03/10/17

New $500 Million Hedge Fund Will Focus on Cryptocurrency

Investopedia -- Mike Novogratz, the hedge fund manager formerly associated with Fortress Investment Group, has called digital currencies “the largest bubble of our lifetimes,” according to Bloomberg. Because “prices are going to get way ahead of where they should be,” Novogratz believes that “you can make a whole lot of money on the way up, and we plan on it.” How does he plan to achieve that goal? By launching a $500 million hedge fund that will focus on cryptocurrencies, ICOs, and companies linked to blockchain.

$150 Million Personal Investment

Novogratz will reportedly contribute $150 million of his own assets and will seek to augment that with another $350 million, which he plans to raise from family offices, independent wealthy individuals, and other hedge fund managers, according to the report. The Galaxy Digital Assets Fund, as the project has come to be called, would end up as the largest fund of its type. It would also be an important sign that cryptocurrencies are spreading further into the world of standard investing. Novogratz also has a reputation at stake: the money manager suffered devastating losses at Fortress and spent two years outside of the investment world.

Speaking with Bloomberg Television, Novogratz would neither confirm nor deny that he’s planning the fund, although he explained his deep interest in digital assets. “I sold [bitcoin] at $5,000 or $4,980,” he remarked. “Then three weeks later I’m trying to buy it in the low $3,000s. If you’re good at that and you’re a trading junkie, it’s a lot of fun.”

Lack of Regulation Opens Doors for Quick Gains

While cryptocurrencies and ICOs have suffered criticism for their lack of regulation and their openness to fraudulent schemes, investors like Novogratz see them as opportunities for quick gains. In this way, Novogratz is a bit of an outlier compared with his fellow traditional investors. Only two other hedge funds have focused on digital currencies. Neither Polychain Capital nor MetaStable Capital has raised funds on the scale that Novogratz may, though.

Novogratz’s fund will reportedly explore other areas as well, including ICOs and venture capital investments in digital asset development. The investor is populating the executive arm of his fund with traders bringing in ample experience in compliance and hedge fund investing.

“In a lot of ways, this is a market like any other market,” Novogratz explained. “You see the psychology of fear and greed in the charts the same way you’d see it in charts of the Indonesian rupiah or dollar-yen or Treasuries. They’re exaggerated because of less liquidity and because you can’t get short.” Novogratz became interested in bitcoin in the latter part of 2015, although his first major investment in the area was in ether.