London-based hedge fund, Nickel Asset Management, has spotted an opportunity in the market, devised a strategic plan, raised $50 million for the project, and will soon introduce the Nickel Arbitrage Fund. The sole purpose of this new fund will be to take advantage of various arbitrage situations across the Crypto-verse. According to its release, the new fund “will apply market-neutral, low-latency algorithmic trading to crypto securities”… using such strategies as ”triangular arbitrage, futures basis trades, swap trading, and volatility arbitrage”. The fund will also be fully regulated.
According to CoinTelegraph, Alek Kloda, a portfolio manager at Nickel, highlighted the opportunity as it exists today:
As long as digital assets and their derivatives trade on multiple exchanges across the globe, with sufficient speed and execution quality, we can profitably make markets, while improving liquidity for other market participants.
It is a well-known fact that prices can vary to a material degree across various crypto exchanges, which participate in the global network. If one has the capital and technology to trade instantly with a large number of these exchanges, then it is possible to profit off these small differences in prevailing spreads, the essence of arbitraging. The benefits of this process are to expand liquidity and also tighten spread offerings. The general rule is that everyone benefits, but over time, the arbitrage opportunity diminishes.
Another benefit of this fund is that it is unique in that it has received the blessing of the Financial Conduct Authority (FCA), the regulatory watchdog in the UK arena. The Nickel Arbitrage Fund is indeed one of the few investment funds in the cryptocurrency space to gain such a seal of approval. Regulators have typically frowned upon speculators in the currency markets, but this fund could dampen the extremely wild price swings that occur in the crypto market, the reason why cryptos have been described as the most volatile asset class in history.
The parent firm began raising funds two months back, but has had to cut off the funding process after it was inundated with participation requests from family funds and the offices of fund managers across both the United States and Europe. The staff apologized for the “soft close”, but they expect to re-open the funding window on a limited basis later this year.
The good news is that the fund will also be operated under the auspices of EU regulations that pertain to a full-scope “Alternative Investment Fund”, one that will manage over $100 million in assets and appeal to specialists in the institutional investment trade.
Anatoly Crachilov, the CEO of Nickel Asset Management, told reporters at CryptoNews that:
Our vision is that it’s simply a matter of time until digital assets become part of institutional portfolio allocation for forward-looking investors around the world, and we aim to build an institutional-quality gateway to this high-octane world of digital assets.
Industry observers have referred to the fund as a “watershed moment for institutional crypto trading”.