The rapid rise of cryptocurrencies and digital assets captivated the agenda at the GAIM Ops Cayman conference, which is taking place this week at the Ritz-Carlton in Grand Cayman.
Delegates debated the operational issues they face investing in crypto funds and service providers discussed what is needed to make them comfortable. But both agreed that there remains a huge desire to understand both what cryptocurrency investors are focused on and how they see the evolving regulatory framework playing out.
Speaking to Cayman Funds, outside the regular sessions, Alex Gostomelsky, COO of Digital Asset Strategies, a fund launched with $2.5 billion of capital earlier this year, explained what he looks for in a cryptocurrency investment.
With so many cryptocurrency projects and ICOs launching on a daily basis, having some kind of framework to distinguish between them can be very useful and for Gostomelsky it all comes down to the founder.
“You see the White Paper but that is written by the PR agency,” he said. “With the security tokens we are seeing more of now, we are getting back to the sort of valuation process that we are used to, but with utility tokens you really had to see the company launch. With security tokens you can make a judgement based on consumer need for a project and whether you think it can disrupt an industry, acquire customers and make sales. When I talk to the founders of a project I can get a sense of whether they are setting achievable goals and can create the kind of scalable business that can succeed.”
Digital Asset Strategies was launched by family office money to take advantage of the opportunities in the crypto space. It uses a Master/Feeder structure with the offshore component in the Cayman Islands and utilizes a smart beta strategy to appeal to retail investors, either new to the sector or looking to diversify their current holdings.
The fund is quant driven and passively managed, investing in the top 100 cryptocurrencies by market cap and is rebased monthly. There is a cap of 10% for any individual cryptocurrency and Gostomelsky said this structure allows it to benefit from price increases in some of the smaller coins in the market.
They work to screen out bad projects, but in terms of the tokens Gostomelsky is favouring right now, he said he’s very bullish on EOS, which has managed to raise more than $1 billion despite not yet having launched a product
In an evolving regulatory picture where purists want no regulation and a fully decentralised space to operate in, the biggest concern is the disparity of regulation in different nations from Japan and South Korea to the UK.
“You need some alignment because at the moment the market is very reactionary,” Gostomelsky said. “I think in the US the regulatory authorities have done a good job with a system of soft regulation and stepping in when necessary.”
In recent months the US SEC has identified a number of ICOs and cryptocurrency projects where it has requested further information on their operations and that, according to Gostomelsky is a good thing.
“They’ve shut down some bad projects which I think is a huge positive and they’ve built up their teams by educating themselves on the issues involved, but I think it’s now up to the leaders in the hedge fund and cryptocurrency space and the foundations to all work together to make this work,” he said.
GAIMOps Cayman, Hedge Funds, Investment, Cayman Islands, cryptocurrencies