A new $100 million investment firm, Darma Capital, is opening to investors who want to bet that digital assets such as Ether are poised for a 10-year bull run. Of course, Ether saw one of the largest boom-and-bust cycles in crypto, rising an astounding 17,775% in 2017 only to see 94% of its gains erased by the end of last year. Darma’s founders, however, are counting on Ether’s long-term integral role in the Ethereum blockchain to counter such mania.
“We want to acquire what we consider a new asset class,” Andrew Keys, a managing member in Darma, said in an interview.
Keys, one of the first employees of ConsenSys, a Brooklyn-based Ethereum application developer, compared the state of crypto today with the early days of the internet’s popularization, when investors backed Google or Amazon, which operate atop the web’s architecture. The cryptocurrency Ether is the equivalent of the web — it makes the Ethereum blockchain work — but unlike with the internet, investors can buy Ether directly, Keys said.
“We are 10 years long” on Ether, Keys said. His firm plans to create similar funds for Bitcoin and Filecoin in the future, he said.
While scandals, fraud and regulatory actions are still seemingly weekly events in crypto, there are signs of well known corporations adopting Ethereum for real world uses. In April, Ernst & Young released its version of privacy-enhancing technology onto the public Ethereum blockchain. That same month, Societe Generale SA issued 100 million euro ($112 million) worth of covered bonds on the public Ethereum blockchain. The public chain is open for anyone to use, unlike private blockchains, which require permission to access.
“It’s very difficult to predict the success of any single-asset fund” because returns are closely tied to the underlying asset, Josh Gnaizda, chief executive officer of Crypto Fund Research in San Francisco, said in an email. “These type of crypto funds do, however, tend to be more volatile than arbitrage and other quantitative funds that have less of a directional bias.”
The Darma funds are registered with the Commodity Futures Trading Commission as both a commodity pool operator and a commodity trading adviser. Over the last few years, the strategy of the fund was to simply acquire as much Ether as possible. Keys said the fund sold near the top of the market in early 2018 to buy larger quantities of coins as prices fell, securing as much as 2,500 Ether last year for every 1,000 the fund started with. Managing the price swings is a major focus of the fund, he said.
Larger questions loom for the Ethereum blockchain, such as whether it can boost the number of transactions processed. There are also concerns about privacy with Ethereum compared with transactions on the Bitcoin blockchain.
One early believer is Joe Lubin, founder of ConsenSys, who called Keys a “unifying force” in the Ethereum community, according to an emailed statement. The Brooklyn firm is Darma’s first corporate client and has invested some of its Ether with the fund for risk-management purposes, said Keys, who’s on the ConsenSys advisory board.