Meet FBG Capital: Asia’s Hottest Crypto Hedge Fund
FBG Capital is one of the world’s biggest and best-known crypto hedge funds. Today, FBG Capital remains one of the best success stories in the world of crypto – and conventional financial giants are starting to take note.
“Meet Asia’s hottest crypto hedge fund”, explained Forbes in a recent writeup on the fund.
Here’s one of the most important things you need to know about FBG Capital: the hedge fund’s fame comes from the fact that it turned $20 million into $200 million in a year.
In fact, as late as 2017, FBG Capital didn’t even have a name. They were just a group of Chinese traders who pooled their money together. Today, the hedge fund, now organized under the name FBG Capital, is one of the darlings of the industry, attracting investments from blue chip firms like Sequoia Capital. The fund has grown into one of the biggest cryptoasset managers in Asia.
Throughout 2018, FBG Capital has been touring America seeking investors. The recent Forbes writeup, for example, profiled an event in March in San Francisco.
FBG Capital was founded by Shuoji Zhou, a 36-year old trading whiz who grew up in Yancheng, China, a few hours north of Shanghai.
The firm is based on three fundamental principles, including:
- Invest like a venture capitalist in initial coin offerings (ICOs)
- Trade on news and events by moving in and out of tokens rapidly
- Exploit insider relationships and marketing hype to ensure profitability
“The firm’s rise speaks volumes about the anything-goes world of cryptocurrencies,” explains Forbes, “where the stated ideals of democratization are a joke and being an insider is the surest path to riches.”
Prior to launching the FBG Capital hedge fund, Zhou worked in Beijing as an IT consultant for IBM, then moved to Oracle. In 2014, he invested $10,000 into bitcoin and began actively trading. By 2015, he had quit Oracle to trade bitcoin full-time, increasing his stash to nearly $100,000 at a time when the price of bitcoin had only climbed from $270 to $430.
How did Zhou do it? One of Zhou’s most popular strategies was to capitalize on the inherent inefficiencies of the growing crypto space. He would buy bitcoin on one exchange at $300, for example, then sell it on another exchange for $301.50, gaining a profit of $1.50 per coin. Anyone with a fast internet connection and basic trading skills could generate easy money.
Eventually, Zhou joined with a group of similarly-minded Chinese crypto traders. The traders pooled their money. By early 2017, they had amassed around $20 million. They continued investing throughout 2017 and the ICO frenzy, pouring millions of dollars into projects like Tron, Decentraland, and MakerDAO, while simultaneously investing millions “on little more than a research paper and lofty promises.”
The group took an unconventional approach to investing. They looked closely at the founding team, for example, monitored chat rooms on Telegram, and talked to academics, scientists, engineers, investors, and community leaders. To perform ICO due diligence, Zhou traveled “incessantly” during this period meeting with crypto teams worldwide.
As a larger investor, FBG Capital has another unique advantage: the firm could invest in ICOs at special, discounted pre-sale rates. Discounts as high as 30% to 100% were available during pre-sale periods with certain projects.
As the group started to make it big in 2017, they decided to name themselves FBG Capital.
Trading Makes Up 50% of FBG’s Revenue
FBG Capital is one of the most active traders in the space. Today, trading makes up more than half of FBG’s revenue.
In recent months, however, the exchange has moved from taking advantage of arbitrage opportunities to capitalizing on event-driven trading. With event-driven trading, FBG is betting on how topics like regulatory news will affect crypto prices. FBG reportedly quadrupled its money with event-driven trading, going long on bitcoin’s price increase after the futures trading announcement and shorting bitcoin after the Japanese exchange Coincheck was hacked earlier this year.
Is FBG Capital Breaking the Law?
The Forbes report isn’t all sunshine and rainbows for FBG Capital: Forbes suggests that some of FBG Capital’s tactics may attract regulatory attention:
“Not all of FBG tactics seem completely aboveboard. One little-publicized investing dynamic that FBG’s executives gloss over is its relationships with cryptocurrency exchanges, the crypto equivalent of the NYSE or Nasdaq. Typically, when a new token announces its listing on a top exchange, the price jumps because the new liquidity is perceived as an endorsement. Zhou has cozy relationships with the three most active crypto exchanges: OKEx, Binance and Huobi, each processing $500 million to $1 billion or more in crypto trades a day. Using these connections, FBG has helped ICOs it has invested in, like Zilliqa, obtain listings on the exchanges.”
We’ve witnessed phenomena like the Coinbase effect, where the value of a coin jumps significantly after an exchange announces the new addition.
FBG Capital Has Been Profitable Every Month in 2018
It’s easy to think that FBG Capital’s gains have been buoyed by the enthusiasm of the crypto markets in 2017. However, that’s not necessarily the case. In 2018, bitcoin has dropped more than 50% in value, but FBG claims their trading activities have been profitable every month. FBG Capital has demonstrated the ability to make money in both a bear market and a bull market.
FBG isn’t satisfied with where it’s at. The fund just launched a new Cayman Islands-registered hedge fund called the Volatility Token Fund. That fund has raised over $100 million from investors like Sequoia Capital, Polychain, and Bitmain. FBG is charging fees of 1.5% to 2.0%. They’re planning to forge ahead regardless of uncertain crypto regulations.
In any case, FBG Capital is one of the best success stories in the crypto space. The Chinese hedge fund has demonstrated an ability to capitalize on market movements in all conditions. Stay tuned to see where FBG Capital goes next.