Many have claimed that bitcoin (BTC) has been the best performing asset of the past decade and it has certainly done well, however an investment fund just announced its five-year returns beat the king of crypto by betting on undervalued blockchain companies. Off the Chain Capital announced the results today at the Bitcoin Conference in Miami.
In fact, the fund has beat the returns of bitcoin in each of the past five years and has done so with significantly less volatility. It uses a value-based approach, much like Warren Buffet, to select its holdings in the blockchain space. According to their press release, Off the Chain has averaged a return of 133% since it started, compared to 108% a year for BTC covering the time period December 31, 2016 through February 28, 2022. The fund also claims to have beaten the S&P 500 by 3,653% during that same time period with practically zero correlation to the broader market.
Off the Chain Capital had about $400 million assets under management as of the February date used to measure the end of the return period.
"We’ve outperformed bitcoin five out of five years, and we’ve done it with 80% less volatility than bitcoin," said Brian Estes, the fund’s CEO and CIO. "That’s what I’m really proud of, because I built this so endowments, foundations and other conservative investors could gain exposure to blockchain assets and get that downside protection."
Many investors are simply more comfortable with traditional financial assets, like mutual funds, rather than putting their money into cryptocurrency directly. Off the Chain Capital brings in large investors with a minimum of a one million investment requirement into the space who might not otherwise invest directly in blockchain technology. The investors may be future "whales" within the crypto industry given their attractive returns earned.
The fund has an interesting investment model acting as a liquidity provider to seed investors and employees in companies it sees as undervalued allowing them to take over positions in the blockchain companies it targets. Investors and employees can essentially "cash out" while Off the Chain takes on a calculated risk using a value investing approach. Their goal is to buy assets at a 50% discount using this method, which make up about half of the funds assets. Past investments have included such well known companies such as Coinbase and Kraken along with other interesting approaches to finding depressed assets.
One such example was the funds purchase of claims from the Mt. Gox bankruptcy. Mt. Gox was formally the largest hold of BTC until a Russian hacker managed to steal about 740,000 bitcoin at the time valued around $460 million. The fund was able to buy the claims from Mt. Gox customers at around 20% of their worth giving them a huge return for recovered coins.
The rest of the fund is primarily made up of undervalued digital assets which could include Bitcoin depending on their analytics at the time. Currently it sees Binance along with their native coin BNB as undervalued and has taken up a position there betting on future gains.
According to the website, "The fund embraces the value investment philosophies of Benjamin Graham, Warren Buffett, and Charles Munger, which strives to provide downside protection without sacrificing upside growth. This investment approach makes it one that family offices, endowments, foundations and first-time investors in blockchain assets should consider."
Brian Estes started the fund in 2016 with a simple mission - to outperform Bitcoin with less volatility. Based on the reported results he has certainly achieved his mission thus far. Off the Chain Capital is planning on expanding its fund offerings, up next is a bitcoin artificial intelligent algorithmic trading fund.
Bringing new investors into crypto will lead to more innovation and greater long-term adoption. More traditional finance companies like Off the Chain Capital can help bridge the gap between large investors and the emerging crypto market they may initially avoid seeing it as a high risk play. This type of investment capital will attract even more large investments, including institutional investments, into the space benefiting all those who already have some crypto holdings.