In a market crowded with venture capitalists and traders, a blockchain fund run by value investors believes it can provide investors with higher returns than bitcoin itself.
Some have dubbed Bitcoin the best-performing asset of the decade. Off the Chain Capital, a fund that uses fundamental analysis to find undervalued assets and employs a traditional value investing strategy claims that its fund has outperformed bitcoin in each of the last five years.
According to Off the Chain, the fund has averaged a 133 percent annual return since its inception in 2016, compared to a 108 percent annual return for bitcoin. The compound annual growth rate was used for both the fund and bitcoin, with a start date of December 31, 2016, and end date of February 28, 2017.
“We’ve outperformed bitcoin five years in a row, and we’ve done so with 80% less volatility,” said Brian Estes, the fund’s CEO and chief investment officer. “That’s what I’m most proud of, because I built it so that endowments, foundations, and other conservative investors could gain exposure to blockchain assets while also protecting themselves from downside risk.”
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 broad market index, implying that the two do not move in lockstep.
Looking For Value
The fund’s strategy is to seek out undervalued assets in the blockchain space.
It aims to purchase one dollar’s worth of blockchain assets for 50 cents and earn a profit on the purchase, rather than purchasing them at fair market value and letting them rise. This allows it to take a value-based approach while capitalizing on the industry’s still-young growth.
Off the Chain, for example, was a big buyer of Mike Novogratz’s Galaxy Digital shares two years ago, which were around 70 cents at the time, according to Estes. The stock closed at $15.79 per share on Tuesday.
According to Estes, another company that is overpriced is Silvergate Bank. When the crypto-friendly bank operates, it is valued as a bank, as it was when it went public two years ago.
Providing Diversification
Off the Chain is a major buyer of Mt. Gox bankruptcy claims. Mt. Gox was once the largest bitcoin custodian until a Russian hacker stole nearly all of it — approximately 740,000 bitcoins worth $460 million at the time.
According to Estes, the fund buys those claims from individuals at an average discount of about 80%.
“Bitcoin, in our opinion, is the winner of the store of value and a significant diversification instrument for portfolio allocators. If you can’t outperform bitcoin as a fund, you might as well just own bitcoin and avoid the management fees “Purcell explained.
It considers Binance and its utility token, BNB, to be undervalued assets.
The exchange is currently valued the same as Coinbase, but it trades at approximately 4.2 times the volume of Coinbase,” Purcell said of the exchange. “They’ve also created the Binance Smart Chain, which is diverting developers away from other communities like Ethereum, and we believe that is a value play.”
Currently, the fund has about 200 limited partners and $399 million under management. It primarily targets institutions, endowments, family offices, and other high-net-worth individuals with a minimum investment of $1 million.
Estes stated that the fund currently has the capacity to accept another $200 million. It will also “very likely” open a bitcoin artificial intelligent algorithmic trading fund in the next six months.