CK Zheng — formerly the global head of valuation risk at European investment bank Credit Suisse — is targeting a $200 million fundraise for a new crypto hedge fund.
The Wall Street vet has joined forces with Felix Xu and Yemu Xu to launch ZX Squared Capital, which will deploy strategies in crypto options to help deliver better returns with less volatility, according to Zheng.
"We can use options in a way that can substantially reduce volatility," Zheng told The Block in an interview.
Options, a type of derivatives, can be used to speculate on assets, but also are a Wall Street tool to squeeze returns out of an asset's volatility. For instance, strategies like long strangle allow a trader to take advantage of a potential surge in the volatility of an asset.
ZX Squared is plotting a way to deliver outsized returns in the market while dampening the volatility of bitcoin. In sum, the pitch to investors is that it can reduce the volatility of the underlying market to 30% to 40% compared to bitcoin's volatility of more than 80%.
The crypto options market has grown by nearly 10x since 2020, according to data compiled by The Block. Since the start of 2022, the bitcoin options market has turned over more than $7 billion across venues ranging from CME Group to Deribit.
Zheng spent more than 17 years at Credit Suisse and previously held positions in interest rate derivatives trading at Bank of America and Susquehanna International Group. In a sense, his entrance into the crypto market — and the fund's overall approach — reflect the crypto market's growing maturation and complexity.
According to Zheng, ZX Squared Capital plans to leverage proprietary indicators based on on-chain data to inform its models. "We're leveraging the both of the two worlds."
As for his partners, Felix Xu is a well-known NFT enthusiast whose collection was featured in the Wall Street Journal. He has worked on building out two crypto projects, ARPA and Bella Protocol. Yemu Xu, who got his start at Fidelity, has invested actively in the decentralized finance market.
ZX Squared Capital's pending launch comes as a wave of capital pours — buoyed by billionaire investors like Alan Howard and Paul Tudor Jones — enters the market. On the venture side, the market has seen a number of new multi-billion dollar funds crop up, rating from Paradigm to FTX.
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