Dec 102016
 

Olaf Hedge Fund A16z USV

‘Digital Asset’ trading is set to enter the mainstream financial industry with Polychain capital raising $10 million from venture capital firms Andreessen Horowitz and Union Square Ventures. The hedge fund, Polychain capital, is run by Olaf,the first Coinbase employee who quit earlier this year to start his own venture. The round is the first venture capital money raised for a company that actively trades digital currencies on behalf of clients. The hedge fund was created to trade not just Bitcoin but also other cryptocurrencies or ‘digital assets’ on various exchanges.

The investment round would be the first for some of the venture capitalists active in the space. Traditionally, the venture capital industry have focused on technology-based companies in this space that help expand the digital currency ecosystem. However, this investment round is different in that the hedge fund is purely a financial entity that takes money from investors to trade in the cryptocurrency markets.

Wall Street Calling

The move will ring some alarm bells on Wall Street with Silicon Valley encroaching its traditional turf. In addition, although several investment firms like Fortress and Global Advisors have gone on record disclosing Bitcoin investments, there hasn’t been any talk of firms involved in the broader cryptocurrency market, including altcoins.

It is also telling that Olaf was the first employee at Coinbase and perhaps shared some of the ethos of the founders, who have been vocal about ‘digital assets’ or ‘appcoins’ or more recently ‘protocol tokens’. However, it is important for large companies like Coinbase to tread carefully due to the many pitfalls and scams that litter the space. Missteps by large companies may not be looked upon kindly by the investors.

In addition, a lot of these tokens use the ICO model to raise money which has its own pitfalls and can resemble stocks in certain cases. That may not go down well with the SEC that regulates stock issuances very strictly. There are also questions around price fixing and influencing markets unethically that might be illegal under the SEC or CFTC rules, so firms need to be careful not to be caught up in the crosshairs.

Besides the regulatory aspects, however, there is ample opportunity for smaller firms to trade other people’s money, and will likely be good for the broader cryptocurrency ecosystem.

‘Altcoins’ Gain Respect

The idea of providing investment exposure to the broader cryptocurrency market, not just Bitcoin, is not new of course. The latest venture towards this goal is ICONOMI that plans to launch two funds on the Ethereum platform. However, teams like ICONOMI lack any financial knowledge around trading and index-construction and therefore very unlikely to see any serious investor uptake. With Polychain Capital, Olaf might be able to convince traditional investors to give cryptocurrency a try.

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