</h3>



While many of Zheng’s former TradFi colleagues are interested in blockchain technology, the executive noted that crypto’s market capitalization of nearly $2 trillion remains less than Apple’s.



“The reality is traditional finance is 100 times bigger than crypto,” he said. “A majority of people look at equity, credit, and fixed income, and there’s still a lot of money to be made.”



Though regulation and compliance concerns continue to keep some investors and financial companies from getting involved, Zheng said he is confident governments will work with TradFi and crypto companies to pave the way for greater adoption.&nbsp;



He pointed to Goldman Sachs, which made an <a href="https://cms.blockworks.co/goldman-sachs-makes-milestone-crypto-trade-with-galaxy-digital/" target="_blank" rel="noreferrer noopener">over the counter (OTC) crypto transaction</a> with Galaxy Digital in March, as an example of a big financial player “rolling up its sleeves.” He said he expects competitors, such as Morgan Stanley, to follow.



Wall Street firms will get involved in segments in which they can be profitable, Zheng said, adding that crypto derivatives could be a good gateway for traditional institutions.&nbsp;&nbsp;



“Today you look at stocks, you look at bonds and the many other asset classes — it’s either fully valued or overvalued, and there’s a lot of concern about the Fed’s tightening cycle,” he said. “So people have to think about where they put their assets and how to invest in the future.”



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Gone Crypto: TradFi Vet Who Started Crypto Hedge Fund Talks Future of the Space

<div id="highlights-block_625746c95920c" class="highlights">
 <ul>
 <li>The startup is run by traders with experience trading volatility markets</li>
 <li>Flagship fund launched in January is up marginally each month even as crypto markets have been roiled</li>
 </ul>
 
</div>



A quantitative crypto hedge fund startup run by a longtime hedge fund professional is raising its second vehicle on the back of steady demand from institutional investors.



Ian Tousignant’s Outremont Technologies started trading its second fund last month as fundraising continues for its latest venture, as well as the firm’s startup vehicle, according to two sources with knowledge of the matter.



Its newest offering runs a so-called smart beta strategy, with limited partners betting they’ll make money in tandem with the market — if bitcoin doubles, their holdings will double.



The startup’s flagship vehicle, which launched in January, employs an automated, quantitative strategy that keys in on volatility trades, in keeping with Tousignant and his traders’ backgrounds of making money from spikes and dips in the market.



Sources were granted anonymity to discuss sensitive business dealings. Tousignant declined to comment.



The firm favors a liquid strategy focused on the top 30 coins by market capitalization that doesn’t take delta risk, or take a directional view on price moves between a derivative and its underlying asset. That said, Tousignant maintains models that allow the firm to trade “everything under the sun” including futures and other options.



Outremont last month had about $40 million of assets under management. Its roughly 12-person team suggests it expects significant inflows. Staffers are based around the world, including in Montreal, New York and Amsterdam — a setup that allows the startup more flexibility in driving alpha from crypto markets that don’t sleep.&nbsp;



Indeed, one source said the firm is closing on some “bigger tickets” expected to roll in later this quarter — if they haven’t already.&nbsp;



Tousignant has been touting his resume — including stints as a portfolio manager at Millennium Management and Hutchin Hill Capital — as deep-pocketed investors look to back up and coming crypto outfits that have <a href="https://cms.blockworks.co/stock-picking-vets-readying-fundamental-crypto-hedge-fund-with-at-least-50m/" target="_blank" rel="noreferrer noopener">traditional</a> capital-markets <a href="https://cms.blockworks.co/bucking-crypto-quant-mania-equity-vets-bet-investors-are-hungry-for-fundamentals/" target="_blank" rel="noreferrer noopener">experience</a>. Its team is also working on machine-learning signals.



The firm runs about 12 strategies, including volatility arbitrage, cross-platform arbitrage and decentralized finance (DeFi) volatility arbitrage. In contrast with a fully quant, automated black-box strategy, its traders pull the trigger on each trade.



The beta fund adjusts its market exposures in keeping with the market — running lower net exposures during market downturns. Its flagship fund, meanwhile, returned a gross 30 basis points in January and 60 basis points in February as volatility — later intensified by the Russian invasion of Ukraine — roiled digital asset markets and led to steep losses at a number of prominent funds.



It imposes a $1 million minimum on limited partner checks which can be split between the two funds. There is no lockup, and quarterly redemptions are permitted with notice of 60 days under a quarterly 25% gate.



