Drawdown protection for crypto investors during times of market stress

Investing in alternative assets comes with its own set of risks, for cryptoassets specifically; investors are most concerned with downward market trends. It is therefore important to ensure that any investment in digital assets and the associated risks are managed during times of market stress.

Investors’ requirements have shifted towards investment products which offer drawdown protection. With this in mind, the team at Invictus Capital launched a cutting-edge fund, CRYPTO10 Hedged (C10). The fund tracks the top 10 cryptoassets and aims to provide investors with long-term capital growth potential and superior risk-adjusted returns relative to pure crypto market exposure. Importantly, a dynamic cash hedge provides drawdown protection in times of market stress.

On a weekly basis, C10 allocations a portion of the funds into or out of cash, with the remainder of funds being allocated to the C10 pure crypto index. The fund, therefore, consists of two components; a cash component, and a top 10 cryptoasset component. The cash allocation is dependant upon recent market movement, with the allocation percentage following a passive ruleset. Broadly speaking; a fixed percentage of the funds are moved into or out of cash for x percentage in the movement of the total crypto market cap. Anything between 0 and 100% of the fund may be allocated to cash. The C10 cash hedging algorithm has been optimized to provide drawdown protection during times of market stress while allowing for efficient allocation into cryptoassets during upward trends.

An additional aspect to the CRYPTO10 Hedged fund is that investor returns are increased by income generated through margin lending. This addition to the fund rules essentially allows the idle underlying assets within C10 to be loaned out on margin lending exchanges. The interest income earned from loaning these assets out is then distributed back into the fund, hugely lessening the impact of fund fees, and in many cases, exceeding the fees charged. This is a significant point as no matter the underlying allocation between crypto and cash, all the assets in the fund are able to generate additional returns for investors.

Given the volatile nature of the crypto market, C10 offers an efficient way for investors to gain access to cryptoassets at lower levels of risk. With the sharp movements in the market, C10 offers an efficient way for all investors to gain access to cryptoassets at lower levels of risk.

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