Throughout its lifetime, and especially from 2017 to 2018, the cryptocurrency market has been subject to intense volatility and quick changes in market sentiment. Likewise, as there are many thousands of projects for investors to choose from, cryptocurrency markets have become complex to navigate for novice retail investors.
Instead, like traditional markets, certain crypto investors may find it beneficial to have access to an index fund, through which they could invest in a broad cross-section of crypto assets, via one single token, without the headache of finding and managing multiple positions.
That’s exactly what the team at Invictus created with their original CRYPTO20 crypto tracker fund, and now, as the crypto markets mature, they are taking this vision to the next level with their new CRYPTO10 index fund.
Blokt had the chance to talk with Invictus Capital’s Business Development Manager Jonty Bylos, to find out how their fund offers investors access to a range of digital assets, and what their plans are for the future.
The CRYPTO20 Fund
Founded in 2017, CRYPTO20 is a closed tokenized crypto index fund from crypto investment firm Invictus Capital, which tracks the top 20 cryptographic assets by their market-cap. CRYPTO20 raised an impressive $40 million through its ICO in 2017 and subsequently launched the first ever tokenized crypto index fund.
Following a passive investment strategy, the CRYPTO20 fund optimizes its performance through state of the art data science techniques. As a result, the fund has successfully and consistently outperformed the total cryptocurrency market from its creation. The fund is rebalanced each week and has a cap of 10% invested into any single crypto asset.
Based in the Cayman Islands, the CRYPTO20 fund founders sought to offer a fresh approach to the crypto-based investment landscape.
“Managing a portfolio of crypto assets is complex and time-consuming. We use data science to optimise the fund rules, and use technology in a smart way to keep costs low. The fund thus provides investors with diversified exposure to the cryptocurrency market at low cost.”
The fund’s technology includes a tailor-made dApp and smart contract, which allows investors to liquidate their holdings easily and quickly back to ETH, at the net asset value (NAV) of the tokens in USD, a feature which is available 24/7.
Recently, the team has announced the launch of their more targeted fund, the CRYPTO10 fund, which as the name suggests tracks only the top 10 crypto assets.
Discussing the CRYPTO10 fund, Bylos remarked:
“Our latest fund, CRYPTO10, allows investors to subscribe and liquidate via our investment portal, 24/7, without needing to deal with exchanges. Crypto10 is an open fund which tracks the top 10 cryptocurrencies by market-cap, with weekly rebalancing and a cap of 15% on any single asset.”
This new fund, Bylos says, includes a dynamic cash hedge designed to preserve capital in times of market stress, and buys into or sells out of cash on a weekly basis as part of the rebalancing methods.
Why Invest Through CRYPTO20?
With an index fund such as CRYPTO20, users aren’t required to manage their own positions in a multitude of assets, and likewise, there is no requirement for the investor to manage their own fund intensively.
Expanding on these benefits, Bylos explains:
“The main benefit is the saving of time and cost. With the aggregation of funds, we are able to facilitate the creation of masternodes, staking, and forks for the benefit of token holders. In addition, our rebalancing methodology provides a true reflection of market performance, and the liquidation function allows an investor to consolidate and exit their position 24/7 without human intervention on the side of the asset manager.”
Likewise, CRYPTO20 offers its investors instant diversification in the top 20 cryptocurrency assets whilst holding just a single token, as we’ll discuss later.
CRYPTO20’s Investment and Rebalancing Strategy
The CRYPTO20 fund follows a passive investment strategy, with fund holdings rebalanced weekly in response to market movements. When new projects enter the top 20 by market capitalization, CRYPTO20 conduct a thorough due diligence review, prior to incorporating them into the index.
CRYPTO20 has a combination of parameters that ensure it has broad market exposure and acceptable turnover without allowing one single asset, which would be a source of risk, to dominate the fund.
Similarly, the CRYPTO10 fund also has a dynamic cash hedge, to manage downside risk, which has become a core concern to investors in the crypto markets.
Explaining how the fund undertakes rebalancing, Bylos shares:
“Essentially, our rebalancing methodology and asset cap is optimised through back-testing of the funds hyperparameters over multiple time periods, in an effort to future-proof the fund. The weekly rebalance algorithms determine the desired holdings, and what proportion of the rebalance trades need to be performed on each exchange in order to minimise fees and slippage.”
Additionally, in the CRYPTO10 fund, there is a rules-based strategy to allocate funds into cash dynamically.
What Sort of Investors Does CRYPTO20 Target?
The CRYPTO20 fund is a highly distinguished financial product and aims to attract a broad range of investors, including retail investors.
“Our average investors are retail crypto investors with a medium to long term investment horizon. We are also seeing increased interest from professional and qualified fiat investors, who wish to gain exposure to the crypto market, and these more traditional investors now hold a significant portion of the fund.”
To attract institutional investors, Invictus has plans to bring an exchange-traded fund (ETF) version of the CRYPTO10 fund to market in due course.
The C20 and C10 Tokens
Each fund from Invictus has a respective ERC-20 token, the C10, and C20 tokens, which represents a share in the fund and is subsequently tied to the fund’s NAV. Both tokens are directly tied to the underlying asset value of the respective crypto portfolio.
The core functionality of these tokens is to interact with a DApp and smart contract, which liquidates the underlying assets, and then sends ETH back to investors. As CRYPTO10 is an open-ended fund, in contrast to CRYPTO20, C10 tokens are issued and burnt upon subscription or redemption.
The tokens are traded on secondary markets and may be redeemed 24/7 for the token value in ETH via interaction with the smart contract. Additionally, liquidated tokens can also be repurchased at NAV plus 1% via CRYPTO20’s C20 faucet through South African cryptocurrency exchange Ovex.
The CRYPTO20 fund’s management fees are 0.5% per annum, with a 1% exit fee. However, Invictus doesn’t charge any other associated fund fees.
Sharing how blockchain has helped reduced fees traditionally associated with fund management, Bylos says:
“Effectively, blockchain and smart contracts automate many of the functions that would otherwise be arduous and costly in the traditional space: such as liquidation, accounting and fund-management transparency. Our 1% exit fee is applied primarily to discourage arbitrage activity.”
The Future of Invictus CRYPTO10 and CRYPTO20
So far, CRYPTO20 has successfully tracked the cryptocurrency markets as designed from inception to date, even during the bear market of 2018. For less sophisticated investors who don’t wish to manage hedging their exposure during bear markets themselves, the Invictus team has now realized the need for a fund which incorporates a hedging mechanism, which they’ve included in their CRYPTO10 fund.
Discussing the future of cryptocurrency index funds, Bylos shares:
“We foresee a big growth in cryptocurrency index funds, in a similar way to their growth in traditional markets. However, as CRYPTO20 is a closed fund, it’s unlikely to remain a leading fund. Conversely, we foresee huge growth potential for CRYPTO10.”
Blokt would like to thank Jonty Bylos for offering his expertise and the rest of the Invictus team for sharing their vision.