Following a series of high-profile failures last year, a renewed emphasis on risk management and operational due diligence, coupled with thoughtful regulation, is key to the digital assets sector repairing its reputation. Ben Jacobs, co-founder and managing partner of crypto/blockchain fund of funds Scenius Capital, identifies some of the challenges ahead and where the best investment opportunities may lie…
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Following a series of high-profile failures last year, a renewed emphasis on risk management and operational due diligence, coupled with thoughtful regulation, is key to the digital assets sector repairing its reputation. Ben Jacobs, co-founder and managing partner of crypto/blockchain fund of funds Scenius Capital, identifies some of the challenges ahead and where the best investment opportunities may lie…
What have been the biggest drivers of growth within your business?
In a high-octane yet nascent asset class, investors need active asset management. These same investors place a premium on diversity and robust diligence. The fund of funds model is ideally suited to serve these investor needs in the complex world of digital assets. Scenius has capitalized on this dynamic, providing a turnkey vehicle for investors seeking an allocation to the space. Scenius’ crypto-dedicated, multi-manager platform targets operationally sophisticated firms with elite return potential. LPs value Scenius’ diligence and the firm’s singular focus on the crypto asset class.
What has been the most significant change you’ve observed in the industry?
Prior to 2022, most crypto hedge funds boasted phenomenal performance primarily by being long the asset class. The repeated landmines and systemic failings of last year, however, exposed certain funds that were not institutional in their operations or robust in their risk management. These operational deficiencies paired with a steep decline in prices forced a number of funds to close up shop. We are now witnessing an appropriate reemphasis on risk management and operational rigor not previously present.
Where are the most rewarding opportunities for growth in the space?
While prices are down and sentiment is bearish, the fundamentals within the blockchain industry are improving daily. The number of new developers entering the asset class continues to go up, blockchain infrastructure is improving, and novel businesses/protocols are receiving investment. We believe the early-stage venture space is where much of this value can be captured. Specialized venture funds (e.g. gaming, ZK, consumer, etc) will have an edge in identifying these early-stage investment opportunities, and we believe the 2023 and 2024 venture vintages for these funds will be exceptional.
Which are the most significant challenges in the digital assets industry right now and how can they best be mitigated?
The current regulatory uncertainty in the US is a serious challenge that the crypto industry is working through. Without regulatory clarity, founders and investors don’t know the lines to color within. As a result, many crypto businesses are moving their operations to more crypto-friendly jurisdictions. We witnessed China ban bitcoin mining a few years ago and all of that business just migrated elsewhere. If the US continues to be antagonistic towards crypto, then crypto builders and founders will just take their business elsewhere. Thoughtful regulation is definitely needed, but US legislators and regulators should strive to understand and harness this tidal wave of innovation rather than fight it.
What are the three key pieces of advice you would give clients in the current environment?
Spend the time to learn about the asset class from a first principles perspective. Find someone in your professional field who pivoted their career into crypto and ask them why they did so.
Don’t lump all of crypto together and don’t get caught up in the headlines of FTX, 3AC, and Celsius. These centralized entities are the antithesis of true crypto, which is transparent, immutable, and permissionless. Bad actors and amateurish operations permeate every industry, and these organizations acted recklessly and fraudulently to serve their own purposes. Decentralized Finance solves many of these problems.
Lastly, talk to someone in an emerging market about how valuable Decentralized Finance is to them. In the US we have an entire financial system at our fingertips to serve our needs (e.g. money markets, credit scores, borrowing/lending, dependable dollar, etc). Citizens in emerging markets may not have access to these same services. Something as simple as being able to access a US dollar denominated stablecoin could be a fortune saver for someone in Turkey, Lebanon, Nigeria or elsewhere.
Ben Jacobs, co-founder and managing partner, Scenius Capital – In addition to helping operate the investment vehicles at Scenius Capital, a crypto/blockchain fund of funds investing in liquid token hedge funds and venture capital funds, Ben hosts the podcast “Scenius Studio” where he interviews CIOs and CEOs of crypto investment firms. Outside of Scenius, Ben is executive director of The Medici Network, a community dedicated to supporting broad institutional ownership of digital assets. Ben is an active web3 and DAO participant with experience in decentralized governance and operations. Prior to crypto, Ben worked in strategic operational roles at high growth tech startups. Ben holds a BA in Global Financial Economics from Vanderbilt University and lives in Los Angeles.
