Dec 2 (Reuters) - With bitcoin trading well below its recent highs, hedge fund manager and activist investor Eric Jackson is betting that investors will still want exposure to crypto — just with less pain on the way down.
Jackson's firm EMJ Capital is preparing to launch EMJX, a crypto-focused treasury company that will invest in bitcoin, ethereum and a selection of smaller cryptocurrencies.
While EMJX will buy and hold these assets, it plans to distinguish itself from other crypto treasury companies such as Michael Saylor's Strategy Inc by being multi-asset and through active hedging, aiming to limit large drawdowns while still participating when prices rise.
Crypto treasury companies allocate their cash reserves to holding bitcoin or other cryptocurrencies as a strategic asset.
"We think the next frontier is risk-managed digital treasuries," Jackson said in an interview. "It still allows us to hopefully capture the upside when bitcoin is doing well but helps insulate us from these massive drawdowns during these winter crypto markets."
Backtests of EMJX's strategy show that the treasury company's investments would be up 31% this year, even as bitcoin and ethereum have fallen 3% and 10%, respectively, while Strategy's shares are down 41%.
EMJ's strategy relies on proprietary artificial intelligence models to guide hedging. Jackson says the models have become more robust by incorporating signals from both bitcoin and ethereum, rather than focusing on just one of the two.
He also argues that crypto markets offer a richer data set than traditional assets, because blockchains record money flows in and out of specific tokens in real time. That transparency allows firms like EMJ to study the behavior of large market participants, or "whales," and track how they perform.
When it comes to smaller cryptocurrencies, EMJ will draw on the stock-picking experience Jackson's hedge fund has built. He cites used-car retailer Carvana as an example: after the stock fell as low as $3.50, his models tagged it as a "buy" at $11. It was at $378 on Tuesday.
“We only have to be right on a handful and it could have a very significant impact on the value of the overall treasury as it plays out,” he said.
(Reporting by Karen Brettell in New York; Editing by Alden Bentley and Matthew Lewis)
