And it has returned as much as 1000%, thanks to Bitcoin, Ethereum and others.

By Jen Wieczner
July 26, 2017
July 26, 2017

It’s a hedge fund savvy enough to have scooped up Bitcoin when it was free. One of its founders is the well-known CEO of AngelList, Naval Ravikant. It’s backed by a roster of Silicon Valley’s top venture capital firms, and boasts returns of more than 500%. And you’ve probably never heard of it.

Meet MetaStable Capital, a stealthy startup hedge fund based in San Francisco that invests only in cryptocurrencies such as Bitcoin and Ethereum. Since its launch in September 2014, MetaStable has delivered such eye-popping performance that it apparently lets the numbers mostly speak for themselves; it shuns publicity and never announced its recent fundraising round.

Still, Fortune has learned many of the details. In the spring, Andreessen Horowitz, Sequoia Capital, Union Square Ventures, Founders Fund and Bessemer Venture Partners all invested in MetaStable, according to several of the VCs and other people close to the fund.

Notably, it’s only Sequoia’s second investment in a blockchain-related company in that venture capital firm’s 45-year history; the first was earlier this year, in Polychain Capital, in a $200 million round in which Andreessen, Union Square Ventures, Founders Fund and Bessemer Venture Partners also participated.

In contrast to MetaStable, though, Polychain has been much more welcoming of press (its founder, Olaf Carlson-Wee, is on the cover of Forbes‘ latest issue). It also differs in its strategy: Whereas Polychain specializes in investing in other blockchain companies through what’s known as an initial coin offering (or ICO)—an investment style that has been likened to venture capital—MetaStable invests directly in digital currencies that it believes could become a new form of money.

Now, MetaStable owns about a dozen different cryptocurrencies, including Bitcoin (which one of the fund’s co-founders, Lucas Ryan, originally received for free in 2011), Ethereum, and Monero (of which the fund holds nearly 1%, or about $6 million worth, of all outstanding coins), according to a pitch deck seen by Fortune.

Josh Seims, MetaStable’s third co-founder, says the fund takes a value investing approach, “sort of what you imagine a Warren Buffett doing, but it’s kind of oxymoronic to use these terms in the space because everything is so ephemeral.” An example in the pitch deck illustrates the fund’s skill in “Bitcoin crisis investing,” a Buffett-like concept of investing when others are fearful: When Bitfinex, a major cryptocurrency exchange, was hacked last summer, the price of Bitcoin swiftly plunged more than 20% to under $550, and MetaStable took the opportunity to double its Bitcoin position within the next few hours. The price of Bitcoin has since more than quadrupled.

Rather than try to time the market or buy into the newest blockchain trend, MetaStable looks closely at the real-world use cases of various digital currencies, and aims to make at least decade-long bets on the most “credible candidates,” Seims tells Fortune. “There’s a handful of, say between five and 10 of these major use cases that could be trillion-dollar blockchains,” he says. “It’s all very long-term focused, and we think we’re in super early days right now. It really comes down to which do we think is the strong enough technology, that we think can win.” (So far, MetaStable has also exhibited an edge in dodging some of the duds: It skipped The Dao’s token offering last year, correctly predicting that it would be hacked; and also steered clear of the cryptocurrency Steem, which has largely turned out to be a flop.)

Through mid-March, MetaStable’s flagship fund had returned 539% over its short lifetime, including 86% in the first two-and-a-half months of 2017 (a time period in which the Bitcoin price was up almost 28%).

Since then, though, Bitcoin and Monero have each more than doubled; Ethereum, meanwhile, is worth more than five times what it was four months ago. (Year to date, the Ethereum price has risen more than 2,300%.) That means that MetaStable’s returns are actually much, much higher than the ones listed in its March presentation documents. A person close to the fund simply says it has “vastly outperformed Bitcoin;” that puts its 2017 returns at a minimum of 170% and likely far greater. Fortune estimates that MetaStable’s returns since its inception now exceed 1,000%.

One caveat is that the fund is likely relatively small by hedge fund standards, which makes it somewhat easier to post outsized return figures. Still, in the fledgling industry of cryptocurrency hedge funds, MetaStable appears to be one of the heavyweights. A recent Forbes report listed its assets at $45 million, but that was before the recent surge in cryptocurrency prices over the last few months. MetaStable’s portfolio more than doubled in value in May alone, according to a source close to the fund; on June 23, after a Bitcoin and Ethereum price crash, the hedge fund reported total assets of $69 million in a regulatory filing.

It’s not clear how much of those assets are venture capital dollars; typically, when VC firms invest in other funds (the startup accelerator Y Combinator, backed by Sequoia, is one prime example), they can choose to invest in the company itself (or “general partner”) or in the actual fund that company manages, or both. In the case of Polychain, for one, Union Square Ventures said it backed the firm but also put some money into the hedge fund.

The abundance of capital is also enticing a slew of other cryptocurrency hedge funds to test the waters for themselves. According to Hedge Fund Alert, there are at least 15 such funds already up and running, but as many as 25 more are in the works.

Investors should expect similar restrictions and high fees as the ones that exist with traditional hedge funds: MetaStable requires a minimum investment of $1 million, and has a “2 and 20” structure for one of its funds, charging a management fee of 2% of assets, and a performance fee of 20% of the profits. A riskier fund has a 1.5% management fee and a 25% performance fee.

Update: This story has been updated to reflect that Bessemer Venture Partners is also an investor in Polychain Capital.

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