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Gone Crypto: TradFi vet who founded crypto hedge fund talks future of space
“If you only think about the old ways of doing things, you’re missing out on the new things,” says CK Zheng of ZX Squared Capital The hedge fund aims to reduce risk through options and futures to encourage greater crypto adoption A 30-year Wall Street veteran with a Ph.D. in Finance is now focused on providing investors with risk-adjusted exposure to crypto. CK Zheng left Credit Suisse last year to co-found crypto hedge fund ZX Square Capital. After spending the first four years of his career trading interest rate derivatives at Bank of America and Susquehanna International Group...
Gone Crypto: TradFi vet who founded crypto hedge fund talks future of space
- „Wenn Sie nur an die alten Vorgehensweisen denken, verpassen Sie die neuen Dinge“, sagt CK Zheng von ZX Squared Capital
- Der Hedgefonds zielt darauf ab, das Risiko durch Optionen und Futures zu reduzieren, um eine stärkere Einführung von Krypto zu fördern
A 30-year Wall Street veteran with a Ph.D. in Finance is now focused on providing investors with risk-adjusted exposure to crypto.
CK Zheng left Credit Suisse last year to co-found a crypto hedge fund ZX Square Capital.
After spending the first four years of his career in interest rate derivatives trading at Bank of America and Susquehanna International Group, Zheng joined Morgan Stanley for five years where he was Executive Director of Valuation Risk Management.
He joined Credit Suisse in 2004 and spent the next 17 years as the financial services giant's Global Head of Valuation Risk. There he managed 150 employees and focused on risk and value assessment of private equity, mortgages, fixed income, equities and derivatives.
“The way I see it, crypto is another emerging asset class, and I think there are a lot of interesting ideas that can combine traditional finance with the crypto space,” Zheng told Blockworks.
Zheng noted that last year was the first time he realized crypto was “here to stay” and would “boom” for decades to come.
Crypto received more media coverage in 2021, he noted, and there was a “snowball effect” of more people getting involved.
Bitcoin reached an all-time high of around $69,000 last November. The asset posted its worst daily decline in four months last week and was valued at around $32,900 as of Monday morning.
Still, many believe crypto is a scam, Zheng said, citing Warren Buffett's recent comments. The CEO of Berkshire Hathaway said at a shareholder meeting that he would not buy all the Bitcoin in the world for $25.
“If you only think about the old ways of doing things, you miss out on the new things,” Zheng said.
“When you think about a big return on investment, you really have to think about the long-term trend and see where that trend goes, not today, not tomorrow, but 10 years from now.”
ZX Squared Capital is designed for TradFi and crypto-native investors who want exposure to crypto but don't want to endure the volatility of the asset class.
The fund uses quantitative strategies using options and futures to reduce the volatility of its portfolio to levels between 30% and 40%, Zheng explained, versus Bitcoin's current volatility of between 80% and 100%.
Zheng co-founded the fund with Felix Xu and Yemu Xu, the CEO and co-founder of decentralized financial (DeFi) product provider Bella Protocol, respectively. Combining their crypto-native mind with Zheng's TradFi knowledge was key for ZX Squared Capital, Yemu said.
“When [Zheng] brings that profound experience to the crypto space, I think that will be huge,” he added. “Risk management is something we keep in mind first and foremost.”
The fund's fundraising goal is $200 million in 2022 and $1 billion in 3 years.
TradFi versus crypto
While many of Zheng's former TradFi colleagues are interested in blockchain technology, the executive noted that crypto's market cap, at nearly $2 trillion, remains smaller than Apple's.
“The reality is that traditional finance is 100 times bigger than crypto,” he said. “A majority of people are interested in stocks, credit and fixed income, and there is still a lot of money to be made.”
Although regulatory and compliance concerns continue to deter some investors and financial firms from getting involved, Zheng said he is confident that governments will work with TradFi and crypto companies to pave the way for greater adoption.
As an example of a major financial player “rolling up his sleeves,” he pointed to Goldman Sachs, which conducted an over-the-counter (OTC) crypto transaction with Galaxy Digital in March. He expects competitors like Morgan Stanley to follow suit.
Wall Street firms will engage in segments where they can be profitable, Zheng said, adding that crypto derivatives could be a good gateway for traditional institutions.
"Today you look at stocks, you look at bonds and the many other asset classes - they are either fully valued or overvalued, and there is a lot of concern about the Fed's tightening cycle," he said. “So people need to think about where they put their assets and how they invest in the future.”
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The post Gone Crypto: TradFi Vet Who Started Crypto Hedge Fund Talks Future of the Space is not financial advice.