Counterparty Risk.
2022 was the year it hit me (hardish)
Always being concerned about a what if scenario I built a small position in crypto, initially in Bitcoin. In an attempt to diversify and reduce my risk, I converted my holding into two funds run by Invictus Capital. Their initial offering was C20 a basket of the top 20 Cryptos. Subsequently they created another fund C10 hedged, which was designed to move to cash when the market became weak. Regular rebalances took place and both funds did exactly as hoped. There was always an emphasis on capital protection and safety. The majority of tokens were held in cold storage. They wouldn't commit funds to Ripple when it was being investigated. Invictus became the first regulated crypto based fund. All good I thought.
UNTIL
In an attempt to gain yield during the bear market, the USD was actually Luna backed UST an algorithmically backed stablecoin. The peg to the $ broke and Invictus were slow to sell. C10 hedged dropped to a level that was equal to the falls in the general market over the preceding months. Invictus were in trouble as a result and administrators appointed.
During the administration period - still ongoing. In an attempt to seek yield both C10 and C20 were exposed to the Celcius and FTX. The result very little left in the pot despite both funds being regulated and separate from Invictus. The management of the funds had the ability to mess up not once but thrice.
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