The capacity of the alpha fund is pegged around $250 million, with one source saying Tousignant is making a “calculated bet that [the firm] will grow with the capacity of the market.”



It’s worth keeping in mind, the source added, that a year ago, traders couldn’t dabble much in crypto volatility or even options on digital assets.



Other senior members of the team include Darryl Zerdy, a managing director who has previously worked for Hutchin Hill and Peace Bridge Partners. Another managing director, Anoop Dalvi, last headed the equity derivatives desk at Goldman Sachs.



Outremont’s head of operations, Sharon Liu, formerly worked for a fixed-income hedge fund, and Selim Adyel, a quantitative strategist, formerly worked for Caxton Associates and Morgan Stanley. His fellow quant strategist, Vladyslav Ivanov, spent time in the Chicago proprietary quantitative trading scene.



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<li><a href="https://blockworks.co/newsletter/thedrop">The Drop</a>: For crypto collectors and traders, covering apps, games, memes and more.</li>



<li><a href="https://blockworks.co/newsletter/supplyshock">Supply Shock</a>: Tracking Bitcoin’s rise from internet plaything worth less than a penny to global phenomenon disrupting money as we know it.</li>
</ul>

Hedge Fund Volatility Vets Launch Crypto Fund as Investors Look to TradFi Pros

<div id="highlights-block_6244d90528c2f" class="highlights">
 <ul>
 <li>The founders are betting their equity know-how will translate to winning directional bets in crypto markets</li>
 <li>The firm is closing in on an institutional investor startup to serve as an anchor investor</li>
 </ul>
 
</div>



Two veteran stock-picking portfolio managers are prepping a cryptocurrency hedge fund that would tap their equities expertise to invest in a fundamental fashion, according to two sources familiar with the matter.



Tephra Digital — named for fertile soil ejected during sporadic volcanic eruptions — plans to launch sometime before the end of the second quarter, sources said. It’s run by Raghav Chopra, most recently a portfolio manager for the $739-billion AllianceBernstein, and Ryan Price, formerly of Riposte Capital.



Chopra and Price worked together for several years at the stock-picking Steadfast Financial. 



Tephra plans to start trading with more than $50 million in assets under management, including commitments, and indications are Chopra and Price will look to scale the firm in a sizable way this year. The startup is closing in on a significant anchor investment and also plans to add partner capital and friends and family money into the mix.



Sources were granted anonymity to discuss sensitive business dealings. Chopra and Price declined to comment.



The pair will serve as co-portfolio managers, overseeing a directional, fundamental and concentrated high-conviction strategy that keys in on liquid tokens. It’s a departure from the majority of digital asset funds, which rely on quant algorithms to trade fast-moving markets that don’t sleep.



The idea is to line up long-term limited-partner exposure to high-quality Web3 protocols. The lockup period imposed on investors couldn’t be learned. Chopra and Price are setting up both onshore and offshore vehicles domiciled in Delaware and the Cayman Islands — allowing them to accept contributions from both US and foreign investors.



And it’s part of a <a href="https://cms.blockworks.co/bucking-crypto-quant-mania-equity-vets-bet-investors-are-hungry-for-fundamentals/" target="_blank" rel="noreferrer noopener">growing trend</a> of savvy stock-pickers trying to translate their expertise to crypto markets.&nbsp;



Factor6 Capital, run by healthcare-focused Ghost Tree Capital alums Ralph Achacoso and Jason Zhang, is betting that institutional investors accustomed to speaking the language of long/short equity will be familiar doing due diligence on the startup.



“There’s a real chance here to break away from all the black box guys,” one source said. “[Investors] don’t really understand what they’re doing. They don’t know how to vet them. It’s a comfort thing, with fundamentals. They know what to do and what to expect.”



Price, who has also spent time at equity hedge fund firms Calypso Capital and Sigma Capital, intends to lean on his background of picking financial technology stocks. Chopra, meanwhile, will look to put his knowledge of trading software and internet stocks to work in Web3 investment opportunities.&nbsp;



Both have previously personally traded crypto.



The startup is also hiring a number of analysts as well as back- and middle-office professionals on the operational side. It will have offices in New York and Miami.



Chopra, in addition to holding a board seat for crypto miner <a href="https://argoblockchain.com" target="_blank" rel="noreferrer noopener">Argo Blockchain</a>, previously also worked for firms including Carlyle Group, Goldman Sachs and Kanha Capital.



