Institutional investors’ interest in cryptocurrency has grown steadily this year. Autonomous Research calculates there are now 370 crypto hedge funds, up from 226 in February.
Yet, traders entering the crypto markets have lacked resources similar to those they use for managing traditional assets. Earlier this year, Tora, a provider of cloud-based technology for managing funds, and blockchain and investment firm Kenetic launched a joint venture to address this gap. The new company, Caspian, offers institutional investors a cloud-based platform for managing cryptocurrency assets.
Caspian’s technology features a single interface that allows traders and other users to connect to different crypto exchanges and systems that manage portfolios, orders and risk management. “We are not reinventing the wheel,” said David Wills, COO of Kenetic and one of three Caspian co-founders, along with Tora CEO Robert Dykes and Gerrit Van Wingerden, Tora’s managing director. “We are taking what works in traditional finance and bringing it into the crypto space.”
Although the project is still in beta mode it has a dozen clients, albeit nonpaying ones, and another eight companies Wills said are about to start using the platform. Wills is a veteran trader who ran the Asia trading desk for Och-Ziff Capital Management, a New York-based hedge fund, for a decade before becoming COO of Kenetic. He spoke with ThirtyK about Caspian and cryptocurrency’s growing presence in the institutional investment community.
ThirtyK: How did your firm, Kenetic, team up with Tora?
Wills: Anyone coming from any type of institutional trading desk will have sophisticated tools at their disposal, and typically these tools are provided by third-party vendors. When I came into this space there was no sufficient third-party software. We needed to import this software that existed in the traditional [investment] space into the crypto space. Tora was a system that we had used.
ThirtyK: What did the resources for institutional traders look like at this time?
Wills: Multiple user interfaces across exchanges, Python scripts, Excel, Google sheets. [Systems were] manual, cumbersome, prone to error, not scalable. The two management teams (Kenetic and Tora) realized that we could form Caspian, which is repurposing Tora technology for the crypto space and Kenetic expertise as traders, portfolio managers [and] early investors into crypto.
“We are not reinventing the wheel. We are taking what works in traditional finance and bringing it into the crypto space.”
ThirtyK: Why not build your own system?
Wills: It came down to cost, time and resources. Our core business is asset management, trading, advisory services. That’s where our expertise is.
ThirtyK: What prompted your interest in crypto?
Wills: I like the notion of a disruptive force, this concept of decentralization and disintermediation and the formation of an industry around that.
ThirtyK: What is the state of the institutional investment community as it pertains to blockchain and cryptocurrency?
Wills: This year has been about building blocks and foundation laying for institutions. The biggest barriers that everyone highlights are custody and regulations. How we secure and custodize assets is challenging: Private keys, wallets, operational control. It’s all these nuanced, technical challenges that any fund manager has to tackle and deal with. As an industry, that’s not scalable until there’s an elegant custody solution backed by reputable, qualified custodians.
ThirtyK: What is your near-term forecast?
Wills: There’s a lot happening now in the background, smart people working on technology solutions and qualified custodians working out how to custody crypto assets. By [the second quarter of] next year, we [will] start to see more sophisticated solutions come online from reputable players.
ThirtyK: What about regulation?
Wills: The reality is there is still uncertainty, depending on which jurisdiction you’re in, about how regulators want to treat cryptocurrency. There needs to be robust regulatory framework to allow [the industry] to flourish.
ThirtyK: Will we have a million-dollar bitcoin?
Wills: I don’t have a position. What’s becoming clear, especially as you’ve seen this massive drawdown in the market from its highs is bitcoin (BTC) has been the winner in relative performance. Maybe we get an ETF, or you’ll see listed options soon. If bitcoin goes to $1 million, then there’s no crypto because the whole story will just be bitcoin. If we have other instruments that investors can invest in, then bitcoin has no business going to $1 million because it means that there will be other cryptocurrencies, tokens or protocols that investors are valuing.
ThirtyK: Are you upbeat about the future?
Wills: From all the engagements Caspian has, I’m optimistic.
ThirtyK: What are a few of the highlights of the Caspian system?
Wills: We have a sophisticated order and management system with a uniform, single interface of data and information from different exchanges, [which] can feed to whatever predefined template you want to see that data [in]. There are different predefined compliance checks. This is useful for a proprietary trading desk to find different risk limits for traders.
You’re able to view your portfolio in real-time and [in] the historical sense. You can generate reports and analytics. This is helpful for monthly investor reports, books and records for fund administrators, for auditors, daily recaps for internal traders, analysts, portfolio managers.
ThirtyK: Is this the same comprehensive resource that traders would use for other types of assets?
Wills: We are not reinventing the wheel. We are taking what works in traditional finance and bringing it into the crypto space.
ThirtyK: What are your concerns about crypto going forward?
Wills: At the tail end of last year and this year it brought a lot of people into the industry. Now, if we have a sustained bear market and the economic pool for such people coming in isn’t as identifiable or strong, it takes longer to [reach] the end point. I’m encouraged by the building blocks and foundation laying, but also acknowledge … where we are.
ThirtyK: Is Caspian still in beta mode?
Wills: We say we’re in beta, but effectively we are live. We have a dozen or so clients and we are [bringing on] another eight. We have a healthy pipeline of customers interested in [joining].
ThirtyK: When will you no longer technically be in beta mode?
Wills: Having all of our clients who are using the product start paying for it.
ThirtyK: When is that going be?
Wills: Within the next few months, very soon.
