Investment professionals are jumping into the bear market with a new crypto-hedge fund

Two investment experts have teamed up to set up a crypto hedge fund as they dive into the bear market of an industry that co-founder James Ho said he believes will be “one of the most transformative technologies” in his career.

Ho and Vincent Jow are co-founders of Modular Capital, they revealed on Monday, a company that will invest in floating tokens, DeFi protocols and other segments of the crypto space.

She most recently worked as a rector at Altimeter Capital, where he focused on public and private investments in the fintech and crypto sectors. Prior to that, he spent about four years in The DE Shaw Group, investing in industries such as fintech, payment, media and telecommunications.

Prior to founding Modular Capital, Jow made similar investments with New York-based Holocene Advisors since 2017.

Several cases of cryptocurrency have emerged in recent years, Ho told Blockworks, noting the growth of DeFi (decentralized finance) and the underlying protocols in the sector which he said have begun to resemble real businesses.

“All of this was very interesting for us when it comes to thinking about how you have this rich, growing ecosystem that we believe is in its infancy,” Ho said. “We think crypto is going to get a lot bigger when we look at five or ten years right now.”

Modular Capital raised $ 20 million from supporters including Multicoin Capital, ParaFi Capital, Road Capital and LedgerPrime.

The focus of the fund

Modular Capital is set to include between 10 and 20 core positions in its portfolio, and DeFi – or decentralized open finance, as Ho calls it – will be a key focus.

“I think in many ways you will build the traditional economic stack on rails that are more modern and more untrustworthy,” he said, “especially when you move to a world that is beginning to look more multipolar and less US-dominated.”

The company will also seek to invest in primitives that allow applications to build richer experiences for users, such as layer-1 and layer-2 blockchains or various Web3 infrastructure tools.

She said that the company will also monitor the role of NFTs, which he expects will be integrated into various experiences to unlock certain opportunities for owners.

“Of course, basic profile pictures and JPEGs have been the first attempt at this in the last year, but I think you’ll get to see a lot more interesting music, content, concerts, ticketing and games,” he said.

Launch into a bear market

The launch comes as the prices of cryptocurrencies have fallen in recent months and companies in space are struggling with liquidity problems.

The bear market persists after the collapse of Terra’s algorithmic stablecoin and LUNA token in May, as well as the battles of companies such as Three Arrows Capital, Voyager Digital and Celsius.

Modular Capital’s co-founders left their full-time jobs in March and have been planning the launch for several months, Ho said, noting that he and Jow did not expect to launch straight into a bear market.

“I think the reality is that crypto ran pretty much in front of itself,” Ho said. “At the end of last year, you saw a lot of foam in the ecosystem – a number of things that were just heavily subsidized, had no real organic demand, had no real product market adaptation.”

But the industry has seen “a lot of that air come out of the ecosystem” in recent months, the co-founder added, noting that a number of protocols are now getting more realistic valuations.

Modular Capital initially intends to be patient with regard to the pace of capital distribution and may seek to increase exposures over the next three to nine months.

“We do not try to guess the price action from month to month, or even quarter to quarter, for most of these protocols,” Ho explained. “It simply came to our notice then [whether] these become real, lasting businesses over several years. “

As crypto has learned its lessons from traditional finance “on the fly” recently, Ho said, the rules around unsecured lending are likely to become more rigid and investors will be more skeptical of algorithmically stable coins.

“I think many of these [events] will continue to strengthen and make the ecosystem more robust, he said. “There are probably still a few more shoes to drop over this year’s balance sheet, but I think in general the market has definitely restructured quite a bit for us to kick start our fund.”

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