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<ul class="wp-block-list">
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<li><a href="https://blockworks.co/newsletter/forwardguidance">Forward Guidance</a>: Reporting and analysis on the growing intersection of crypto and macroeconomics, policy and finance.</li>



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<li><a href="https://blockworks.co/newsletter/supplyshock">Supply Shock</a>: Tracking Bitcoin’s rise from internet plaything worth less than a penny to global phenomenon disrupting money as we know it.</li>
</ul>

Stock-Picking Vets Readying Fundamental Crypto Hedge Fund With at Least $50M

<div id="highlights-block_61fc2da20eb8b" class="highlights">
 <ul>
 <li>Tiger has traded decentralized finance protocols, including Filecoin</li>
 <li>The firm, founded in 2001, invests in both public and private companies</li>
 </ul>
 
</div>



Tiger Global, long known for making winning bets on private blockchain startups, has for the first time started to actively trade cryptocurrencies, according to two people familiar with the matter.



One of the world’s largest and oldest hedge fund firms, Tiger joins a growing number of top asset managers on the hunt for alpha in crypto’s inefficient markets. The firm started trading crypto in recent months, the sources said.



Sources were granted anonymity to discuss sensitive business dealings. A representative for Tiger, which has $90 billion of assets under management across its hedge funds and venture capital vehicles, declined to comment.



Given the success of Tiger’s private crypto plays, trading liquid tokens could be a big area of growth for the New York-based firm down the line. Indications are that Tiger has trodden lightly in the space as its institutional limited partners — including some of the largest pension funds and endowments — are only slowly warming up to digital assets as a core position in their portfolios.



“Tiger doesn’t rush into things, but I’m honestly surprised they didn’t make the move earlier,” one source said. “They definitely have the connections to understand the space from their private business. It’s just a matter of bringing on the right people for trading.”



It is not clear whether Tiger is dabbling in digital assets via its flagship fund or whether the firm has considered setting up vehicles to trade crypto outright. The latter stance would bring Tiger in line with peers including Brevan Howard, which Blockworks previously reported is <a href="https://cms.blockworks.co/sources-brevan-howard-launches-first-digital-assets-fund-in-massive-crypto-push/" target="_blank" rel="noreferrer noopener">poised to raise hundreds of millions of dollars</a> for its first crypto fund.



The flagship fund of Tiger, run by founder Chase Coleman, focuses on making fundamental, long and short wagers on stocks.



In addition to exploring well-known cryptocurrencies such as bitcoin and ether, Tiger has invested in decentralized finance (DeFi) protocols, including Filecoin, as the firm delves into the investment prospects of Web3, sources said.



Filecoin — which has a market capitalization of just $3 billion, according to Coingecko — issues tokens to users who provide storage space for the network. Its aim is to assemble an array of data, including Creative Commons assets and historical records, that is indexable and searchable via blockchain technology.



Tiger has backed dozens of crypto startups, including <a href="https://cms.blockworks.co/blockdaemon/" target="_blank" rel="noreferrer noopener">Blockdaemon</a>, <a href="https://cms.blockworks.co/blockfi-closes-350m-series-d-round/" target="_blank" rel="noreferrer noopener">BlockFi</a>, <a href="https://cms.blockworks.co/ftx-valued-at-32-billion/" target="_blank" rel="noreferrer noopener">FTX</a>, <a href="https://cms.blockworks.co/billionaire-alan-howard-tiger-global-invest-in-20m-funding-round-for-livepeer/" target="_blank" rel="noreferrer noopener">Livepeer</a>, <a href="https://cms.blockworks.co/moonpay-marshals-555m-in-series-a-funding-round/" target="_blank" rel="noreferrer noopener">Moonpay</a> and <a href="https://cms.blockworks.co/trm-labs-lands-60-million-series-b-round/" target="_blank" rel="noreferrer noopener">TRM Labs.</a>



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<li><a href="https://blockworks.co/newsletter/forwardguidance">Forward Guidance</a>: Reporting and analysis on the growing intersection of crypto and macroeconomics, policy and finance.</li>



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</ul>

Exclusive: Veteran Blockchain VC Backer Tiger Global Moves Into Crypto Trading

<div id="highlights-block_61e71e0f47627" class="highlights">
 <ul>
 <li>The launch is the latest in an increasing number of venture capital funds focused on digital assets</li>
 <li>Pyxis is on track to raise at least $25 million for the launch and plans to institute a cap of $40 million</li>
 </ul>
 
</div>



A former family office executive and a veteran volatility trader are raising capital for a hybrid crypto-focused venture capital fund that would invest in early-stage liquid and illiquid plays, according to three people familiar with the matter.



