The emerging world of cryptocurrency asset management
Drawing on decades of experience, Matthew Shaw (pictured) and Philipp Kallerhoff are founders of Protos Asset Management, a Swiss based cryptocurrency asset manager that brings the investing concepts of value, momentum and volatility to the crypto world in the form of a fully traditionally regulated Cayman Island based fund. Protos was set up in 2017 as the pair came out of a crypto investment business in Canada.
“Protos is an asset manager specialising in cryptocurrencies, using some of the traditional tools of hedge funds to manage risk using classic premia strategies,” says Shaw.
The first closed-end fund was launched in mid-December 2017 and is dedicated two thirds to liquid quantitative strategies and one third to investments in bespoke blockchain assets. On the liquid side, the fund applies proprietary strategies across more than 50 cryptocurrencies, with a minimum of USD100 million in market capitalisation, and uses long and short techniques to trade traditional factors such as value, momentum, size and volatility.
To aid research, Protos has created and launched protosterminal.com, a publicly available database of the top 100 cryptocurrencies. The firm has collected a large amount of historic data including prices, trading volume on exchanges, transaction volume on blockchains, news, active addresses, hashrates, token supply, github commits and others. The data is used to create benchmark indices to make sense of the performance of this new asset class. The benchmark indices – value, trend, low volatility and small cap, are derived from the risk premia topic in traditional finance.
Kallerhoff says: “With equities you have a balance sheet, analysts crunching numbers and applying ratios. With cryptocurrencies you have similar numbers, however one big advantage is that all the fundamentals are publicly available in blockchain. Every transaction is public.”
The fund trades through brokers that execute trades across digital exchanges that deliver best prices and OTC trading desks are used to fulfil larger orders.
“Liquidity in cryptocurrencies is about USD10 billion a day in 1600 cryptocurrencies and about USD1 billion is going in and out of fiat currencies.”
Shaw explains that Protos is focused on building a scalable, industry standard investment product for investors.
“We have gone for independent auditors, good fund administrators, independent directors, and have separated front and back office functions. We also use third-party bank custodians. It’s a slightly counter intuitive approach, one not adopted by every crypto fund, as part of the point is to be at a place where you don’t need a third party to be involved, but in order to attract traditional money you have to have good governance.”
Protos has a wide range of investors including individual accredited investors, some institutions, some family offices and professionals involved in venture capital who have invested personally.
The team is based in Switzerland. Shaw says: “It’s a very crypto friendly country which early on clarified the regulatory infrastructure for crypto and has a good crypto eco-system. It’s a good jurisdiction from which to run a fund – we are a regulated Swiss asset manager.”