Crypto capital markets firm CrossTower, based in Bermuda, is launching a hedge fund at the end of the month in a bid to compete with Grayscale’s Bitcoin Trust (GBTC) and other bitcoin funds for accredited investors.
Similar to how Tesla’s boom created a larger demand for electric-vehicle stocks, the success of GBTC with $20 billion in assets under management (AUM) has caused a plethora of funds to follow suit, said crypto analyst Kevin Rooke. (Grayscale is owned by Digital Currency Group, the parent company of CoinDesk.)
Most recently, crypto lender BlockFi registered a Bitcoin Trust with the U.S. Securities and Exchange Commission and Bitwise announced it was seeking regulatory approval to publicly trade shares of its bitcoin fund on an over-the-counter marketplace, similar to GBTC’s secondary market.
CrossTower Bitcoin Fund won’t trade in a secondary market, but it is trying to compete on management fees and liquidity.
The fund charges a management fee of 60 basis points, or 0.6%, compared to GBTC’s 2% management fee, said CrossTower co-founder and president Kristin Boggiano. It trades at net asset value (NAV) of bitcoin and has no lockups, letting investors redeem within a day.
“This is the most plain-vanilla of the suite of offerings that we expect to be popular,” Boggiano said. “We’re building infrastructure at CrossTower so that entities that want to shape their risk have different instruments whether they want to use an exchange, they want a loan, they want to go short.”
The minimum investment amount is $100,000 and CrossTower has $20 million in AUM from early investors to start. The product has seen the most interest from family offices, Boggiano added.
“That’s a definite huge perk for family offices,” James Seyffart, ETF research analyst at Bloomberg Intelligence, said in reference to there being no lockups on the fund. “It’s very unusual for a fund structured like this to offer daily liquidity.”
However, the initial AUM is on the low end of current offerings on the market, Rooke said. In late January, a Canadian investment firm completed a $180 million initial public offering for its crypto fund on the Toronto Stock Exchange.
CrossTower has hired Grant Thornton as the accounting firm for the fund, Apex as the administrator, Schulte Roth as the law firm and Anchorage as the custodian. (The fund eats the cost of custodial and legal fees, Boggiano said.)
It’s also a way for U.S. investors with offshore accounts to get exposure to bitcoin from foreign tax havens.
The fund is only offered to accredited investors and has a traditional master-feeder structure, which is an investment vehicle that allows CrossTower to pool capital from investors in the U.S. and around the world. Non-U.S. entities and companies with offshore entities can use the master fund to invest in a U.S. tax-exempt environment.
The fund is limited to 99 U.S. investors but is open to an unlimited number of offshore investors because of how the fund was structured for daily redemptions, Boggiano said. Other fund structures in Bermuda that are more capital-intensive would allow CrossTower to capture more of the U.S. market.