HashKey Capital, a subsidiary of Hong Kong’s crypto juggernaut HashKey Group, is launching a fund on Friday with an unusual focus — second-tier cryptocurrencies, colloquially known as “altcoins.”
This gamble veers away from the traditional investment approach dominated by Bitcoin and Ethereum. It aims instead to capitalize on lesser-known digital assets’ high-reward, high-risk nature.
HashKey Capital Targets Untapped Alpha
Portfolio manager Jupiter Zheng, the strategist behind HashKey Capital’s fund, targets an investor base of high-net-worth individuals and firms catering to wealthy Asian families. According to Zheng, the crypto market has an untapped demand for above-average returns, or what investment professionals term ‘alpha.’
In a climate where Bitcoin and Ethereum have become almost conventional investment routes, the quest for alpha leads HashKey Capital down a less-traveled path.
The company’s new fund embraces altcoins with enthusiasm. Less than half of the fund’s portfolio will consist of investments in Bitcoin and Ethereum. This is a notable shift from the prevailing investment paradigms in crypto, which typically advocate for a more conservative, Bitcoin-centric strategy.
Instead, the fund aims to leverage HashKey’s rich experience in crypto venture investments, diversifying into altcoins that promise greater volatility.
While this strategy may raise eyebrows, it comes when Hong Kong emerges as a prominent hub for crypto innovation. The government has been proactive in fostering a crypto-friendly environment. Therefore promoting the development of Web3 technology.
Hong Kong has hosted more than 100 crypto-related conferences this year. And its Securities and Futures Commission (SFC) has recently updated regulations to allow centralized crypto exchanges to serve retail customers, provided they hold an SFC license.
The High Risks of Investing in Altcoins
With over $1 billion in assets under management, HashKey Capital aims to raise an additional $100 million for the new fund. It also plans to keep some holdings in cash to mitigate the risks.
Still, altcoins are notorious for their price volatility. These assets experience significant spikes in bull markets but crash dramatically when market sentiment turns sour.
This erratic behavior has contributed to the closure of roughly 13% of crypto hedge funds in the current year, as revealed by Swiss investment consultancy 21e6 Capital AG.
In the first six months of 2023, the average return for crypto funds was 15.2%. Meanwhile, Bitcoin recorded 65.2% gains during the same timeframe. Many of these funds maintained higher cash reserves than usual due to the upheaval in the crypto sector in 2022, highlighted by the downfall of FTX.
Consequently, hedge funds failed to capitalize on Bitcoin’s strong performance since the beginning of the year. In contrast, the most significant altcoins lagged behind Bitcoin.
Whether HashKey Capital’s bet on altcoins will pay off remains an open question. If the gamble fails, it will be a cautionary tale, underscoring the inherent risks of chasing high returns.
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