Karen Brettell
Dec 2 (Reuters) – With bitcoin trading well below recent highs, hedge fund manager and activist investor Eric Jackson is betting that investors will still want exposure to the cryptocurrency – just with less pain on the way down.
Jackson's firm EMJ Capital is preparing to launch EMJX, a cryptocurrency-focused treasury firm that will invest in Bitcoin, Ethereum and a range of smaller cryptocurrencies.
While EMJX will buy and hold these assets, it plans to differentiate itself from other cryptocurrency treasury firms such as Michael Saylor's Strategy Inc by using multiple assets and hedging aggressively, aiming to limit large drawdowns while still participating if prices rise.
Crypto treasury companies allocate their cash reserves to holding Bitcoin or other cryptocurrencies as a strategic asset.
“We believe the next frontier is risk-managed digital Treasuries,” Jackson said in an interview. “This still allows us to hopefully capture the upside when Bitcoin does well, but helps insulate us from those huge drawdowns during the winter crypto markets.”
A backtest of EMJX's strategy shows the treasury firm's investments are up 31% this year, even as Bitcoin and Ethereum are down 3% and 10%, respectively, and Strategy shares are down 41%.
EMJ's strategy relies on proprietary artificial intelligence models to manage hedging. Jackson says the models are made more robust by incorporating signals from both Bitcoin and Ethereum rather than focusing on just one of the two.
He also argues that cryptocurrency markets offer a richer data set than traditional assets because blockchains record cash flows in and out of specific tokens in real time. This transparency allows firms like EMJ to study the behavior of large market participants, or “whales,” and track their performance.
When it comes to smaller cryptocurrencies, EMJ will draw on the stock-picking expertise accumulated by Jackson's hedge fund. He cites used car company Carvana as an example: After the stock dropped to $3.50, his models marked it as a “buy” at $11. On Tuesday it was $378.
“We only have to be right in a few cases, and that can have a very significant impact on the value of the entire treasury as it evolves,” he said.
(Reporting by Karen Brettell in New York; Editing by Alden Bentley and Matthew Lewis)
