There has been a lot of developing news in the crypto markets this week and we want to share an update for our investors.
This morning, Genesis Global Capital announced it is temporarily suspending redemptions. Digital Currency Group, the parent company for Genesis and the asset manager Grayscale, said in a Tweet that this decision “was made in response to the extreme market dislocation and loss of industry confidence caused by the FTX implosion.”
First, Hashdex has no relationship with Genesis Global Capital. We have used Genesis Trading for over-the-counter (OTC) trading, but currently have no counterparty risk exposure to Genesis. With the looming uncertainty swirling around crypto markets right now, we also want to use this opportunity to describe our relationship to exchanges and custodians.
Hashdex funds do not engage in unregulated borrowing, lending, leverage, or derivatives1 trading of crypto assets. Our risk management policy does not allow us to custody assets on exchanges or with trading counterparties such as OTCs and Market Makers
Hashdex products make use of a large set of custodians to mitigate risks. The current approved list of custodians includes Fidelity Digital Assets, Coinbase Custody (segregated from its exchange), BitGo Trust, and Anchorage Digital Bank. Each is a regulated entity with a clear legal structure for client asset segregation from company balances.
Hashdex has very stringent rules for selecting custodians. This includes requirements such as (i) being licensed by a reputable US regulator; (ii) having an insurance policy that covers at least part of the assets under custody for third-party theft of private keys, insider theft from internal employees, and loss of keys; and (iii) client assets must be technologically and legally segregated so they are protected in case of bankruptcy or insolvency of the custodian. We use a proprietary risk management framework to distribute assets between custodians to mitigate credit and liquidity risks.
Since our inception, we have been focused on providing secure and regulated access to the crypto ecosystem. We do this through institutional-quality products, processes, and service providers. Our robust due diligence processes and obsession over operational controls help to prevent events like FTX from materially impacting our shareholders.
Regardless of this fluid short-term situation, we do not believe recent events have any impact on the long-term investment case for crypto as an asset class. As the effects of the FTX fallout unfold, we anticipate continued volatility and will closely monitor the impact to our service providers.
 Only exception is the US-listed Hashdex Bitcoin Futures ETF, which invests in Bitcoin Futures contracts listed on the CME.
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