UK Regulators Approve Their First Crypto Hedge Fund

  • Prime Factor Capital Ltd. becomes first crypto hedge fund to gain FCA approval.
  • Fund reports 147 percent YTD return as bitcoin's price continues to rise. 

London-based Prime Factor Capital Ltd. has just become the first cryptocurrency hedge fund to gain approval by UK regulators. 

FCA Approves Their First Crypto Hedge Fund

According to a report published by Bloomberg, Prime Factor Capital has received approval from the Financial Conduct Authority (FCA) to manage alternative investment funds which will focus on cryptoassets.

The hedge fund was originally established by former employees of BlackRock Inc. and RWE AG, bringing a substantial amount of experience to the table for the relatively new management group.

On July 1, the fund issued a statement informing clients it will be regulated as any other alternative investment hedge fund under European Union rules. According to the release, Prime Factor Capital is now able to manage more than $100 million euros in assets and can broaden their offering to institutional investors. 

Regulators have been slow to grant approval to cryptocurrency-related funds. While cryptoassets command a market capitalization of more than $300 billion, they have also exhibited massive volatility relative to traditional markets. Crypto and the exchanges that fuel the industry have thus far managed to operate in unregulated waters, which has led to the abundance of hacks and other shady dealings. 

Cryptoassets on the Rise

However, Prime Factor’s chief operating officer (CEO) and former BlackRock investor Adam Grimsley believes the FCA is being proactive in its decision. As cryptoassets gain popularity with retail and institutional investors, the need for some form of market oversight has increased. 

Grimsley told Bloomberg, 

“Most vehicles for investing in cryptocurrencies are outside the scope of regulators and that’s a big problem in a market that has such a bad reputation,”

As the first cryptocurrency hedge fund to gain approval by the UK’s regulatory watchdog, Prime Factor is now beholden to a set of requirements to remain in compliance. The management group will have to appoint an independent depository for oversight, cash flow reconciliation and safekeeping of assets.

In return, Grimsley says clients receive “assurance” on the fund’s returns and that the value of assets under management is consistent with what is being reported. 

Prime Factor Capital Crypto Hedge Fund Market PerformancePrime Factor 10 hedge fund performance | Source: Prime Factor Capital

According to the market performance indicator on their website, the Prime Factor 10 fund has generated a 147 percent Year-To-Date (YTD) return, closely tracking the rise of bitcoin. 

Error in Time-Locked Bitcoin Contracts Allows for Miner 'Fee-Sniping'

Michael LaVere
  • Crypto researcher 0xb10c discovered an error in bitcoin "time-locked" transactions that could be used as an attack vector.
  • Miners can take advantage of the program to carry out "fee-sniping" and steal funds from one another. 

Users have discovered an error in bitcoin “timelocked” contracts that could potentially allow miners to steal BTC from one another. 

Anonymous crypto engineer 0xb10c reported discovering more than one million “time-locked” transactions made between September 2019 and March 2020. In a post, 0xb10c detailed how these special bitcoin transactions were not being accurately enforced by the network. 

As opposed to normal transactions, time-locked transactions prevent recipient bitcoin from being accessed after sending. Users must wait for a specific number of blocks to be added to the network in ten-minute intervals before gaining control of their bitcoin. 

0xb10c claimed the errant time-locked transactions provided an attack vector for miners to steal transaction fees  from one another via “fee-sniping.” According to the engineer, the backlog of time-locked transactions were being purposefully designed for a “potentially disruptive mining strategy” involving the theft of miner fees. 

In an interview with CoinDesk, 0xb10c said time-locked transactions represented a “low-priority” problem at present that could eventually balloon to involve the wider network. He explained that fee-sniping would become more lucrative in a few years as the majority of miner income shifts towards transaction fees. 

He continued, 

A fix for this has been released in early 2020. However, it will take a while before all instances of the currently deployed software are upgraded.

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