A hedge fund is launching two funds that allow people to take positions on bitcoin (BTC) and ethereum (ETH) with less risk due to volatility.
This is revealed by Bloomberg, which reports that the company that launched them, Cambrian Asset Management, has managed to reduce the downside volatility of digital tokens by more than 70% compared to simply opening long passive positions.
A new product on BTC and ETH by hedge fund Cambrian Asset Management
The model on which the management of these funds is based increases and decreases exposure based on market signals such as price and volume.
The new funds on BTC and ETH will be launched next month, with the firm having previously launched its flagship hedge fund, which trades around 50 leveraged digital assets and has returned 76% this year as of August.
Cambrian Asset Management has a $200 million turnover, is based in California, and offers active exchanges for those who want to build positions in cryptocurrencies.
The two new funds will charge a 4% management fee, about double that of the more famous Grayscale Bitcoin Trust, but these are the first two managed products of their kind for this sector.
Chairman of Cambrian, Tony Fenner-Leitao, said:
“It’s for investors that want to have substantially more than just a passive approach, want to have an active approach, are cognizant of the downside and are prepared to pay higher fees”.
The thing about a passive fund is that upside volatility is reflected positively, but downside volatility is reflected negatively.
An actively managed fund that manages to reduce the impact of downward volatility can increase returns simply by limiting the inevitable losses that are generated in such cases.
Cryptocurrency investments look to funds
The difference is that, if an active fund is well managed, it will return more than a passive fund, although it obviously carries more risk depending on how it is managed.
Investors who are more risk-averse and have higher earnings targets may prefer an actively managed fund to a passive one, even if this means higher management costs.
The fact that the management costs are twice as high may ultimately prove to be fully justified if the returns are indeed higher, not least because 4% is not such a high percentage that it will eat away at them, given that in the crypto sector it is not uncommon for far higher returns to be generated.
It remains to be seen how many investors will be interested in risking more by relying on an intermediary.