TradFi Vet Who Started Crypto Hedge Fund Talks Future of the Space

  • “If you just think about the old ways of doing things, you miss the new things,” says CK Zheng of ZX Squared Capital.
  • The hedge fund aims to reduce risk through options and futures to stimulate greater crypto adoption.

A 30-year Wall Street veteran with a Ph.D. in finance now focuses on offering investors risk-adjusted exposure to cryptography.

CK Zheng left Credit Suisse last year to co-found the ZX Squared Capital cryptocurrency hedge fund.

After working in the interest rate derivatives trading at Bank of America and Susquehanna International Group for the first four years of his career, Zheng spent five years at Morgan Stanley, where he was executive director of valuation risk management.

He joined Credit Suisse in 2004 and spent the next 17 years as global head of financial services titanium valuation risks. There, he targeted 150 people and focused on assessing risk and value in private equity, mortgages, fixed income, equity and derivatives.

“As I see it, crypto is another kind of asset that is emerging, and I think there are a lot of interesting ideas that can combine traditional finance with cryptographic space,” Zheng told Blockworks.

Zheng noted that last year was when he began to realize that the crypto was “here to stay” and that it was “booming” for decades to come.

Crypto received more media coverage in 2021, he noted, and there was a “snowball effect” of getting more people involved.

Bitcoin hit an all-time high of about $ 69,000 last November. The asset last week recorded its worst daily drop in four months and was priced at $ 32,900 on Monday morning.

Still, many believe that cryptography is a scam, Zheng said, pointing to Warren Buffett’s recent comments. Berkshire Hathaway CEO said at a shareholders’ meeting he would not buy all the bitcoin in the world for $ 25.

“If you only think about the old ways of doing things, you miss the new things,” Zheng said.

“If you think about a great return on investment, you really have to think about the long-term trend and see where that trend leads not today, not tomorrow, but within 10 years.”

ZX Squared Capital is designed for TradFi and cryptocurrency investors who want to expose themselves to crypto but do not want to support asset class volatility.

The fund uses quantitative strategies with options and futures to reduce its portfolio volatility to between 30% and 40%, Zheng said, compared to bitcoin’s current volatility of between 80% and 100%.

Zheng created the fund with Felix Xu and Yemu Xu, the CEO and co-founder, respectively, of the decentralized finance product (DeFi) provider Bella Protocol. Combining their cryptic minds with Zheng’s TradFi knowledge was key to ZX Squared Capital, Yemu said.

“When [Zheng] “Bringing that deep experience into the cryptographic space, I think it’s going to be huge,” he added.

The fund’s fundraising goal is $ 200 million in 2022 and $ 1 billion in 3 years.

TradFi versus crypto

Although many of Zheng’s former TradFi colleagues are interested in blockchain technology, the executive noted that the cryptocurrency market capitalization of nearly $ 2 trillion is still lower than that of Apple.

“The reality is that traditional finances are 100 times bigger than cryptocurrencies,” he said. “Most people look at capital, credit, and fixed income, and there’s still a lot of money to be made.”

While regulatory and compliance issues continue to prevent some investors and financial companies from getting involved, Zheng said he is confident that governments will work with TradFi and cryptocurrency companies to pave the way for further adoption.

He pointed to Goldman Sachs, which conducted an over-the-counter (OTC) cryptocurrency transaction with Galaxy Digital in March, as an example of a big financial player “rolling up his sleeves.” He said he expects them to be followed by competitors, such as Morgan Stanley.

Wall Street companies will be involved in segments where they can be profitable, Zheng said, adding that cryptographic derivatives could be a good gateway for traditional institutions.

“Today you look at stocks, you look at bonds and many other asset classes: it’s totally valued or overvalued, and there’s a lot of concern about the Fed’s tightening cycle,” he said. “So people have to think about where to put their assets and how to invest in the future.”

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  • Ben Strack

    Ben Strack is a Denver-based journalist who spans macro and cryptocurrency funds, financial advisors, structured products, and the integration of digital assets and decentralized finance (DeFi) into traditional finance. Prior to joining Blockworks, he covered the asset management industry for Fund Intelligence and was a journalist and publisher for several local newspapers on Long Island. He graduated with a degree in journalism from the University of Maryland. Please contact Ben by email at [email protected]

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