US election outcome won’t slow Q4 Bitcoin rally, says hedge fund

September 30, 2024 Coin Telegraph

FTX will be the last giant to fall this cycle: Hedge fund co-founder

November 18, 2022 Coin Telegraph

Bear Market

This bear market has seen the collapse of Celsius, Three Arrows Capital, Voyager, and now FTX, but the worst is likely over, a hedge fund executive suggests.

While the FTX crisis is continuing to unfold, the former head of risk at Credit Suisse believes the exchange's fall from grace should be the last catastrophic event — at least in this market cycle.

CK Zheng, the former head of valuation risk at Credit Suisse and now co-founder of crypto hedge fund ZX Squared Capital said that FTX’s fall was part of a “deleveraging process” that began after the COVID-19 pandemic and further accelerated after the fall of Terra Luna Classic (LUNC), formerly Terra (LUNA).

“When LUNA blew up a few months ago, I expected a huge amount of deleveraging process to kick in,” said Zheng, who then speculated that FTX should be last of the “bigger” players to get “cleaned up” during this cycle.

Before its collapse, FTX was the third largest crypto exchange by volume after Binance and Coinbase.

“I’m sure there are multiple players that will probably get impacted [...] in the following weeks, you know, small, large — but I would say this one in terms of magnitude will be one of the larger ones before the whole cycle really ends.”

On Nov. 14, crypto exchange BlockFi admitted to having “significant exposure” to FTX and its affiliated companies. A day later, a Wall Street Journal report suggested it was preparing for a potential bankruptcy filing.

A number of exchanges have also halted withdrawals and deposits this week, citing exposure to FTX, including crypto lending platform SALT and Japanese crypto exchange Liquid.

On Nov. 16, institutional crypto lender Genesis Global said it would temporarily suspend withdrawals citing 'unprecedented market turmoil.'

The fate of these businesses are yet to be determined.

Zheng noted that moments like this are all normal signs of a lengthy, stressful crypto winter which “basically wipes out many of the weak players.”

On a positive note, however, Zheng said that the FTX collapse is unlikely to shake institutional investor confidence, at least for those investing in blockchain technology and certain cryptocurrencies such as Bitcoin and Ethereum.

“For many of the institutional investors [...] as long as they think about the longer term, they think about how blockchain technology is going to advance in the future to help the financial industry [...] that’s still in place.”

CoinShares’ head of research James Butterfilll in a Nov. 14 note revealed that inflows into cryptocurrency investment products rose sharply last week after institutional investors bought the dip triggered by FTX’s collapse.

Investors see the #FTX collapse as an opportunity with crypto inflows totalling US$42mhttps://t.co/neDkmnr6ae
— James Butterfill (@jbutterfill) November 14, 2022

Digital asset investment products saw inflows totaling $42 million in the week ending Nov. 13, the largest increase in 14 weeks.

On the other hand, their outlook wasn’t so optimistic for blockchain equities, which registered $32 million in weekly outflows.

Zheng said it was “mind-boggling” how much damage an MIT-educated, 30-year-old young person can do to the crypto ecosystem — referring to FTX former CEO Sam Bankman-Fried.

He believes the fall of FTX was the result of a lack of clear rules and regulations governing crypto exchanges. Zheng said it may also have been the result of a top-heavy management structure that may not have had the necessary know-how to run a business of such a size.

“Obviously, they’re smart in one aspect, but they’re running a $32 billion company is very different than, you know, when you manage a small company.”

Paradigm co-founder feels ‘deep regret’ investing in SBF and FTX

November 16, 2022 Coin Telegraph

Alameda

Some challenged whether the multi-billion dollar venture capital firm did enough due diligence on FTX prior to investment.

The co-founder of asset management firm Paradigm says they feel “deep regret” for having invested in FTX amid recent revelations involving FTX, Alameda Research, and Sam Bankman-Fried.

In a Twitter post on Nov. 15, Matt Huang, co-founder and managing partner of Paradigm said the firm is “shocked” by the revelations surrounding the two companies and their founder, adding:

“We feel deep regret for having invested in a founder and company who ultimately did not align with crypto’s values and who have done enormous damage to the ecosystem.”

Matt Huang, Managing Partner and Co-Founder of Paradigm Source: Paradigm

Paradigm is a crypto and Web3-focused venture capital firm based in San Francisco. In April reports suggested the firm’s assets under management totaled approximately $13.2 billion.

In Nov. 2021, the firm announced a $2.5 billion New Venture Fund, which dethroned Andreesen Horowitz’s (a16z) as the largest venture fund in crypto.

The firm’s website currently lists FTX and FTX.US in its portfolio. Reports suggest its investment in the exchange is around the $278 million mark.

Huang said that Paradigm’s equity investment in FTX only constituted “a small part of our total assets,” adding that it has now written its FTX investment down to $0.

