The New Criterion
August 13, 2018
Q&A 13 August 2018
August 13, 2018

The index approach to digital currency investment

Cryptocurrency trading company CoinJar has joined the growing number of local groups offering managed cryptocurrency funds, with the launch of the first local fund offering exposure to the asset class through an index portfolio.

CoinJar Digital Currency Fund is an unregistered managed investment scheme, open to sophisticated investors, family offices and institutions with a minimum investment of $50,000.

CoinJar joins DigitalX, Anti Hero Capital, New Dawn and Every Capital, which have launched funds in the past 12 months.

The CoinJar fund has two classes: Bitcoin class, which provides exposure to Bitcoin only; and mixed class, which will hold a portfolio of Bitcoin, Ethereum, Ripple and Litecoin.

CoinJar’s head of institutional, Jordan Michaelides, says the decision to run index portfolios reflects the CoinJar’s skill set and the interests of larger investors, who are looking for long-term exposure to the major currencies.

“We don’t have any expertise in assessing initial coin offerings and we are not going to focus on that area,” Michaelides says.

He says a big selling point for the fund is making it easier for investors to get exposure to assets that are traded in a market that can be risky and complex.

“We are launching the fund to handle the custody risks, simplify the investment process and provide industry best practice security. Setting up a trading account, transferring assets between digital wallets and making sure you have secure storage can be difficult.

“And tax reporting is a nightmare at the moment, with the ATO making changes to the way it assess cryptocurrency.”

Among the other groups offering managed cryptocurrency funds, Every Capital is offering a couple of points of difference: it is the first retail cryptocurrency fund in Australia, as opposed to a wholesale or sophisticated investor offering; and it is a hedge fund.

The fund will use a range of financial tools, such as short selling, in addition to investing in cryptocurrencies and initial coin offerings.

Being a retail fund means it will have a product disclosure statement registered with the Australian Securities and Investment Commission and accept relatively small investment amounts (the PDS is not out yet).

Every Capital is working in partnership with Global Merces, which will be its responsible entity and provide administrative services, and Astronaut Capital, an established crypto fund manager.

New Dawn’s fund will participate in the ICO market. Managing director Rob Dey says the fund’s initial investments will include a crypto mining company, a trading desk and a security token exchange.

The DigitalX Fund will invest predominantly in the leading cryptocurrencies, with a smaller allocation to special trading opportunities, including initial coin offerings. Permitted investments of the fund include cryptocurrencies, ICOs, derivatives of cryptocurrencies and managed investment schemes.

According to its information memorandum, the investment manager’s philosophy is based on the view that cryptocurrencies and ICOs are under-researched, given their relatively recent emergence.

“Given this and the belief that speculative financial markets often deviate away from fair value, the manager believes significant opportunities will present themselves in the cryptocurrency asset class, which the manager will be able to take advantage of.”

In March, Anti Hero Capital launched a managed cryptocurrency fund, the Anti Hero Capital Fund. According to the fund’s information memorandum, which was issued last month, its investment strategy is “an active investment program in crypto assets and blockchain technology.”