The operators of a regulated, Jersey-based bitcoin hedge fund have officially closed a new $5 million fund aimed at investing in cryptocurrency tokens and initial coin offerings (ICOs).
Backed by fund manager and former JP Morgan trader Daniel Masters, the offering by Global Advisors is the latest in a string of funds aimed at offering accredited investors exposure to the burgeoning crypto asset class. However, it may be unique in that those who committed investment funds did so in ether, the native cryptocurrency on the ethereum blockchain.
Speaking exclusively to CoinDesk, chairman Daniel Masters stressed this detail as the fund’s defining attribute.
“I’m sure this was the first fund in the history of finance where everyone who subscribed to the fund did so via ethereum.”
In statements, Masters added that key selling points for the fund would be its “discretion and caution” at a time of ample innovation.
As such, the fund is structured to offer managed exposure to the emerging space, allowing investors to participate “cautiously and intelligently.”
Elsewhere in conversation, Masters gave an additional assessment of the ICO investment landscape.
In his view, the ecosystem began diversifying in May 2017, spurred by the publicity for major ransomware attacks, which he cited as driving demand for cryptocurrency payments to the point of a breakout rally.
“Bitcoin was underperforming but was being pulled higher as the whole cryptocurrency complex exploded upward,” Masters said.
During this time period, bitcoin saw its percentage of the total cryptocurrency market cap collapse, falling from above 90% to below 50% as investors sought exposure in less established areas of the market.
In particular, Masters said interest was driven to ethereum.
“In a nutshell, we concluded that ethereum, and the ERC-20 tokens it spawned, were a really significant innovation in digital assets,” he said, adding:
“What we saw was a very rapid increase in the number and the size of these so called initial coin offerings. The ICO has taken a number of forms. Some of them are legitimate and some of them are misconstructed. It’s very much a caveat emptor space.”
What makes a good ICO
From there, Masters formulated what makes for a strong ICO. (Already, his firm has directly invested in a token sale for Aventus.)
First, it calls for a team of experienced, motivated and technically savvy founders. Second, the ICO must solve a real-world problem in a way that cannot be done without the use of blockchain technology. Third, the solution should have a strong enough network effect so that its code can’t be easily copied into a possible competitor.
If you have those three elements in place, according to Masters, issuing an ethereum-based token may make sense.
“We’ve seen debt coins, equity coins and rail coins, which purports to transfer another coin across the ecosystem. I don’t think any of those spaces are promising. What I do think are promising are new protocol coins,” he explained.
According to Masters, token offerings and ICOs offer powerful economic incentives to entrepreneurs who are able to effectively exploit the technology.
“It enables small- to medium-sized technology companies to leapfrog years of efforts in the management of their capital structure. You can go from a friends and family round to an angel round to Series A, to Series B, and even arguably Series C in one go,” he said.
From the perspective of the investor, Masters said, the lure of ICOs can also prove quite powerful. “You probably have liquidity within one week of your investment,” he said.
On the other hand, the risks to individual investors who jump into the ICO space by themselves can also be quite significant, he said, framing this as a value-add for the fund.
“The disadvantages are quite clear. Nobody is looking after you. You’re on your lonesome in this one.”