Crypto hedge fund Nickel Digital is thriving on bitcoin’s price volatility

Before switching focus to crypto assets, CEO Crachilov – an investment professional with more than 25 years’ experience – was at Goldman Sachs, where he focused on portfolio construction for ultra-high net worth and family office clients.

CIO Michael Hall began his career with Bankers Trust in 1992.

From those initial three founding partners, Nickel Digital has expanded to a headcount of 23, with wider senior management team bringing decades of experience from Morgan Stanley, Merrill Lynch, UBS, Rothschild, and Bank of America.

Having launched just over two years ago, Nickel Digital today manages around USD200 million across four funds.

“Our Arbitrage Fund is a fully systematic fund, which applies well-tested techniques brought from traditional finance into crypto markets, extracting value from this notoriously volatile space,” CEO Anatoly Crachilov tells Hedgeweek.

The USD80 million fund has built a solid 22-month track record, generating more than 21 per cent net return since inception, without experiencing a single down month.

If bitcoin repeats last year’s rally of 300 per cent – this strategy will not outperform this.

Triangular arbitrage, another sub-strategy, borrows from traditional FX markets in which profits are generated from temporary mispricing across currency pairs.

Another sub-strategy in the flagship fund is volatility arbitrage.

Reflecting on its performance, he continues: “We are converting the extremely high volatility in bitcoin, which runs at 75 per cent, into 2.5 per cent volatility of returns at the fund level.

The third fund, the Nickel Digital Factors Fund, is a multi-strategy fund launched in February, which some investors referred to as “Millennium of crypto”, in a nod to Israel Englander long-running hedge fund behemoth which consists of individual pods operating different strategies under a single fund umbrella.

“The idea here is that you diversify your exposure across 10-15 idiosyncratic uncorrelated strategies, converging into a consistent return at the fund’s level,” he says.

The most recent launch is Digital Leaders Fund, an altcoin strategy which takes a view on a broader range of protocols outside of bitcoin aiming to capture the growth of the emerging smart contract ecosystem, Crachilov says.

Today, the firm has around 40 investors, the majority of which are family offices.

In an inflationary environment, bitcoin offers a “completely different, transparent, and immutable” monetary policy in which there is a predictable supply of coins, Crachilov observes.

“Bitcoin is an anti-inflationary instrument, like gold and real estate,” he says.

“Assuming you’re making a 2 per cent allocation to bitcoin within your broader portfolio, your downside risk is rather limited.

As with any new technology in its early stage of adoption curve, its price action will remain volatile, and price discovery will be anything but a straight line.

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