Stack launches 'institutional grade' Bitcoin tracker fund

Singapore

DIGITAL asset investment platform Stack has launched its flagship product, a Bitcoin tracker fund with features designed to boost confidence among institutional and private investors.

The Stack BTCX100 Bitcoin Fund gives 100 per cent long-only exposure to the Bitcoin crypto currency. The underlying assets are 100 per cent invested in physical Bitcoins. It claims to be "Asia's first institutional grade offering''.

The platform has engaged third party services such as a custodian (BitGo), banking (Silvergate); over-the-counter (OTC) digital assets trader Cumberland; and administrator MG Stover, among others. Insurance for the digital wallets is provided by Lloyds to protect against "hacks, theft, physical loss/damage, insider abuse, and disaster recovery''.

Matthew Dibb, Stack co-founder and chief operations officer, says: "What we found was that there were barriers to entry when we talk about the deployment of larger amounts of money into digital assets. Institutions are not so worried about strategy . . . Their concerns came down to the governance of the vehicle.

"Their emphasis in deploying capital was more on security and compliance rather than allocation into different strategies. We decided to take what is traditionally a convoluted process . . . and teamed up with custodians and administrators, and wrapped that into one vehicle. Our vision is to make it just like going to a bank to sign up for a structured product.''

Mr Dibb says the BTCX100 Fund has attracted institutional commitments of arond US$160 million, of which US$35 million is invested. The fund is open only to institutions and accredited investors.

Stack's fund management arm operates under the capital market services licence held by Swiss Asia Financial Services.

Mr Dibb says commitments have mainly come from institutions such as hedge funds, family offices and high net worth individuals. Since the market upheaval caused by Covid-19, however, funding the commitments may be something of a challenge even if investors believe in the diversification benefit of digital assets like Bitcoin.

Bitcoin price plunged from over US$10,300 in February to around US$4,944 in mid-March. It has since climbed more than 50 per cent. It is currently trading at around US$7,743.

Part of the enthusiasm may be due to investors flocking to a perceived "safe haven'' asset which is uncorrelated to traditional markets. But a large part of the appreciation is also likely due to the heavily anticipated Bitcoin "halving'' in May. Bitcoin halving is the planned reduction in miners' rewards, set to occur every four years and built into the Bitcoin code. Halvings are generally linked to price rises, although some critics are sceptical.

Mr Dibb says: "Historically we see a significant price rise in the asset after halving. We hope to see the same thing again. We talk constantly to venture capital, family offices and wealth management firms. We believe that once we see more (market) stability, we'll see increased inflows. In essence we believe institutions should allocate no more than 1 to 2 per cent of their portfolio (into Bitcoin).''

The BTCX100 Fund charges an annual management fee of 2.25 per cent. The minimum investment is US$100,000. Mr Dibb says the annual fee is "quite cheap'' as it covers acquisition and selling costs of up to 5 per cent, as well as insurance costs. Long-only cryptocurrency fund fees range between 2 and 3 per cent, and hedge funds may charge the typical 2 per cent annual fee plus a 20 per cent performance fee.

Data compiled by Stack finds that the introduction of Bitcoin into a portfolio of 60 per cent equities and 40 per cent bonds can significantly enhance returns. Between October 2014 and April 2020, a 60/40 portfolio would have generated annualised returns of 8.9 per cent. Adding 1 per cent Bitcoin would raise annualised returns to 10.1 per cent, and 5 per cent exposure would raise returns to 15 per cent.

Stack is planning a second fund invested in 10 cryptocurrencies.