While some might argue that taking the volatility out of cryptocurrency investing ruins all the fun, a new partnership between Thor Financial Technologies and Eaglebrook Advisors is aimed at less adventurous Bitcoin fans.
Dubbed the first risk-managed Bitcoin strategy for the wealth management industry, the Eaglebrook crypto separately managed account platform is leveraging Thor’s technology to design model portfolios offering 70% of crypto's upside performance and 40% of the downside risk.
“We’re bringing a lower-volatility product to crypto,” said Brad Roth, founder and chief investment officer at Thor Financial Technologies.
On a back-tested basis using Bitcoin and Ethereum, the risk-managed model would have produced a three-year annualized return of 70.5%, which compares to the 87.8% return for Bitcoin.
Over the trailing 12 months, the risk-managed model would have gained 158%, compared to 306% for pure Bitcoin.
Roth said that as investor allocations start to climb to the 5% range, the extreme spikes and drops in the value of the cryptocurrency are causing new frustrations for financial advisers allocating to digital currencies.
“We’re taking a little more active approach to help dampen the volatility as much as possible,” he said.
Thor was founded in 2018 to manage assets for accredited investors but switched to model portfolios in 2019. Last summer, it opened access to the RIA market, for which it manages more than $1 billion, Roth said.
Eaglebrook, which launched a year ago, is also a newcomer to the RIA space, but is quickly gaining traction, according to founder and Chief Executive Christopher King.
King said Eaglebrook is “the largest SMA platform in the crypto market,” with more than $140 million under management for 34 RIAs and more than 400 individual advisers.
King said the “biggest objection” he hears from crypto investors relates to the volatility, which is why he believes the risk-managed model will catch on.
“Every investor is different with a different risk profile, and if they want exposure, but not full beta, this will work for them,” he said. “Advisers and clients now want advice on what to do and how to manage it.”
Steve Larsen, president of Columbia Advisory Partners and co-founder of cryptocurrency education community PlannerDAO, believes the platform could become popular with advisers because it is using the kind of technology that advisers are already familiar with.
“Many clients believe in adding a layer of risk management to their current equity holdings, and there is no reason they shouldn’t have the same options with their cryptocurrency investments,” he said. “I believe the rise of cryptocurrency is going to bring a resurgence of active investment management to the financial adviser community. Fund managers who have been sidelined for the past decade due to the ETF craze have a unique opportunity to reinvent themselves as trusted guides in the crypto markets.”
The cryptocurrency investments are custodied at Gemini Trust. The fee for investing on the Eaglebrook platform is 1%, and the risk-managed model portfolio ups that asset-based fee to 1.5%.
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