Compared with direct investment in cryptocurrency, there is a financial product that allows investors to enjoy the growth dividend of the cryptocurrency market without having to face issues such as exchange, storage, and short-term price fluctuations. This is the encryption fund.
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cryptocurrency trust fund
Similar to the characteristics of traditional trust funds, cryptocurrency trust funds are issued by special investment institutions in the form of contracts or companies, fund bond shares are raised, investors' funds are raised, and investment is made by specialized investment institutions according to the principles of asset portfolios. Investors share the benefits according to the proportion of their holdings and bear the corresponding risks.
At present, the largest trust fund in the encryption market is the Grayscale Bitcoin Trust (GBTC, Bitcoin Trust Fund) of Grayscale Digital, a cryptocurrency investment institution. Grayscale Digital was founded in 2013 by the investment group Digital Currency Group. On September 25 of the same year, GBTC, the first Bitcoin trust fund in the market, was established.The fund's assets under management now stand at $2 billionimage description
(Grayscale's list of 10 trust funds, data as of October 16, 2019)
So what is the difference between directly investing in digital currency and buying trust funds? Take the Bitcoin Trust Fund as an example (the same applies to several other trust funds):
1. Traditional investors who are unfamiliar with digital currencies can enter the market through trust funds without the need to exchange and store digital currencies.
2. Buy one GBTC and you will get 0.00097368 bitcoins, and the price of one GBTC is $9.28 (price on October 16, 2019). According to Bitcoin market price$ 8,175.10, 0.00097368 bitcoins worth $7.60. Therefore, the premium of the two is 32%, and when the historical premium is the highest, it is as high as 85%, which brings a lot of room for arbitrage.
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(market price is the market price of GBTC, Bitcoin Holding Share is the yield of Bitcoin, data on October 16)
4. The operation mode of GBTC is similar to that of a gold trust fund: a large gold producer consigns physical gold to a fund company, and then the fund company uses this physical gold as a basis to publicly issue fund shares on the exchange and sell them to various investors , the commercial bank acts as the fund custodian bank and the physical custodian bank respectively, and investors can freely redeem the fund during the duration of the fund. The difference is that GBTC’s Bitcoin is hosted by the security company Xapo, so the value of GBTC also depends on the security of Xapo’s IT system.
5. This product structure is a passive investment method, and the fund target has no other assets except Bitcoin, and there is no strategy such as leverage. Those who plan to hold for a long time may have the risk of shrinking asset premiums, while short sellers can obtain asset premiums (excluding the 2% handling fee).
6. This premium will not exist for a long time. As Bitcoin is recognized and used by more people, the threshold for direct purchase of Bitcoin will be lowered, and the premium between the Bitcoin Trust Fund and the spot will gradually disappear, unless the GBTC team changes the investment Strategies, using other methods to make the fund's income higher than that of spot trading.
However, for traditional investors, the threshold for digital currency participation is high and there is no legal protection. The existence of trust funds fills this gap.
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Digital Currency Venture Capital Fund
Digital currency venture capital is similar to traditional venture capital, but the difference is that traditional venture capital obtains capital appreciation and liquidity by helping the invested companies go public, while digital currency venture capital funds help them list coins (publicly traded on exchanges) Get an exit opportunity.
At present, there are two main forms for digital currency venture capital funds to participate in investment:
(1) Participate purely in the form of tokens. Once the project is listed, the tokens can be sold through the secondary market to recover funds.
(2) The structure of equity + tokens. The combination of stocks and tokens varies from fund to fund, but it is more inclined to hold stocks. Although different funds have different strategies, there are two main directions of investment targets: the equity of encrypted companies (such as financial services and technology companies), and the use of blockchain technology in non-encrypted companies (such as blockchain concept stock companies). ) of equity.
Compared with the above trust funds, the characteristics of venture capital funds are as follows:
1. Low liquidity
The tokens and equity of venture capital funds are generally valued on a quarterly basis and are not affected by the real-time prices of publicly traded tokens. Therefore, venture funds show low liquidity and are not suitable for investors who pursue short-term profits.
2. Equity valuation model to hedge token volatility risk
Equity held by venture funds has a clear and proven valuation methodology that can deliver returns even when tokens are highly uncertain.
For example, Coinbase’s private placement valuations increased by 381% (from post-to-pre-funding) in its Series D and Series E rounds in August 2017 and October 2018, respectively. During the same period, Bitcoin is up 84%. This hybrid approach is clearly less risky than just owning crypto assets. This pattern can even help venture funds perform well even in bear markets. For example, in 2018, Bitcoin fell by 53%, but the venture fund Pantera Capital Venture Fund II rose by nearly 60% in the first three quarters of 2018.
In terms of digital asset management scale, we found 6 crypto venture capital funds with an asset management scale of over US$100 million this year, and tried to conduct a comparative analysis of their investment portfolio strategies:
List of global top6 encryption venture capital funds:
1. Polychain Capital
Polychain Capital's investment portfolio is relatively extensive, and its investment distribution is: basic agreement (39%), research and development (21%), exchange (15%), DeFi (18%), custody (6%). Polychain Capital's asset management scale has reached 967 million US dollars, making it the largest digital currency venture capital fund at present.It pays more attention to basic agreements and research and development than other investment institutions.
Polychain Capital Investment Map:
2. Pantera Capital
Pantera Capital's investment distribution is: financial services (16%), technology (11%), trade and investment (10%), fintech (9%) and blockchain (7%). In addition, the game field is quite popular with Pantera Capital, accounting for 8% of its investment portfolio.Unlike other VCs, most of Pantera Capital's investments are initial coin offerings, or ICOs, rather than initial rounds of equity investments, which is why Pantera Capital was recently ordered by the US Securities and Exchange Commission (SEC) to "stop" ICO projects the main reason.
Pantera Capital's recent investments are: Korbit, Circle, Polychain, and Earn.com, with a total investment of more than one billion US dollars.
Pantera Capital investment map (The Block mapping):
3. Andreessen Horowitz（a16z）
a16z's portfolio is: Financial Services (20%), Trade & Investment (17%) and Blockchain Technology (13%), which together make up 50% of its portfolio.
a16z Portfolio Map (The Block Mapping):
4. Galaxy Digital
Galaxy Digital currently manages two types of funds,Active funds and passive funds, active funds mainly refer to venture capital funds, and passive funds refer to BGCI (Bloomberg Galaxy Crypto Index), a cryptocurrency index fund jointly launched with Bloomberg in 2018, to track the performance of this cryptocurrency market.At present, the investment strategy of the venture capital fund actively managed by Galaxy Digital has not been publicly disclosed.
Galaxy Digital Portfolio Map:
5. Digital Currency Group（DCG）
DCG's investments are distributed in: financial services (20%), trade and investment (13%), fintech (12%) and payments (8%), accounting for 53% of its total portfolio. 51% of these investments were concentrated in the seed rounds of blockchain companies.The idea is to cash in on the few surviving companies by investing heavily in early-stage companies.
For example, DCG was an early investor in Kraken, Ripple, and Ledger, which are now valued in the billions of dollars each.
DCG investment map:
6. Blockchain Capital
Blockchain Capital's investment portfolio is: Financial Services (16%), Fintech (16%), Blockchain Infrastructure (12%), Trading and Investment (11%), which together account for 55% of all investments.Also, about 4% of the portfolio consists of blockchain healthcare startups. Blockchain Capital sees blockchain + healthcare as an area to watch.
Blockchain Capital portfolio (chart by The Block):
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