When big investors commonly referred to as whales need to quickly or quietly get out of the cryptocurrency world, they often turn to Brian Estes.
Estes, 52, runs Off The Chain Capital LLC, a nearly $40 million fund that specializes in buying digital assets from people strapped for cash due to divorce, loss of income or other unforeseen circumstances. The Orlando, Florida-based firm typically picks up assets at more than a 50 per cent discount, Estes said. The fund is in talks to purchase about 1% of crypto-payments processor BitPay from a motivated seller, and another stake in the crypto exchange Kraken. In March, Off The Chain bought 1 per cent of Polychain Capital from a former employee. A year ago, Estes said it snatched up a stake in venture-capital firm Digital Currency Group from a holder who needed to settle a divorce.
“We are fishing where no one else is fishing,” Estes said. “What we do is to buy blockchain assets at fire-sale prices from motivated sellers.”
And there are plenty of those even with crypto prices soaring again and sectors such as decentralized finance, or DeFi, reaching bubble-like extremes. In recent years, investors have sunk billions into hundreds of venture funds and thousands of projects and startups that can take years to mature, and are not easy to cash out from.
In recent years, investors have sunk billions into hundreds of venture funds and thousands of projects and startups that can take years to mature, and are not easy to exit.
Every week Off The Chain also buys claims of creditors of Mt. Gox, the Japanese crypto exchange that tanked in 2014. The fund is the largest buyer of the claims, Estes said. It also figured out a way to package Bitcoin and Ether coins into equity-like investments, and to sell them through brokerage firms.
“Even if Bitcoin doesn’t move, we are making 40-60 per cent a year on harvesting these premiums,” Estes said. Off The Chain’s strategy differs from many other crypto funds, which have simply sunk money into Bitcoin. Through July, crypto funds have posted year-to-date returns of 57.2 per cent, according to industry data tracker CryptoFundResearch, Off The Chain returned 93 per cent during the same period, Estes said.
“Off The Chain’s reported performance this year has been impressive and may indicate promise for value investing in the crypto space, even as it has fallen out of favor with traditional equity investors,” said Josh Gnaizda, chief executive officer of CryptoFundResearch.
Estes got his start in 1990 as an institutional equity broker at A.G. Edwards & Sons. In 2004 he started his own registered advisory firm.
“I learned about Bitcoin” in 2014, Estes said. “Coming from traditional finance, I thought it was just a scam. After the Mt. Gox hack, my value instincts kicked in, I started doing due diligence. I read the Satoshi white paper, and it clicked with me.”
Estes sold his firm and began investing in Bitcoin and crypto startups, such as Coinbase Inc., Digital Currency Group and Polychain. When his son was 16, he started Off The Chain with his dad’s guidance with money from family and friends, and grew it from $500,000 to almost $10 million at the end of 2017, Estes said. When his son went off to college, Estes bought the fund, and opened it to outside investors in August 2019.
The fund requires its 90 limited partners to agree to a one-year lockup period. The structure may allow the fund to avoid the fate of many of the distressed sellers it encounters.
“All of our assets are semi-liquid except for the GP ownership in Polychain,” Estes said. “If we were forced sellers, we would need to take a haircut, but we plan on holding our assets until they become fully liquid. Over 50% of our portfolio will be 100% liquid in six months.”