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In a market crowded with venture capitalists and traders, a blockchain fund operated by value managers believes it can outperform bitcoin in terms of returns.
Some have dubbed Bitcoin the best-performing asset of the decade. Off the Chain Capital, a fund that uses fundamental analysis to uncover undervalued assets and uses a typical value investing technique, claims that its fund has outperformed bitcoin in each of the last five years.
According to Off the Chain, the fund has averaged 133 percent every year since its debut in 2016, compared to around 108 percent per year on average for bitcoin. For both the fund and bitcoin, the business used the compound annual growth rate with a start date of December 31, 2016 and an end date of February 28, 2022.
"We've outperformed bitcoin five years in a row, with 80 percent less volatility," said Brian Estes, the fund's CEO and chief investment officer. "That's what I'm most proud of, since I developed this to allow endowments, foundations, and other conservative investors to acquire exposure to blockchain assets while also receiving downside protection."
It also claimed to have outperformed the S&P 500 by 3,653 percent over the same time period and to be 99.99 percent uncorrelated to the overall market index, which means the two do not move in lockstep.
Looking for a good deal
The aim of the fund is to look for undervalued assets in the blockchain area.
Its goal is to buy one dollar's worth of blockchain assets for 50 cents and profit from the transaction, rather than buying them at fair market value and waiting for them to appreciate. This allows it to take a value-based approach while also capitalizing on the industry's still-burgeoning expansion.
Off the Chain, for example, was a large purchase of Mike Novogratz's Galaxy Digital stock two years ago, when it was trading at around 70 cents, according to Estes. The stock finished at $15.79 per share on Tuesday.
According to Estes, another company that is mispriced is Silvergate Bank. When the crypto-friendly bank went public two years ago, it was valued as a bank, despite the fact that it functioned as a cryptocurrency corporation.
"It was being valued at eight times earnings and three times book value, and what people didn't realize is that Silvergate isn't a bank; it's a crypto firm with a monopoly on the majority of crypto companies."
As a result, he noted, the company's earnings are increasing at a rate of more than 100% per year.
About half of the portfolio is made up of private equity. The organization is also on the lookout for undervalued digital assets, such as bitcoin.
Diversifying the portfolio
One of the main buyers of Mt. Gox bankruptcy claims is Off the Chain. Mt. Gox was the largest bitcoin custodian until a Russian hacker stole nearly all of it — approximately 740,000 bitcoins valued $460 million at the time.
According to Estes, the fund buys those claims from customers at an average discount of around 80%.
"Bitcoin, in our opinion, is the victor of the store of value race and a big diversification tool for portfolio managers." "If you can't outperform bitcoin as a fund, you should just purchase bitcoin and avoid paying management fees," Purcell said.
Binance and its utility token, BNB, are likewise seen as undervalued assets.
Purcell said of the exchange, "It is currently valued the same as Coinbase, but it trades around 4.2 times the volume of Coinbase." "They've also created the Binance Smart Chain, which is luring developers away from other communities like Ethereum, and we think that's a value play."
The fund now manages $399 million and has around 200 limited partners. For a $1 million minimum, it primarily targets institutions, endowments, family offices, and other high-net-worth individuals.
According to Estes, the fund now has capacity for additional $200 million. "Over the next six months, it is extremely probable to create a bitcoin artificial intelligent algorithmic trading fund," according to the company.
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