Paving the way for institutional crypto investment
ARK36 is a cryptocurrency-focused investment fund. We aim to provide risk-adjust exposure to the cryptocurrency markets to professional investors. As an actively managed fund, we maintain a diverse portfolio of crypto assets that differ in terms of allocation size as well as performance potential and risk. Additionally, we actively pursue investments in new projects in the crypto space with a promising, asymmetric risk-to-reward ratio. We do so to maximize the performance of our fund for our investors while obtaining greater portfolio diversification at the same time.
Recently, we have invested in Concordium – a privacy-centric, compliance-ready blockchain project for the business sector, packed with sophisticated technological features. Before deciding to participate in Concordium’s private sale of tokens in March, our team had closely followed the project since its early stages. We were impressed with the progress Concordium had made thus far and decided to support this project as an investor.
Our investment in Concordium can be seen as an interesting case study showing both the current trends in the crypto markets as well important factors investors should consider before investing in new projects in the space.
Investment Opportunities in the Crypto Space
Identifying new investment opportunities with the right balance between the risk and upside potential is one of the crucial elements of a successful investment strategy. This may present a challenge for investors in any market but it may be especially difficult in the cryptocurrency markets.
In terms of pure investment potential, crypto markets are unique because of the sheer amount and variety of available assets. Due to their decentralized nature, virtually any entity may issue a new asset in the space – such as a new blockchain-based token or coin.
Of course, not all such assets are made alike. Their viability as an investment, projected performance, and associated risks are closely related to the nature of the project they represent and its and technological features. These features, in turn, are designed with specific use case scenarios in mind and aim to address concerns such as privacy, transaction speed and volume, ease of use, adoptability, and more.
Cryptocurrencies are essentially software and therefore programmable. Consequently, there is almost infinite room for creativity in terms of how different blockchain-based projects approach these concerns. Concordium caught our attention because of the unique technological solutions programmed into its blockchain as well as progressive operational philosophy that we perceive as good indicators of the project’s potential future success.
Of course, investing in any new project in the crypto space, especially in its early stages of growth, comes with significant risk. In general, a well-thought-out risk management strategy is a must one when investing in digital assets. At ARK36, we employ a number of professional tactics that help us mitigate risk, including conservative position sizing. In the case of our Concordium investment, the purchase of their GTU tokens accounts for a small fraction of our total portfolio.
What Makes Concordium Stand Out
Concordium aims to solve some of the important concerns that are often seen as barriers to the wide adoption of blockchain technologies by the business sector. For example, its network is designed to support super-fast transactions and high throughput. Concordium will also offer some other business-handy features such as guaranteed finality and easy-to-deploy smart contracts.
However, Concordium’s greatest claim to fame lies in providing the perfect balance between privacy and identity verification for its users. On the one hand, businesses naturally expect sensitive information about their transactions and finances to be kept private. In general, blockchain technologies are indeed able to provide a high degree of privacy, making them particularly apt for business applications.
On the other hand, complete anonymity isn’t ideal from a regulatory perspective. It might raise concerns of financial authorities that require ever greater transparency of transactions for national security reasons. Such regulatory considerations are equally important for the business sector. In the long run, a project that is not able to ensure compliance in this regard is unlikely to enter the mainstream.
Achieving the perfect balance between privacy and identity verification may sound straightforward. However, it actually requires solving extremely complex cryptographical problems. The team behind Concordium was able to surmount these obstacles by creating a blockchain with ingenious features such as inbuilt ID at the protocol level and zero-knowledge proofs, to name just a few.
Thus, all the data available on Concordium’s blockchain will ensure privacy through encryption. At the same time, regulators will be able to uncover the identities of the blockchain users if required. Such a compliance-conscious approach was an extremely important factor for our team at ARK36 when making the decision to invest in Concordium.
Compliance as an Investment Risk
Maintaining strict compliance with the existing regulation is extremely important to ARK36. It allows us to offer our services to professional investors interested in obtaining exposure to the crypto markets. We find that especially the investors from the EU place a strong emphasis on compliance. Likely, our customers would not be willing to work with us if we didn’t offer the protection that comes from being a fully regulated and licensed entity.
In addition, regulatory risk is one of the biggest risk factors for many crypto assets. It is a concern that our portfolio managers consider with special attention when making investment decisions. New projects in the crypto space that do not have the widespread support of the bigger cryptocurrencies such as Bitcoin cannot afford to be poorly regulated. The risk of being shut down by a regulator is simply too great to ignore.
The Concordium team seems to understand this risk as well as we do. Their interest in meeting both current and future regulatory demands seems to be of practical nature. Providing a product that is by design compliant with even the strictest requirements of financial authorities is simply a way of ensuring that its widespread adoption could be possible.
What It All Means for the Crypto Space
Investing in any new project in the crypto space, especially in its early stages of growth, comes with significant risk. In general, a well-thought-out risk management strategy is a must-have when investing in digital assets. At ARK36, we employ a number of professional tactics that help us mitigate risk, including conservative position sizing. In the case of our Concordium investment, the purchase of the company’s GTU tokens accounted for a small fraction of our total portfolio.
Still, cryptocurrencies and blockchain technologies are set to become an increasingly more permanent element of the financial landscape. That may represent an opportunity for investors looking for alternative assets to achieve greater RoI or portfolio diversification. However, as the popularity of such projects increases, they are bound to attract more and more attention from regulatory bodies.
Any project or company that wants to stay in the game in the long term should make regulatory compliance one of its top priorities. That is why ARK36 provides its services as a fully regulated entity; that is why Concordium’s blockchain is compliant by design; and, ultimately, that is why ARK36 decided to invest in Concordium along with many other progressive investors who believe that blockchain technologies can be the future of business.
Author: Ulrik Lykke, Co-Founder at crypto hedge fund ARK36