On Monday (30 July 2018), Ali Hassan, a co-founder and the CEO of Crescent Crypto Asset Management was interviewed by Bloomberg TV, where he argued that “passive management” might be the best strategy for riding the “crypto roller coaster.”
Near the end of last year, three former Goldman Sachs executives—Ali Hassan, Christopher Matta, and Michael Kazley—who were very excited about the potential of cryptocurrencies decided to follow their heart and leave their highly paid investment banking careers behind to start a boutique digital asset management firm. The result was Crescent Crypto Asset Management. What the three young founders (who are all under 30) wanted to do was to put together a crypto index fund. Their “Crescent 20 Private Index Fund” aims to “replicate the performance of the largest cap, and most liquid cryptocurrencies in the world.” The fund buys the top 20 cryptocurrencies that meet certain standards of market capitalization, liquidity and security, i.e. it excludes “coins that do not meet stringent institutional thresholds”. It is re-balanced every quarter.
Hassan told The Financial Times around 20 December 2017:
“This is as close to an ETF as one could get in the crypto space… We’ve built out a product that mirrors the market to a high degree of correlation, without having to buy every currency in the market.”
Although there are over 2000 cryptocurrencies, the 20 in the Crescent portfolio, shown below, cover approximately 90% of the market cap of the entire crypto space:
At the beginning of the interview with Bloomberg, Hassan was asked how had interest and money flows into this fund had gone since the sell-off in Bitcoin followed by its bullish run to around $8000. He replied that although crypto is a volatile asset class, they had reduced the volatility by “holding 20 coins with slightly different levels of correlation and using a 90 day trailing average market cap.” He explained that what this does is “mute the overall volatility of the portfolio relative to just Bitcoin alone.”
He also pointed out that their investors were happy, as evidenced by the fact they had not had a single redemption, and that they were seeing “tremendous demand” both from investors in the U.S. (“accredited investors” only) and the rest of the world. He went on to say that passive investments such as this index fund are very popular with U.S. investors since “it is a good way to get exposure without manager bias” and “it is a lot cheaper, both tax-wise and fee-wise.”
He was then asked when we would see a crypto-based ETF. He answered:
“It's the chicken and egg problem. The SEC wants to see investor protections specific for retail investors. What the community is saying is that these passive vehicles will actually increase the participation in the market and reduce some of those concerns. We do think that a product is coming soon. Perhaps, in the next 18 months, we'll see a Bitcoin-only ETF. There are some really interesting products on the market right now. The VanEck product is something that we'd like to look out for. Those are all single coin products. Though what is really exciting is these multi coin products, and I think that's what's going to transition the ecosystem from just access into looking at this a significantly different asset class…”
The next topic was how Crescent Crypto was dealing with the risk of holding crypto. Hassan explained that, first, by holding 20 different cryptocurrencies rather than just one, their portfolio is less volatile since there is less exposure to idiosyncratic risk (which is specific to one kind of asset), and second, they try to avoid the risk of exchanges getting hacked by keeping their crypto holdings only in cold storage (according to Hassan’s interview with the FT in December 2017, they keep their coins at a”cold wallet” facility at an undisclosed location in New Jersey) . Note that Crescent Crypto’s approach to security is different from that of competitor Bitwise Asset Management (which has a similar crypto index fund offering called the “Bitwise HOLD 10 Private Index Fund”), which outsources security to custody solution provider Kingdom Trust.
Finally, Hassan was asked (at a time when Bitcoin was trading around $8,140) where the Bitcoin price was headed. He replied with a smile:
“To the moon. We are expecting it to go much higher… There's orders of magnitude to go.”
Featured Image Credit: Image Courtesy of Crescent Crypto Asset Management