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FUNDS REPORT: Prime Factor Capital — First Cryptocurrency Hedge Fund and Henry Kravis to invest in a crypto fund ParaFi Capital

Biweekly update 25th June — 9th July

The Latest News

Prime Factor Capital was the first crypto hedge fund approved as a full-scope alternative investment fund manager by the Financial Conduct Authority, according to Bloomberg.

Though approved by the UK watchdog, the firm will abide by European regulations. Under these guidelines the firm will be allowed to hold more than 100 million euros in assets under management. It is the first agency to be approved to invest exclusively in the cryptocurrency asset class.

The founders believe that by focusing on a single asset class, even one that carries market distrust, they will surge ahead of their global competitors and become the trusted authority in crypto investing.

Prime Factor is required to appoint a custodian under EU regulations to ensure and validate investors’ returns and the fund’s holdings. This custodian will act independently of the firm and also provide cash flow reconciliation.

The firm manages funds for professional and institutional investors including high net worth individuals, family offices, and private wealth managers, according to a company statement.

There is no information available publicly regarding the firm’s investment strategy. The team is comprised of former employees from Blackrock, Legal & General, Goldman Sachs, and Deutsche Bank.

On their website, company CEO Nic Niedermowwe published a report titled “The Fallacy of Uncollateralised Stablecoins,” in which he argued that uncollateralised stablecoins are problematic. He has also considered such subjects as the scalability of bitcoin.

The company did not respond to a request for comment.

Prime Factor Capital previously announced an equity financing round with Speedinvest, a European Fintech investor, and Entrepreneur First, a talent investor.

The crypto world might call it the Big Long.

A new $100 million investment firm, Darma Capital, is opening to investors who want to bet that digital assets such as Ether are poised for a 10-year bull run. Of course, Ether saw one of the largest boom-and-bust cycles in crypto, rising an astounding 17,775% in 2017 only to see 94% of its gains erased by the end of last year. Darma’s founders, however, are counting on Ether’s long-term integral role in the Ethereum blockchain to counter such mania.

“We want to acquire what we consider a new asset class,” Andrew Keys, a managing member in Darma, said in an interview.

While scandals, fraud and regulatory actions are still seemingly weekly events in crypto, there are signs of well known corporations adopting Ethereum for real world uses. In April, Ernst & Young released its version of privacy-enhancing technology onto the public Ethereum blockchain. That same month, Societe Generale SA issued 100 million euro ($112 million) worth of covered bonds on the public Ethereum blockchain. The public chain is open for anyone to use, unlike private blockchains, which require permission to access.

Predictions ‘Difficult’

The Darma funds are registered with the Commodity Futures Trading Commission as both a commodity pool operator and a commodity trading adviser. Over the last few years, the strategy of the fund was to simply acquire as much Ether as possible. Keys said the fund sold near the top of the market in early 2018 to buy larger quantities of coins as prices fell, securing as much as 2,500 Ether last year for every 1,000 the fund started with. Managing the price swings is a major focus of the fund, he said.

KKR & Co co-founder Henry Kravis has invested in a crypto fund ParaFi Capital, Bloomberg writes. The company was set up by KKR & Co’s former employee Ben Forman last year, following his departure from KKR. Besides the investment from Kravis, ParaFi received funding from Bain Capital Ventures and Dragonfly Capital Partners.

At KKR, Forman worked in the credit business and was the head of in-house research on blockchain and cryptocurrency. While he considered “pursuing blockchain investing within KKR,” but ultimately decided to “build the KKR of crypto” of his own.

ParaFi manages $25 million, with plans to reach $100 million by the first quarter of 2020, Forman said.

Instant messaging app provider Kik Interactive has handed over the responsibility of managing its cryptocurrency legal fund to the Blockchain Association, according to an announcement Friday.

The fund, called Defend Crypto, with over $2 million of residual assets currently, was set up by Kik to help fight legal battles in the cryptocurrency industry.

Kik itself has been fighting a battle with the U.S. Securities Exchange Commission (SEC) over its kin tokens. Back in 2017, Kik raised $100 million in an initial coin offering (ICO) via the tokens. The SEC believes the company issued unregistered securities.

