Farmer School students running digital asset management firm

A group of Farmer School students are taking their knowledge and learning to a new level as they operate their own crypto asset hedge fund

Block Key Capital members (l-r) Colin McGreal, Kyle Freiman, Hanson Birringer, Patrick Young, Mathew Ball
Block Key Capital members (l-r) Colin McGreal, Kyle Freiman, Hanson Birringer, Patrick Young, Mathew Ball

A group of Farmer School students are taking their knowledge and learning to a new level as they operate their own crypto asset hedge fund

An old joke states that “Everybody talks about the weather, but nobody does anything about it.” But when it seemed like everyone was talking about blockchain and cryptocurrencies, several former and current Farmer School students decided to do something about it.

The group formed Block Key Capital, a research and investment firm specializing in giving people exposure to the emerging cryptoasset class. “We invest in the publicly-traded cryptoasset ecosystems, open protocols that have an incentive-based system, whether that be bitcoin, ethereum, or a token with a variety of different applications and use cases,” senior marketing major and managing partner Patrick Young explained.

“Block Key Capital exists because we came together through Miami's Blockchain Club, and while we were pretty experienced in the space to some degree prior to joining, we decided we were like-minded individuals with a pretty sharpened skill set that have the ability to provide returns for somebody in the long run,” senior finance major and managing partner Nico Katsafanas said.

It’s not easy work, even for business students. The cryptoasset space is so new, they’ve had to build a lot of their tools themselves. “We essentially had to develop our own way of assessing the value of each product and project. Those components are their team, the development team behind the project -- if they're proven, if they've had experience in the space before, are they show to be able to be able to deliver on really big ideas,” Young said.  “Token mechanics, why this platform may need to be public, why it would need to have a cryptoasset incentive-based system or some sort of token that plays a role in the platform and not just being a distributed database.”

“The way that you try to put a valuation together on these types of products is really difficult because there are metrics to value a public firm. You look at discounted cash flows, whereas within a cryptoasset, there are no cash flows, there's no price-earnings multiple. So it's kind of a mix of art and science,” Katsafanas noted.

The group says Block Key Capital is doing well, despite not existing little more than a year ago. “We've been running for the better part of a year, fully operating for close to seven months. I would say that we're certainly competitive within the space itself,” senior finance major and managing partner Hanson Birringer said. “A lot of the other big firms that are in this space are still way down from the collapse of the bubble that happened last winter. I would say we're doing better than average, for sure.”

“You take a percentage of all assets under management as a fee and a fee based on profits. So we're looking at qualified clients who have $2M or more to their name. Then we look at someone who has the risk tolerance for this asset class, because bar none, this is probably the riskiest investment you can possibly make,” Katsafanas explained. “A lot of people have lost a lot of money, and the first rule of money management is ‘Don't lose money,’ so that's been one of our driving philosophies from the get go.”

The process of creating and running BKC has had educational benefits that will last in the years to come. “We've all interned somewhere before, and we've worked for a corporation, but we've never been at the helm of our own company before. So just the average day-to-day that goes into running a business has been really insightful and eye-opening,” Katsafanas said. “If something needs to get done, you're not passing it off to your manager, you're not passing it off to someone else, you're either doing it or delegating it to another team member to get done. If it doesn't get done, you're responsible for that and you're accountable.”

“It takes a lot of balance and effort when you're taking 15, 18 credit hours as well. That's kind of been an obstacle we've had to overcome, but I think we'd done a pretty good job of it so far,” Birringer noted.

Other members of Block Key Capital are Kyle Freiman, senior economics and accounting major, Mathew Ball, junior business and IMS major, Colin McGreal, senior economics major, and Michael DeJesus, a 2018 supply chain and operations graduate.

A big challenge that is on a lot of the students’ radar is a familiar one: Graduation. “That's kind of the question on all of our minds. Everyone is graduating this year but one, so we're exploring -- we're all seeking full time employment in addition to this,” Birringer pointed out. “We're exploring a few different options right now of what to do with the fund.”

“The real ecosystem of this technology is being built right now, and as a firm, we have to have that wait-and-see approach to how this plays out. But things can get interesting very quick. We're in the second inning, not the ninth,” Young said. “There's a lot of opportunity there for us to capitalize on, even in the next four months.”