Venture capital funds’ interest in cryptocurrencies hasn’t been great, despite the growing opportunities to make money in the space.
One VC firm, however, hasn’t let negative sentiment stop it from diving in. It’s Union Square (NYSE:SQ) Ventures (USV), which has invested significantly in crypto hedge funds. Its latest foray in the space is an investment in crypto hedge fund Mulitcoin Capital.
USV’s co-founder Fred Wilson explained the firm’s reasoning for making moves in the crypto space in a blog post on Wednesday.
Let’s discuss.
Unusual move
While VC firms are typically loaded with cash, they typically do not put it in cryptos, even though many observers have said the space has shown it has plenty of room to run.
Still, there are hesitancies, as worries about the space’s longevity remain. For example, the space’s newness raises many unknowns about its sustainability. If it’s defunct in a few years, many VCs fear their reputations could be damaged for making the poor decision to get involved in such a fledgling space.
This is one of the things mentioned in Wilson’s blog post.
But the venture capital fund model is not optimized for investing in the Blockchain/crypto sector. Blockchain/crypto companies/projects often finance and monetize via tokens which can become liquid quickly and thus we can end up holding highly liquid and volatile positions which is not something we have traditionally done.
Then there is the matter of the 20% rule, which limits how much VCs can invest in cryptos.
About this, Wilson wrote:
And because USV operates under the venture capital exemption to Dodd-Frank, we are limited to 20% of our holdings at cost in “non-qualifying” investments, which include tokens.
Not a problem
Still, these issues weren’t of that much concern to Union Square Ventures and the Multicoin Capital outfit.
We reported to you about Multicoin Capital being launched in October of last year. In that reporting, we noted that the goal was to raise $250 million for the fund by the end of this year.
Based in Texas, the fund originally was set to raise $100 million. However, heavyweight investors like Marc Andreesen, as well money from Blocktower and Craft Ventures, pushed the goal higher.
Kyle Samani, co-founder and managing partner of Multicoin Capital, has boasted seeing a torrent of interest in the firm. He’s said:
“What you’re seeing is the next wave of serious investment coming to an exciting, recently-legitimized asset class.”
To Fortune, Samani said:
“A lot of our peers thought we were crazy. It was a good decision.”
On a roll
In his blog post, Wilson said Multicoin is the sixth crypto fund the firm has invested in over the last 18 months. Also, it’s the ninth active investment in the Blockchain industry that’s been launched, according to Wilson.
A spokesperson for the fund told Fortune that the investment brings Multicoin’s total assets under management to $75 million.
As a long/short fund Multicoin bets on digital assets it believes will rise in value. On that same note, it also looks to profit when the price of other cryptos fall.
In March, Multicoin shorted cryptos. That’s when crypto hedge funds were losing money hand-over-fist due to the price plunges of cryptos, especially Bitcoin.
Samani hasn’t disclosed Multicoin’s returns. He has said that so far this year, the fund has outperformed both the Bitwise HOLD 10 cryptocurrency index—a common benchmark for crypto investors—and Bitcoin.
Fortune points out that the outperformance didn’t mean Multicoin is making money. It just meant that it’s managed relatively better, noting that the HOLD 10 index and Bitcoin have shed more than half of their value so far this year.
Wilson said that although the opinions of Samani are often controversial and contrarian, a lot of money still stands to be made when you’re right about something most people think is incorrect.
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