Investing in Crypto Assets: Apollo Capital vs DIY
Investors can invest in crypto assets in a number of ways. Historically, the only option has been a DIY approach. More recently, as institutions enter the market, structured investment options have appeared, including Apollo Capital.
We have analysed the advantages and disadvantages of each approach. While we won’t pretend our conclusion is not biased, we have tried to keep the analysis balanced. Hopefully this will help investors considering a DIY approach versus investing in Apollo Capital.
Let’s start with the benefits of a DIY approach.
Save on Fees
This is the most obvious advantage to DIY investors. The Fund charges a 2% management fee and a 20% performance fee, subject to a high watermark. A DIY investor saves these fees.
The investment strategy of the Fund may not be suitable for every investor. The Fund’s strategy offers exposure to broad crypto markets, including large liquid crypto assets, newer projects and a third bucket called opportunistic trading. An investor may prefer greater exposure to other parts of crypto markets. For example, an investor may prefer a portfolio dedicated to ICOs and new projects.
Many DIY investors simply prefer doing it themselves. Many investors like having control and flexibility of trading crypto in their own way. Typically these investors are heavily involved in monitoring crypto markets.
Trust is a big issue in crypto. Crypto assets are a major technological breakthrough in removing the need for a trusted third party as intermediaries. For example, Bitcoin removes the need for a trusted intermediary to move money from one person to another. Some investors may question the need to place trust in a Fund when they can hold crypto assets themselves. Some investors may question the trustworthiness of Apollo to hold crypto assets on behalf of our investors. I understand where these concerns come from. If I were objectively analysing a crypto Fund where I didn’t personally know the key executives involved, I would have the same concerns.
At Apollo, we try to do more than simply say ‘trust us.’ Contrary to the typical hedge fund, we are deliberately transparent with our operations and analysis of crypto markets. We release a weekly newsletter, monthly performance, quarterly market analysis, regular Webinar updates and we readily make ourselves available to investors and those wanting to learn more about crypto assets. We are publicly verifiable and we have staked our personal and professional reputations on Apollo Capital. We realise trust needs to be earned and that’s what we seek to accomplish. And we understand this may not be enough for some people that prefer to DIY.
The market infrastructure for investing in crypto will eventually mature to the point where this no longer becomes an issue. Just as investors don’t think twice about the level of trust or security involved in an equities Fund, we are confident crypto investments will mature to the same point. In time, we will see more crypto Funds with sophisticated and segregated approaches to custody, as well as a range of other crypto investment products like ETFs, indexed funds and listed derivatives. We like to think Apollo is helping pioneer the maturation of the asset class.
Now to the advantages of investing in Apollo.
Rather than make this a blatant sales pitch, we’ll highlight some of the advantages of investing in the Fund that investors may not have considered.
Trading & Execution
Trading crypto assets starts by opening accounts at trusted crypto exchanges. First and foremost, this involves knowledge of the more reputable exchanges and avoiding those that are less trustworthy. Investors will need to pass AML/KYC checks for each exchange, transfer fiat currency and transfer crypto assets to cold storage once assets are purchased. To construct a diversified portfolio, investors will require accounts on various exchanges and will need to track crypto assets as they are transferred.
Unlike equities, trading crypto is not as simple as opening one brokerage account and gaining access to half the world’s listed securities.
Securing crypto assets is very difficult. While we mentioned above that trust in Apollo or our custody processes might be an impediment for some investors, we can easily flip this and say our security processes are almost certainly stronger than a DIY investor’s. All crypto investors (us included!) should not leave crypto assets on exchanges. Investors will need to source, configure and use a suitable cold storage device. Cold storage devices typically only offer support to a limited range of crypto assets, so multiple solutions will be needed for a diversified portfolio. Lastly, DIY investors should consider a disaster recovery plan. If they are hit by the proverbial bus or if something goes wrong, are their assets recoverable, including by their estate? In December last year, one of Canada’s largest crypto exchanges went down with $190m in customers’ funds due to the death of the founder and CEO. He was the only one with access to the assets.
Storing and securing crypto assets is complex and technical. Investors must invest a great deal of time and energy to securing their assets properly.
Reporting & Tax
Reporting and accounting for crypto transaction is straightforward for a simple portfolio of Bitcoin and Ethereum. Trading a range of crypto assets is significantly more difficult, like trading a range of foreign currencies. Transactions from one currency to another, to another and back to the original all must be reported and accounted. Crypto is far more complicated as trades are usually into Bitcoin or Ethereum, then into another asset, then into another asset and back to Bitcoin or Ethereum and maybe back in to Australian Dollars. Unfortunately, investors cannot simply declare gains or losses back into Australia Dollars. Every trade must be accounted for with a corresponding gain or loss.
There is an economies of scale benefit to investing in Apollo. Our third party administrator performs these calculations for the benefit of all investors.
The biggest and yet most overlooked advantage to investing in Apollo is Alpha. As well as our expertise in crypto assets, we have two people constantly monitoring crypto markets. This is very hard for a DIY investor. While we admit that effort does not always equal results, over the 18 months we have been operating, net of fees, we have outperformed our benchmarks C20 ( an index Fund) and the Eurekahedge Cryptocurrency Hedge Fund Index (an index of our peers).
One key advantage we have over DIY investors is access. Our growing size and network in crypto communities means we have access to investment opportunities that many DIY crypto investors wouldn’t have even heard about, let alone gain access to.
Lastly, it should be mentioned that a number of seasoned DIY crypto investors are tired of following crypto markets. Crypto markets are fast paced, evolving quickly and it takes a great deal of energy to keep up. While we know a number of investors that have retired from fatigue, we can’t get enough of crypto markets, we love it!
Whether it’s through the Apollo Capital Fund or a DIY investment approach, the most important issue is that all investors consider an investment in crypto assets. Crypto assets are a groundbreaking technology with enormous return potential that show little correlation to traditional assets.
Investors would be foolish to ignore them.