Stephen Moskowitz and Anthony Merriman are aiming to raise at least $25 million for their Pyxis Capital, with a launch slated for the end of the first quarter or beginning of the second quarter, sources said.&nbsp;



Blockchain-focused investment firm <a href="https://cms.blockworks.co/private-equity-firm-kkr-invests-in-defi-and-blockchain-focused-parafi-capital/" target="_blank" rel="noreferrer noopener">ParaFi Capital</a>, which ran about $1 billion of assets under management at year-end 2021, is backing Pyxis as an anchor investment, the sources said.



The firm has a number of other strategic investors coming in, according to sources, and also plans to make additional hires.&nbsp;



Sources were granted anonymity to discuss sensitive business dealings. Moskowitz and Merriman declined to comment.



The goal is to raise at least $25 million for Pyxis’ flagship vehicle, and indications are the first raise has been oversubscribed. The firm plans to cap capital contributions at $40 million.



Pyxis plans to invest in early-stage tokens, back nascent crypto startups and do a smaller amount of directional, hedge-fund-like trading of liquid cryptocurrencies.



Merriman, Pyxis’ chief investment officer, has Wall Street and crypto experience, having previously worked for firms including AQR Capital, Morgan Stanley and Celsius. He oversaw a crypto portfolio of about $200 million at Celsius.&nbsp;



Moskowitz, the firm’s chief operating officer and president, most recently worked for an undisclosed family office in the New York area, where he built out the firm’s crypto lending business — including closing a $20 million secured loan to crypto miner Bitfarms. He also worked on investing in liquid tokens and vetting crypto funds.



He previously spent time at firms including Morgan Stanley, FocusPoint Private Capital and Champlain Advisors. He’s an investor in crypto businesses including BlockFi and Gemini.&nbsp;



Moskowitz and Merriman first met in 2017, when they kicked around the idea of starting a fund. The two have deep experience in crypto, with the former getting into the space in 2016 and the latter in 2013.



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Get the news in your inbox. Explore Blockworks newsletters:



<ul class="wp-block-list">
<li><a href="https://blockworks.co/newsletter/daily">Blockworks Daily</a>: The newsletter that helps thousands of investors understand crypto and the markets, by Byron Gilliam.</li>



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<li><a href="https://blockworks.co/newsletter/forwardguidance">Forward Guidance</a>: Reporting and analysis on the growing intersection of crypto and macroeconomics, policy and finance.</li>



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<li><a href="https://blockworks.co/newsletter/thedrop">The Drop</a>: For crypto collectors and traders, covering apps, games, memes and more.</li>



<li><a href="https://blockworks.co/newsletter/supplyshock">Supply Shock</a>: Tracking Bitcoin’s rise from internet plaything worth less than a penny to global phenomenon disrupting money as we know it.</li>
</ul>

ParaFi Capital-backed Crypto Venture Capital Firm Prepping Launch, Sources Say

<div id="highlights-block_6192c79b76ed7" class="highlights">
 <ul>
 <li>The fund’s management team sees opportunities to invest in Ethereum, Avalanche, Solana, Binance Smart Chain, Magic and Fantom, among other protocols</li>
 <li>Upcoming launch to come after the firm brought to market the second-ever bitcoin futures ETF in the US</li>
 </ul>
 
</div>



Amid Valkyrie Investments’ push to build out a suite of crypto ETFs, the firm is getting set to launch a $100 million hedge fund focused on decentralized finance.



The Valkyrie On-Chain DeFi Fund invests in a couple of dozen protocols across 13 different blockchains, Wes Cowan, the firm’s managing director of DeFi, told Blockworks in an email. The offering’s management team believes opportunities exist across most major DeFi 1.0 and 2.0 protocols, including Ethereum, Avalanche, Solana, Binance Smart Chain, Magic and Fantom.



Set to launch on Nov. 22, it will be available to accredited investors in the US, as well as abroad, and a total of $75 million has already been secured. In addition to investing in DeFi tokens, the fund will hold assets on-chain.



“This allows us to participate in the upside while also gaining additional yield from lending, liquidity pools, farming and staking in the DeFi ecosystem,” Cowan explained.



The offering was co-founded by Cowan, as well as Valkyrie Vice Chairman Will McDonough, who has previously worked in senior roles at Goldman Sachs and Avenue Capital.



“The fund was launched in response to demand from existing clients and investors, who also happen to make up the bulk of the launch funding,” Cowan noted.