Facts are still coming to light, and there will be many lessons to learn. We feel deep regret for having invested in a founder and company who ultimately did not align with crypto’s values and who have done enormous damage to the ecosystem.
— Matt Huang (@matthuang) November 15, 2022

He also assured that the firm has never traded on FTX or has ever invested in tokens linked to the exchange, including FTX Token (FTT), Serum token (SRM), Maps.ME Token (MAPS), or the Oxygen Protocol token (OXY).

“We never traded on FTX and did not have any assets on the exchange. We have never been investors in related tokens such as FTT, SRM, MAPS, or OXY.”

Since posting the tweet, a number of Twitter users challenged whether the firm did enough due diligence prior to investing in FTX.

you guys made a bad bet. you didn’t do your due diligence. and your endorsement led others to believe in & support the fraud that was SBF/FTX

that was very bad, and i hope you’ll strive to do better

but i respect taking the L and publicly owning up to it. that is the right move
— DCinvestor.eth ⌐◨-◨ (@iamDCinvestor) November 15, 2022

Speaking to Cointelegraph, CK Zheng, co-founder of digital assets hedge fund ZX Squared Capital reflected that in hindsight, many venture capital firms may not have done the proper due diligence on FTX and its executive team, commenting:

“They don’t have a very good governance process, don’t have a board. It’s basically a one-man show.”

“I’m sure when a young company starts to build the company with sophisticated technology [...] I can see how things can go bad quickly if they don't have a good understanding of the technology married with finance.”

“Obviously, they’re smart in one aspect, but they’re running a $32 billion company is very different than, you know, when you manage a small company,” he added.

Investors to have recently marked down their FTX investments include Sequoia Capital, which wrote off its roughly $210 million investment on Nov. 10, Ontario Teachers’ Pension Plan, which invested $95 million in the crypto exchange, and SoftBank Group Corp., which is expected to write down a nearly $100 million investment.

Regulatory clarity will drive the next bull run — hedge fund co-founder

September 21, 2022 Coin Telegraph

Bull

As long as the regulation gives an institutional investor a very clear path to crypto, they’ll jump into the space, hedge fund co-founder CK Cheng told Cointelegraph.

A former head of risk at Credit Suisse believes the next crypto bull market will stem from “regulatory clarity” in the United States — which he expects to happen in early 2023.

Speaking to Cointelegraph, the former head of valuation risk at Credit Suisse, CK Cheng said some of the regulatory efforts underway in the United States will soon “open the doors” of traditional finance to crypto.

Cheng is a former executive at investment bank Credit Suisse who left his role in July 2021 to co-found ZX Squared Capital, a crypto hedge fund targeting family offices and high-net-worth individual clients.

Cheng said there has been a recent sea change in traditional institutions’ stance towards crypto, with many dipping their toes into the crypto waters for the first time.

In August, one of the world’s largest asset managers BlackRock partnered with crypto exchange Coinbase to provide its institutional clients access to Bitcoin (BTC) and crypto through Coinbase Prime.

More recently, several major names in finance teamed up to create a digital assets exchange serving institutional and retail investors, which is being backed by financial giants including Charles Schwab, Citadel Securities, and Fidelity Digital Assets.

“Nowadays, you see a lot more traditional finance institutions getting involved in the crypto space [...] You can see tremendous interest,” said the hedge fund manager.

Cheng also emphasized that there are many more “waiting for regulation in the U.S. to be further clarified,” before jumping in:

“That will really open the door for traditional financial institutions, you know, bring a lot more institutions, investors into the space. So I would say that's gonna be how the next bull market will start.”

He also believes the Executive Order from U.S. president Joe Biden earlier this year has been a major signal for traditional investors, though admitted the “devil is in the details” when it comes to how crypto trading will be regulated, and whether a cryptocurrency will be considered a commodity or a security.

“From an institutional perspective, as long as the regulation is clear, that gives an institutional investor a very clear path to see they don’t trip themselves into regulatory issues [...] that will bring institutional investors into the space,” he added.

Asked when the tipping point will occur, Cheng said he expects regulatory clarity to be “fleshed out” sometime early next year.

“So hopefully, by early next year, there's something much more concrete. And that will help, you know, the market in terms of sentiment in terms of people's perception [of crypto]. I think regulation will help with that.”

Asked about how BTC prices will move over the near term, Cheng says he expects October to be a “very volatile” month for BTC.

“October is a pretty volatile period of time, especially when combined with high inflation, with a lot of debate in terms of the Fed and policy change. The concern is that if the Fed tightens too much, the U.S. economy may actually go into a severe recession.”

Cheng believes this uncertainty will drive a lot of volatility in both the stock and crypto markets but will stabilize by next year. At the same time, the months ahead of the next Bitcoin “halving” in 2024 could start “another bull market.”

ZX Squared Capital

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