We’re seeing the institutionalisation of crypto assets, says investment banker Steve Bellotti
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An Australian digital asset fund begun in December has attracted dozens of wholesale investors since its inception nine months ago, as more people wake up to the world-changing potential of crypto assets.
The DNA Tracker Fund is a feeder fund into Token Capital Management’s Digital Asset Fund, a KPMG-audited global crypto fund regulated in the Cayman Islands.
It offers qualified investors exposure to crypto-assets with just a A$10,000 minimum investment, says its Sydney-based founder and manager, Steve Bellotti, a former ANZ and Merrill Lynch director who’s also non-executive chairman of fintech Douugh (ASX:DOU).
The fund is up 184 per cent, after fees, to the end of August, through unleveraged investments in a selection of the top 20 crypto assets.
“Just to give you an example, these are rough numbers, but I think Bitcoin this year is up maybe 50 to 60 per cent, I think the token capital fund is up something like this year alone 140, 150 per cent,” Bellotti told Stockhead.
“So it’s using those top 20 to mix in with a core holding of Bitcoin and Ethereum to generate, you know, serious, smart beta is the way I’d put it….
“I think what’s happening here is that slowly and surely, there’s the institutionalisation or the financialisation and Wall Street dealing with crypto and digital assets,” Bellotti added.
“And that’s going to see ever-competing money coming in for a limited, finite resource. Because there are many many tokens, but there’s not a lot of good ones at this point.”
Bellotti said that in addition to its core holdings in BTC and Eth, TCM uses an algorithm to pick five tokens in the top 20 to invest in, based on their momentum or z-scores.
But the selection isn’t based solely by computers — the investment committee has ruled out holding privacy coins like Zcash, potential securities like XRP and “joke coins” like Dogecoin.
“They’re actually trying to be quite serious about the investment thesis,” Bellotti said.
The fund has invested in tokens like red-hot high-speed blockchain Solana, data feed network Chainlink and lending and borrowing protocol Aave, he said.
Like a number of observers, Bellotti said he’s bullish on decentralised finance, or DeFi, the idea of reducing financial institutions to lines of self-executing computer code.
“We’re constructive on the overall crypto space, but we’re very constructive on the DeFi space,” Bellotti said.
DeFi probably has a market cap of perhaps US$160 billion to $US180 billion, while crypto as a whole has a market cap of US$2.2 trillion, Bellotti said yesterday.
“Our view is that will grow, the entire (DeFi) space will grow, to become 25, 30, 40 per cent of the overall market cap,” Bellotti said.
DeFi’s computer code, smart contracts and cryptographic verification can replace the current system of “blind trust on counterparties,” Bellotti said.
“You can recreate everything we’ve done on a central finance basis. It’s a very big space that’s wide open for disruption – because that means taking out the middleman, which are the banks, the broker, etc etc.”
That said, Bellotti says he views Bitcoin as the “most pristine asset or collateral in the world today,” because it’s immutable, easily transportable, incorruptible and very bankable.
There’s been about 40 to 50 Australian investors in the fund, Bellotti said, including self-managed super funds, high net worth and ultra-high-net-worth investors.
“Of course people are chasing not only alpha, but they’re looking for a way to barbell these sort of fixed income and cash portfolio, it’s got low nominal real yields because of inflation,” Bellotti said.
It’s aimed at wholesale investors — institutions would invest directly with TCM’s master fund, he said. (Having a feeder fund gives Australians a convenient option to invest in local currency, Bellotti explained.)
The Digital Native Asset fund was recently listed on Australian Money Markets, the platform out of Queensland with $11 billion in funds under management, and DNA is in conversations with other broker-dealers around Australia to offer stockbrokers access to crypto assets.
“There’s no reliable way to do that in-country, so they’ll put that fund onto their platform or onto their clients, either directly or indirectly through Australian Money,” Bellotti said.
TCM keeps the crypto on Coinbase, the leading US exchange run by a NASDAQ-listed company, with auditing by KPGM and cash management by fund administrator Mainstream Group (ASX:MAI).
Bellotti said there’s only a small minority of people today who have a “sleeve of crypto” in their portfolio, but it makes sense.
“What I think about all the time is, okay, we’re very constructive. But if we’re wrong then, the people that put in two, three, four, five per cent of their whole portfolio, they’re not going to notice if it goes away and it’s lost.
“But if we’re right, then that five per cent could dramatically enhance the alpha that’s created on the rest … I mean, (the returns from) that five per cent could actually rival the 95 per cent you’ve got in traditional assets.”