This crypto fund has outperformed bitcoin for the past five years. here’s how


A visual representation of Bitcoin.

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In a space full of venture capitalists and traders, a blockchain fund run by value managers thinks it can offer investors returns greater than bitcoin itself.

Bitcoin has been called the best performing asset of the decade by some. Off the Chain Capital, a fund that deploys a traditional value investing strategy — using fundamental analysis to find undervalued assets — says its fund has outperformed bitcoin in each of the past five years.

The fund has averaged 133% per year since its inception in 2016, compared to around 108% per year on average for bitcoin, according to Off the Chain. The company used the compound annual growth rate for the fund and bitcoin using a start date of December 31, 2016 and ending February 28, 2022.

“We’ve outperformed bitcoin five out of five years, and we’ve done it with 80% less volatility than bitcoin,” said Brian Estes, CEO and chief investment officer of the fund. “That’s what I’m really proud of, because I built this so that endowments, foundations, and other conservative investors could get exposure to blockchain assets and get that downside protection.”

It also said it outperformed the S&P 500 by 3,653% over the same period and was 99.99% uncorrelated to the broad market index, meaning the two do not move up and down.

In search of value

The fund’s strategy is to find mispriced assets in the blockchain space.

It aims to buy blockchain assets worth a dollar for 50 cents and make a profit from buying the assets, rather than buying them at fair market value and letting them rise. This way, he can apply a value approach while capturing the growth of the still-young industry.

For example, Off the Chain was a big buyer of shares of Mike Novogratz’s Galaxy Digital two years ago, which then cost about 70 cents, Estes said. The stock closed Tuesday at $15.79 per share.

Silvergate Bank is another poorly rated company, according to Estes. The crypto-friendly bank went public two years ago and was rated as a bank, while operating as a crypto company.

“It was valued at eight times earnings and three times book value and what people didn’t understand was that Silvergate isn’t a bank, it’s a crypto company that basically has a monopoly on most crypto companies.”

As a result, his income is increasing by more than 100% per year, he added.

Private equity accounts for about half of the portfolio. The company is also looking for mispriced digital assets, including bitcoin.

Offer diversification

Off the Chain is one of the biggest buyers of Mt. Gox bankruptcy claims. Mt. Gox was once the largest bitcoin depository until a Russian hacker stole almost all of it – around 740,000 bitcoins worth $460 million.

The fund buys those claims from people at an average discount of about 80%, Estes said.

“We believe bitcoin is the winner of the store of value and a major diversification tool for portfolio allocators. If you can’t outperform bitcoin as a fund, you might as well own the bitcoin and not pay management fees,” Purcell said.

It also views Binance and its utility token, BNB, as undervalued assets.

“It currently has the same value as Coinbase, but it trades around 4.2 times the volume of Coinbase,” Purcell said of the exchange. “They’ve also developed the Binance Smart Chain, which takes developers away from other communities like Ethereum, and we think that’s a value play.”

The fund currently has approximately 200 sponsors and $399 million under management. It primarily targets institutions, endowments, family offices and other high net worth individuals for a minimum of around $1 million.

Estes said the fund currently has an additional capacity of $200 million. It is also “highly likely to open an artificial bitcoin smart algorithmic trading fund within the next six months.”


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