For Usman Majeed, cryptocurrency’s been the name of the game since 2011.
Then a computer science undergraduate at Michigan State University, Majeed developed an affinity for blockchain technology. Now, seven years later, he’s the managing director of Mutual Coin Fund, a cryptocurrency hedge fund boasting an 82.5-percent 30-day average gain.
About The Fund
About 70 to 80 percent of the fund’s first round of investing went into bitcoin, Ethereum and Litecoin, while 20 to 30 percent went into altcoins. That mix provided between 80 and 90 percent returns on investment.
“If you invest in a mutual fund or the stock market, you’re looking at, on a good year, 7-percent, maybe 10-percent ROI, whereas our round-one investors we already pretty much [doubled],” Majeed said.
Mutual Coin precludes derivatives and futures, but the fund is now taking on more risk with altcoins and meticulously vetted initial coin offerings.
“We’re mostly a hedge fund, but when we do invest in ICOs, it’s kind of like a hybrid hedge fund and venture capital fund as well,” Majeed said.
Mutual Coin Fund’s investment strategy involves two-thirds long-term holds, one-third trading and complete patience, Majeed said: “For us, it’s not like a get-rich-quick scheme overnight."
The manager rebalances the portfolio every week or two rather than day trading.
“The general consensus is the people who are the biggest winners have done their research into a few different cryptos and they long-term hold,” he said.
Mutual Coin Fund hedges a potential market collapse through significant cash reserves, and Majeed said he may consider using traditional securities, life insurance and other insurance forms of debt in the future.
How Mutual Coin Trades
Majeed trades primarily on fundamentals with supporting technicals, but volatility in the crypto market hinders the latter strategy.
"Right now we’re too early for technical analysis because there’s too much volatility, there’s market manipulation with the whales, and just because of those reasons, the technical analysis is not very pragmatic,” he said.
From the fundamentals side, his team researches altcoins and ICOs, reads white papers and talks to founders to assess whether they’re positioned to solve the problems they’ve identified.
For technical analysis, they watch the relative strength index to determine whether a coin is overbought or oversold; the simple moving average; the buy-sell volume; and the order books to catch pumping and dumping. The fund also buys low on major dips, such as bitcoin’s $10,000 relative nadir.
The fund is analyzing the timing of such movements and tracking metrics for proprietary algorithmic bots, which also incorporate sentiment analysis because “hype is moving the market," Majeed said.
The bots, though, just like manual traders, are stunted by delays in crypto exchanges’ application programming interfaces.
“One of our biggest exchanges, Kraken, they went offline for about three to four days, which was crazy because they have millions of customers and hundreds of millions of dollars of trading volume,” Majeed said. “Can you imagine if the NYSE went down for 24 hours — how that would affect all the hedge funds around there?”
The Winning Crypto Mindset
All in all, the strategy is one of neither gambling nor speculation, the hedge fund manager said.
“The altcoins that we do invest in, the ICOs we may invest in, we really vet these by looking at their white papers [and] seeing if they’re solving a real-world problem,” Majeed said. “We look at their code base, we see if they actually have an MVP, they have traction, are they partnering with any companies, and if they are, we kind of treat it like a startup, like a VC would invest in an early stage startup.”
Majeed concedes the global and nonstop market is unstable and unpredictable.
“Because it’s less than $1 trillion, a small change, even a 5-percent change in the trading volume, is big enough to cause either a 20- or 30-percent dip in the market or a 20- or 30-percent gain in the market."
Where Crypto’s Going
Majeed said he expects 2018 to see returns between 50 and 100 times, but 2019 will herald a slowdown.
“I know a lot of the banks like Goldman Sachs, JPMorgan, they’re starting to educate their client base about cryptocurrency, so as soon as we start seeing the market cap of crypto go over $1 trillion, get into the $2, $3, $4, $5 trillion [range], we’re going to see more stabilization in the market and less market manipulation,” he said.
With about $1 million in current assets, all protected in encrypted cold storage, Majeed said he expects to manage around $2.5 million by the end of the first quarter and intends to raise around $10 million by the close of the second.
His fund accepts clients — limited partners — on a rolling basis and serves a diverse range, from global institutions to traditional midwest investors to high net-worth West Coast individuals, for whom he also provides custodial services at over-the-counter exchanges.
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