Digital Asset Fund — Activity Update
Following finalisation of the Fund’s structuring in late-November, and the signing of an important partnership agreement (more on that below), Gabriel and I visited a range of institutional and family office investors in Europe, North America and the Caribbean to discuss DAF’s strategy in detail and our views regarding the short and medium-term outlook for the digital asset sector. Whilst we started to receive initial funds in late-December, both Gabriel and I remained cautious regarding market conditions heading into Christmas and the New Year. Many of the rallies in key assets looked unsustainable and the valuations too far removed from any fundamental value or underlying growth metrics. We were also cautious of potential profit-taking in January as U.S. investors (and many other jurisdictions) rolled into a new tax year.
We waited for the selloff we expected to materialise in early-January before making any investments but the market, particularly smaller cap alts, refused to conform and continued to rally with the sector hitting new capitalisation all-time-highs almost daily. However we held our nerve and were rewarded in mid-January when we saw a broad, sector-wide selloff which saw almost 50% of the sector’s capitalisation (as measured by www.coinmarketcap.com) eroded:
With this significant derating, whilst value opportunities remain harder to find, we were more comfortable buying select assets and drew down investor funds on January 15th and began buying our portfolio over the following weeks. Whilst we expect volatility to remain high (as is typical with this asset class) we think the current overall market capitalisation represents what we would assess as fair value and provides good medium to longer-term upside.
Our portfolio remains focussed on the larger-cap assets which continue to display tangible underlying user growth with select small cap exposure where we see a quality team, engaged community and a protocol focussed on a tangible end-market. Whilst its not a key focus of the fund we also invested in a pre-ICO round this month given the strength of the project, attractive pricing terms and what we believe is an exceptional management team that knows, and has competed in, its targeted end-market.
Partnership with Passport Capital
In December we were also excited to finalise a partnership with Passport Capital, a San Francisco-based global investment firm founded by John H. Burbank III in 2000. The partnership delivers Passport’s investment experience and expertise, as well as their structuring and regulatory knowledge to DAF and has been invaluable to our team. We are delighted to have a partner of Passport’s calibre, a firm also passionate about the sector and able to bring significant resources to help DAF better achieve the goals we have for our investors.
In conclusion, we are excited to now be investing our initial investors’ funds but we continually remind ourselves of the responsibility that comes with this role. Investors can be assured we remain focussed on finding opportunities and utilising everything at our disposal to minimise the risk that your capital is exposed to albeit in what is still a very high volatility asset class.
In addition to our initial investors and Passport, we are also very thankful for the high quality legal, accounting and structuring advisers that helped get us to this point.
We look forward to an exciting 2018.