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smart beta bitcoin fund

This week, Zerocap launched its Smart Beta Bitcoin Fund – a fund that will strategically manage Bitcoin’s heavy price swings to reduce volatility. As a unit-trust structured fund, it is now available to the public for the first time. 

The objective of Smart Beta Bitcoin is to reduce and balance risk whilst simultaneously improving risk adjusted returns, all while providing investors with exposure to Bitcoin. Similar risk parity strategies are common and effectively deployed in traditional asset classes. Zerocap believes this approach is particularly well suited to Bitcoin, given its ingrained volatility and high risk characteristics. 

Volatility is a large barrier to current cryptocurrency adoption

In order for wide-scale adoption of cryptocurrencies to eventuate, individuals and institutions must overcome specific barriers to entry. The most prominent of these are:

  1. Storage – Appropriate infrastructure to store digital assets in a safe and secure manner.
  2. Rules and Regulation – Assurance that investments are compliant within an ever evolving regulatory landscape.
  3. Volatility – Arguably the most significant barrier to entry. Last week, JP Morgan issued a note to investors warning that Bitcoin is still too volatile for mass institutional adoption. The asset’s volatility levels are often 8 times greater than that of traditional equity markets (see below). 
Bitcoin’s volatility mapped against the S&P 500 Index.

Zero friction, borderless finance

Zerocap’s mantra entails tackling these barriers head on in order to facilitate accessibility for both retail and institutional clients. Our world leading custody and regulated investment products are already solutions to two of the three earlier mentioned barriers (storage and regulation).

Now, with the launch of our new Fund, we look to address the third and perhaps the biggest barrier:

Smart Beta Bitcoin Fund – Controlling the volatility of Bitcoin

Zerocap’s Smart Beta Bitcoin fund offers beta exposure to Bitcoin with reduced volatility and improved risk-adjusted returns. As seen below, unlike holding Bitcoin as a spot asset, the Smart Beta Bitcoin Fund sustains volatility at comparable levels to equity markets (and sometimes even lower).

Smart Beta Bitcoin’s volatility is far more comparable to the S&P 500 Index in comparison to straight Bitcoin. 

How is this done?

Zerocap will deploy proprietary models that rebalance the high volatility of Bitcoin to lower levels, in line with risk profiles of equity portfolios. 

Breakdown of the Smart Beta Bitcoin Fund:

  • Is rolled on a weekly basis.
  • Holds only two assets:

(1) Spot Bitcoin, and 

(2) US Dollar-pegged Stablecoin.

  • Weekly allocation for each asset is calculated based on an exponential moving average strategy targeted at optimising Bitcoin’s risk-adjusted returns while controlling its volatility. 
  • Leverage and derivatives are not employed in any way.

This strategy has been designed by our Head of Trading, Toby Chapple. Drawing from his experience of over 20 years in hedging risk. “Similar strategies have been used in the traditional space for decades,” Toby says, “As one of the most volatile asset classes in the world, Crypto markets are in need of methodical processes to control risk. Institutions far prefer risk adjusted returns.” 

Highlights of Smart Beta Bitcoin Fund

Our Smart Beta Bitcoin Fund delivers Bitcoin’s acknowledged benefits to investors – diversification and non-correlation to other asset classes, a hedge against inflation, and Bitcoin’s long term record of value appreciation.

We have used almost a decade of historical data to backtest and to optimize the strategy used for this Fund. These are some of the highlights of the final product:

Smart Beta has a substantially lower downside risk profile than Bitcoin

The Smart Beta Bitcoin Fund significantly reduces Bitcoin’s monthly drawdown profile.

Same as Bitcoin, the Smart Beta Bitcoin Fund would have outperformed the S&P 500 over the last decade

NAV Performance

acktests show that our Smart Beta Bitcoin Fund outperforms the S&P 500 even though it has comparable volatility.
Smart Beta Bitcoin’s monthly returns fit more of a normal distribution than Spot Bitcoin. Where returns are visibly skewed to the right

Perhaps the most attractive feature of Bitcoin as an asset class is its non-correlation effects to traditional equity returns. Smart Beta accurately maps the same correlation and statistical properties as Bitcoin itself. 

Smart Beta Bitcoin Fund offers the same non-correlation effects as Bitcoin

Smart Beta almost matches Bitcoins non-correlation to SPY

In a world where diversity between asset classes is increasingly tough to come by, bitcoin provides an attractive return structure with non-correlation benefits to traditional portfolios. The Smart Beta Bitcoin Fund controls Bitcoin price swings to match equity markets, reducing risk and allowing non-correlation and return benefits to a portfolio.

How to invest in the Smart Beta Bitcoin Fund

Reach out to our team and learn more about the Fund through the Smart Beta Landing Page. At this stage, we are only taking investments from inside Australia. 

Wrap up

“Zerocap is committed to breaking down the barriers to entry for sophisticated investors to digital assets. Bitcoin’s price swings in 2022 have once again highlighted its inherent volatility, making the availability of Zerocap’s Smart Beta strategy particularly appropriate. – Zerocap CEO Ryan McCall.

About Zerocap 

Zerocap’s mantra is zero friction, borderless finance.

Zerocap is Australia’s only full-service crypto platform, providing tailored investment products and secure custody to a global client base of wholesale investors, HNWs and family offices, and institutions. 

Zerocap creates bespoke solutions for investors to build and diversify their investment portfolio with digital assets, through a range of regulated and direct exposure products across the volatility spectrum to fit with their desired levels of investment and risk.

Zerocap’s people bring a deep understanding of digital asset technology, trading, and portfolio optimisation, having processed a billion dollars of digital assets for private investors, family offices and institutions. Zerocap has assembled a team of blockchain experts, institutional portfolio managers and advisers, and experienced traders; backed by strong regulatory, compliance, security and reporting functions. 

Zerocap provides market-leading, institutional-grade custody and storage facilities backed by insurance policies for all of its investors, utilising best-in-class technology such as MPC cryptography and hardware isolation.

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