In a recent court order, the regulator described Kik’s messenger business as “has never been profitable.” The SEC further said that the firm’s ICO was viewed as a “hail Mary pass” by one of its board members to breathe new life into the business by raising new capital.

Lawyers recently told The Block that the SEC has a solid case, but Kik is preparing its own argument in response, questioning whether its token sale falls under the agency’s jurisdiction.

“We believe that the crypto industry should constructively engage in the legal process when they have the potential to have an impact that goes beyond the parties to the case,” the Blockchain Association said in Friday’s announcement, adding:

“As the fund is transitioned, we will determine the best way to structure the fund, governance policies, how to raise additional funding, and criteria for determining when to use the funds.”

Former hedge fund manager Mike Novogratz’s cryptocurrency merchant bank, Galaxy Digital, has expanded its trading business to offer cryptocurrency options contracts amid the crescendo in demand from institutional investors.

Galaxy Digital’s global head of business development, Yoshi Nakamura, told The Block in an interview at Galaxy’s New York office that cryptocurrency companies like mining firms, lenders, and other projects, including those sitting on treasuries, want to hedge the “inherent volatility risk” of cryptocurrencies.

Hedging is a strategy used by investors to reduce portfolio risk, and thereby losses. Options contracts (both put and call) are one of the more popular tools to hedge against risks when investors are uncertain about a financial instrument’s price movement.

Nakamura said his firm’s options business is “relatively new” and that appetite for it “continues to increase,” without commenting on specific figures. He also declined to share numbers about the business’ growth.

Ari Paul, chief investment officer and managing partner of cryptocurrency investment firm BlockTower Capital, told The Block that demand for options is indeed rising, which he said is being exclusively driven by non-crypto native firms.

“Traditional hedge funds love to use options,” he said, as it helps spread the risk. “These counter-parties are going to be new traditional funds and family offices,” Paul said. “I haven’t heard of Polychain, Pantera, etc. being interested in options.”

Galaxy isn’t alone in offering options. Other over-the-counter trading operations such as Akuna Capital have also written options contracts for counter-parties. Overall, the market for cryptocurrency derivatives products — options, futures, swaps, contracts for differences — has been growing over the past year. Several firms have launched new businesses in the space or are looking to enter the market.

ErisX, Bakkt, SeedCX, LedgerX, B2C2, Deribit are some of the newer firms in the space, while BitMEX and CME have been offering such products for a few years now. Cboe was also offering bitcoin futures contracts until it stopped earlier this year. Binance, the largest cryptocurrency exchange by volume, was also reportedly looking to launch futures trading.

Pantera Capital

Accelerated Digital Ventures

Today the startup has announced a £1.4m seed round led by ADV with participation from Seedcamp and EF.

Globalisation has led to the shrinking of time and space. But being global means organisations are managing much larger projects across unique markets creating unnecessary unknowns.

Nodes & Links are laser-focused on understanding and interpreting complexity for project leaders. The founders have a strong combination of theoretical and commercial experience in the field. Early progress has already shown us the size of the potential future.

‘Complex projects’ account for over 4% of the world’s GDP, yet only 8% of them complete on budget and on time. In addition, profits are regularly in the single digits. Today the company has announced that it has raised a £1.4M seed round to increase the performance of complex projects around the world and across all industries.

The company, which has a laboratory in Cyprus, has developed technology to quantify and control the effects of complexity. Its most recent deployments included de-risking the maintenance plan for a UK-based Nuclear Reactor; improving the baseline estimates of a £billion infrastructure project; and improving upon the industry-standard Critical Path Method by over 2,800% in the aerospace domain.

Nodes & Links is now building its capability into a hybrid-collective intelligence called Aegis and partnering with some of the world’s largest organisations to deploy its intelligence.

This is not financial advice.

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Paradigm is an ecosystem that incorporates a venture fund, a research agency and an accelerator focused on crypto, DLT, neuroscience, space technologies, robotics, and biometrics — technologies that combined together will alter how we perceive reality.

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