- Crypto hedge fund BKCoin Capital is changing its strategy to attract institutional investors.
- The firm recently tapped former Coinbase executive Paul Magahis to lead the transition.
- Co-founder Carlos Betancourt shares what he thinks will kick the crypto market back into gear.
Crypto hedge fund BKCoin Capital is readying itself to add more institutional investors to its Rolodex of clients.
The $150 million Miami-based hedge fund is moving from a market-neutral investment approach to a multi-strategy one to accommodate institutional investor clients like pension funds, endowments, foundations, and sovereign wealth funds.
BKCoin Capital co-founder Carlos Betancourt told Insider that when investing in digital assets, investors are now looking for capacity and diversification across sub-strategies, asset classes, and trading timeframes.
“It also means that new alpha-generating strategies, such as options trading, can be added to the strategy mix, and ones suffering from alpha decay — due to the flood of new entrants into crypto — can be removed on an ongoing basis,” said Betancourt.
The 15-person firm recently tapped Paul Magahis, former head of capital strategy at Coinbase, as president to help build relationships with institutional allocations.
The company’s evolution comes amid a massive Bitcoin and cryptocurrency meltdown. In May, cryptocurrencies tanked to some of their lowest levels since 2020, wiping out roughly $1 trillion worth of value. Bitcoin, the largest cryptocurrency by market capitalization, is down more than 50% from its all-time high of $69,000 seen in November 2021 and down 35.4% year to date.
For its part, BKCoin is up 5.8% year to date through April, according to a spokesperson for the firm.
Betancourt, who previously founded physical commodities brokerage Yorkville Commodities, thinks there are two factors that could catalyze the crypto markets: China opening back up after lockdowns and a resolution between Russia and Ukraine.
Cities and towns across China shut down in April as another spike in Covid ravaged the country, which dampened its workforce and has closed shipping ports.
“China is especially important for crypto, not just because the populace is more used to cryptocurrencies than North Americans, but because crypto is now a fully-fledged asset class and under some regimes, we tend to be heavily correlated to traditional markets,” he said.
“In other words, if all asset classes are experiencing fear, uncertainty, and doubt it will likely continue to spill over to and impact crypto markets.”
Opportunities in the nascent crypto derivatives market
Despite the enormous dip, Betancourt and his team are identifying opportunities in the options market, which Betancourt believes is “one of the most overlooked areas in crypto.”
Deribit, one of the most established crypto options and futures exchanges is maturing, after offering Bitcoin and Ethereum options in the last few years, he said. As they continue to add new offerings, including more trading pairs, a term for assets that can be traded for each other on an exchange, Betancourt said there will be alpha opportunities for traders that have the proper strategies and infrastructure in place.
Deribit is also increasingly facing competition from exchanges like Bit.com, Delta Exchange, and CrossTower, which are starting to offer similar products.
“The moment new exchanges list their own options pairs they will likely not be priced exactly as they are on Deribit, which will provide interesting arbitrage opportunities,” Betancourt said.
While mainstream investors — both institutional and retail — have been warming up to cryptocurrencies, one roadblock to the industry maturing further is the lack of regulation in the US. Last week Securities and Exchange Commissioner Hester Pierce said the US has dropped the ball on regulating crypto.
“There’s a lot of fraud in this space because it’s the hot area of the moment,” she told CNBC at a Blockchain Summit.
The Federal Trade Commission received nearly 6,800 complaints of cryptocurrency investment scams from October 2020 through March 2021, up from 570 in the same period a year prior, according to FTC data.
“We can go after fraud and we can play a more positive role on the innovation side, but we have to get to it, we’ve got to get working,” said Peirce at the conference.
Betancourt agrees that the industry is not doing enough to regulate the digital asset space.
“I think the biggest issue with the regulators is that they just don’t have enough human capital and resources to keep up with the innovation that a space like crypto is having,” he said.
Still, he fully expects “crypto to be here for the long haul.”