A Goldman Sachs report <a href="https://cms.blockworks.co/goldman-sachs-defi-has-its-advantages-over-traditional-finance/" target="_blank" rel="noreferrer noopener">published last month</a> stated that DeFi is easier to access for underbanked populations and provides faster settlements for users. Authors Zach Pandl, co-head of foreign exchange strategy for Goldman Sachs Research, and Isabella Rosenberg, a foreign exchange analyst at the company, noted however that DeFi is still a work in progress with flaws like <a href="https://cms.blockworks.co/hackers-steal-over-600m-biggest-in-defi-history/">hacks</a>, bugs and “outright scams.”



The hedge fund follows Valkyrie’s <a href="https://cms.blockworks.co/valkyries-btf-trades-10m-in-first-5-minutes/" target="_blank" rel="noreferrer noopener">launch of its Bitcoin Strategy ETF (BTF</a>). The bitcoin futures-based product was the second such ETF to hit the US market behind only the ProShares Bitcoin Strategy ETF (<a href="https://cms.blockworks.co/bito-on-track-to-be-first-fund-in-history-to-hit-1b-in-aum-in-two-days/" target="_blank" rel="noreferrer noopener">BITO</a>).&nbsp;



BTF is meant to be “the first in a family of crypto and crypto-adjacent ETFs,” Valkyrie CEO Leah Wald previously said. The fund group, along with a handful of other issuers, awaits approval from the US Securities and Exchange Commission (SEC) for its proposed bitcoin ETF that would directly hold the crypto asset. 



The firm also <a href="https://cms.blockworks.co/two-new-valkyrie-funds-planned-for-bitcoin-exposure/" target="_blank" rel="noreferrer noopener">filed earlier this month to launch</a> the Valkyrie Bitcoin Miners ETF and the Valkyrie US Innovative Balance Sheet ETF. Both funds are actively managed, but neither would invest directly in bitcoin.&nbsp;



About a week earlier, the firm <a href="https://cms.blockworks.co/valkyrie-pulls-leveraged-etf-application-at-secs-request/" target="_blank" rel="noreferrer noopener">withdrew its application</a> for a leveraged bitcoin futures ETF at the SEC’s request.



<hr class="wp-block-separator"/>



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<hr class="wp-block-separator"/>

Valkyrie to Launch $100M DeFi-focused Hedge Fund

<div id="highlights-block_614cdd128b917" class="highlights">
 <ul>
 <li>The actively managed funds have a 4% management fee, while Grayscale’s passive bitcoin and Ethereum trusts have a 2% and 2.5% annual fee, respectively</li>
 <li>Cambrian strategies over past three years have reduced downside volatility by two-thirds in the case of ETH and approximately 60% for BTC, executives say</li>
 </ul>
 
</div>



Cambrian Asset Management has launched bitcoin and Ethereum trusts designed for institutional and accredited individual investors seeking exposure to the cryptocurrencies.



The California-based quantitative investment firm launched its newest products to satisfy the increasing demand for actively managed exposure to BTC and ETH in a way that cushions downside volatility, the company’s executives told Blockworks. The funds were also created to allow existing holders of bitcoin and ether to benefit from the firm’s risk management in a tax-efficient manner.&nbsp;



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“Our funds use a directional systematic investing approach that include momentum and mean reverting signals,” Cambrian President Tony Fenner-Leitao and CEO Martin Green said of the new products. “Our approach enables investors to get the compounding benefits of the space while limiting downside risks compared to what they’d experience from passive holding digital assets.”</blockquote>



David Tawil, president of ProChain Capital, said the products are unique due to their actively managed strategies in bitcoin and ether, noting that he doesn’t know of any other public, liquid offerings of their kind.&nbsp;



“I think that systematic hedge funds are generally into crypto,” he told Blockworks. “However, I don’t know how many will create a liquid, public offering. That’s usually not their cup of tea.”



Cambrian Systematic Strategies, the firm’s flagship fund, is multi-asset — with roughly 50 tokens — has long and short positions, and charges a management and incentive fee. The two new trusts are single-asset (BTC or ETH), will not go short and will be charged a management fee only.&nbsp;



Cambrian’s systems are informed by more than 100 billion historical market data points dating back to 2014 and utilize execution algorithms that update in milliseconds. Its strategies over the past three years have generated compound returns higher than a digital asset passive index and have reduced downside volatility by two-thirds in the case of ETH and approximately 60% for BTC.



The trusts require an initial minimum investment of $50,000 and carry a 4% management fee. Executives noted that the price represents a premium of between 1.5% and 2% compared to passive peers.



