Apr 23, 2024 - Economy

Crypto portfolio manager details hunt for alpha post-halving

Photo illustration of Pranav Kanade, portfolio manager of the VanEck Digital Assets Alpha Fund next to a pattern of halved avocados

Van Eck's Pranav Kanade. Photo Illustration: Natalie Peeples/Axios. Courtesy photo

Pranav Kanade, portfolio manager of the VanEck Digital Assets Alpha Fund, wants to generate excess returns by not following the crowd and by keeping an eye on the crypto whales.

The big picture: The theme this year is Bitcoin, not Ethereum nor altcoins, Kanade said.

  • Post halving — an event that reduces new bitcoin supply, the fourth of which hit this past Friday — Kanade said Bitcoin layer 2s have the potential to take the spotlight from Ethereum layer 2s, referring to blockchains built on top of the main networks.

Bitcoin is having a bit of a renaissance moment with folks trying to expand the network beyond digital gold, he said.

  • "There are, like, 20-plus Bitcoin layer 2s that are coming to market," he explained, adding, "A lot of these projects are backed by venture funds and exchanges out of Asia."
  • Transaction revenue accrues to the miners, not bitcoin holders, Kanade noted. "As people transact on those layer 2s, the value of that will theoretically flow to Bitcoin layer 2 tokens." (And their holders.)

Reality check: There are those who doubt that Bitcoin layer 2s will outperform Ethereum layer 2s because of how they're designed.

Zoom in: VanEck's Digital Assets Alpha — a private fund open only to qualified purchasers — aims to be invested in 10 to 30 tokens, plus stocks linked to crypto.

Altcoins, a term describing any cryptocurrency besides bitcoin (and for some, ether), look hard to navigate because of the implied dilution of tokens launched in the last year, he noted.

  • The gap between their collective fully diluted capital and their current market cap is around $200 billion, according to Kanade. That's a sizable amount of looming supply, representing a third of the overall $600 billion market cap for altcoins excluding BTC, ETH and stablecoins.
  • It won't all hit at once. Kanade said: "It's probably going to be at a cadence of $2 to $3 billion per month."

Who owns those tokens matters in this moment, because venture capital appears to be in exit mode, Kanade said.

  • "[VCs] have to distribute back to their LPs in order to raise their next fund," he explained. "So if we see this supply overhang, that keeps us away."

By the numbers: The Digital Assets Alpha Fund is not for everyone... with a minimum investment of $1 million.

  • It also charges a 2%/20% management-performance fee.
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