A London-based cryptocurrency custodian, backed by a fund financed by the mayor of London, is launching a new platform to entice more hedge funds and asset managers to invest in digital assets.
Copper, founded in 2018 by Dmitry Tokarev, previously chief technology officer at UK asset manager Dolphin Wealth Management, supplies crypto infrastructure such as custody, prime brokerage and clearing services to clients setting up crypto funds, predominantly from a traditional institutional investor background.
Earlier this year, Copper raised £6.5m in its latest funding round with a significant tranche of the investment coming from the £100m MMC Greater London Fund. MMC was launched by Sadiq Khan, the mayor of London, to invest in new tech start-ups. Copper marked the first investment in cryptocurrencies by the mayor’s fund.
Copper will imminently launch Catalyst, which the firm claims will revolutionise the often-protracted process for firms seeking to launch cryptocurrency trading arms.
“Funds aren’t struggling so much in terms of performance, but their ability to tap into the liquidity pool has been limited due to credit risk and a number of barriers to entry,” Tokarev, who is Copper’s chief executive, told Financial News. “Catalyst is a game-changing product because we will see liquidity, which it was not possible for firms to tap into before.”
Copper’s new platform arrives as one of the world’s largest startup cryptocurrency exchanges, Crypto Facilities, won a trading licence from UK regulators, becoming the first firm in the sector to do so.
A crypto custodian provides storage and security for big crypto investors like asset managers and hedge funds. Such infrastructure is in demand, in a nascent industry that has recently been creeping further into European markets. But the jury is still out on whether a horde of large institutions will join the crypto-rush.
Tokarev added that Catalyst, which Copper is currently trialling and which will be launched within days, would enable crypto funds to sell exposure to their portfolios to institutional investors more quickly and cheaply. “Normally it takes six months to set up a fund, you have to worry about the management and regulation and lawyers charge £500 an hour to answer your questions,” he said.
“It can drag on for months to set up a proper vehicle for the strategy and it is expensive. Here, we can get everything sorted for the customer in two weeks.”
Hedge funds and asset managers have taken their time in entering the cryptocurrency arena, discouraged by the high failure levels of digital asset firms and the unstable fluctuations of Bitcoin. But the 2020 Crypto Hedge Fund Report, authored by PwC and Elwood Asset Management — the company that manages the cryptocurrency assets of hedge fund billionaire Alan Howard — estimated in May that total global assets under management of crypto hedge funds had increased to over $2bn in 2019 from $1bn in 2018.
Macro hedge fund manager Paul Tudor Jones told CNBC in May that almost 2% of his assets were in Bitcoin — which Tokarev noted as a catalyst for a renewed flow of institutional money into the crypto sector.
“For the digital asset space, it has been a challenging space for its entire history,” he said. “But during the pandemic was probably the best time for the crypto space, certainly from an innovation standpoint. People realise it is here to stay, and there are an abundance of opportunities out there that frankly are not in the traditional space anymore.”
Tokarev added: “We have reached the point where it is almost becoming irresponsible not to have crypto in your portfolio, especially when we are in a long experiment of printing money, which historically has always ended badly. But without infrastructure, all the talk of what benefits the digital asset space can bring, and how it can develop, is pointless.”
To contact the author of this story with feedback or news, email Tom Teodorczuk