The <a href="https://grayscale.com/products/grayscale-bitcoin-trust/" target="_blank" rel="noreferrer noopener">Grayscale Bitcoin Trust</a> (GBTC), a passive product with about $27 billion in assets, charges a 2% annual fee. The <a href="https://grayscale.com/products/grayscale-ethereum-trust/" target="_blank" rel="noreferrer noopener">Grayscale Ethereum Trust</a> (ETHE), which holds $9 billion in assets, has an annual fee of 2.5%. 



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“Everything in crypto is expensive; eventually there will be fee compression,” Tawil said. “However, a 4% fixed fee, with no performance fee, for an active strategy in a nascent asset class is understandable. As always, the proof will be in the pudding.”</blockquote>



Grayscale has revealed plans to convert GBTC and ETHE to ETFs as about a dozen other proposed ETFs that would directly invest in cryptocurrencies await SEC approval.



Unlike an ETF that has no supply constraint, Cambrian intends to manage capital inflows to protect its return profile and relationship of the liquidity share and underlying net asset value.



Along with Institutional investors preferring active management and existing BTC and ETH holders, interested investors in the funds include crypto projects looking to grow their treasury holdings of BTC or ETH with reduced downside risk, Cambrian executives explained.&nbsp;



Cambrian plans to file an application with OTC Markets to publicly trade shares of the trusts about a year after the first subscription.



“If we are successful in bringing the Trusts to the public markets,” Fenner-Leitao and Green said, “every retail investor, wealth management client or regulated institution will be able to get actively managed exposure by purchasing trust shares from their brokerage account.”



<hr class="wp-block-separator"/>



Are you a UK or EU reader that can’t get enough investor-focused content on digital assets?<a target="_blank" href="https://cms.blockworks.co/events/das-london/" rel="noreferrer noopener">Join us</a> in London on November 15th and 16th for the Digital Asset Summit (DAS) London. Use code ARTICLE for £75 off your ticket. <a target="_blank" href="https://cms.blockworks.co/events/das-london/" rel="noreferrer noopener">Buy it now</a>.



<hr class="wp-block-separator"/>

Quant Hedge Fund Cambrian Launches Bitcoin, Ethereum Trusts

Morgan Chittum

In the latest episode of Blockworks’ podcast “<a href="https://www.youtube.com/watch?v=md4XiS4XhCk" target="_blank" rel="noreferrer noopener">Empire</a>,” Jason Yanowitz, co-founder of Blockworks, <meta charset="utf-8">is joined by Roy Capital Advisors managing partner Avik Roy to talk about CBDCs versus stable coins, the private sector&#8217;s role within the economy and more.



Avik is the president of the Foundation for Research on Equal Opportunity, the policy editor at Forbes and previously served as an analyst and portfolio manager at JPMorgan, Bain Capital and other firms.&nbsp;



Jason and Avik talk about:



<ul class="wp-block-list"><li>Bitcoin versus CBDCs</li><li>Avik&#8217;s thesis on bitcoin </li><li>&#8220;The fiscal and entitlement crisis&#8221;</li></ul>



Check out what they had to say in the video below. 👇



<figure class="wp-block-embed is-type-video is-provider-youtube wp-block-embed-youtube wp-embed-aspect-16-9 wp-has-aspect-ratio"><div class="wp-block-embed__wrapper">
<iframe loading="lazy" title="Hedge fund manager talks CBDCs | Avik Roy" width="1024" height="576" src="https://www.youtube.com/embed/md4XiS4XhCk?feature=oembed" frameborder="0" allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture" allowfullscreen></iframe>
</div></figure>



On &#8220;Empire,&#8221; once a week, Jason interviews individuals that have built the crypto industry to talk about their struggles, bold moves and tough decisions. For any NPR or Guy Raz fans out there, you can think of &#8220;Empire&#8221; like a “How I Built This” for the bitcoin and crypto industry.



Episodes are released every Thursday morning.&nbsp;



Subscribe to Empire today on&nbsp;<a href="https://apple.co/389JSpL" target="_blank" rel="noreferrer noopener">Apple</a>&nbsp;or&nbsp;<a href="https://spoti.fi/3uVnxpC" target="_blank" rel="noreferrer noopener">Spotify</a>. Watch episodes on&nbsp;<a href="https://www.youtube.com/playlist?list=PLvER9nHSRN3wPkrDGTT5_8VC4Hjcq0f9U" target="_blank" rel="noreferrer noopener">YouTube</a>.