November 21, 2022 | , Julian Klymochko is founder and CEO of Accelerate Financial Technologies, a fast growing alternative investment solution provider. The Calgary-based firm announced an NFT Fund for investors earlier this year and recently purchased several new “blue chip” NFTs.
Calgary-based crypto custodian Tetra Trust and global technology provider Ledger work with Accelerate to ensure its digital assets are held in a safe and secure way. As part of my role with Tetra, I connected with Julian to get an update on the new NFT Fund and what he sees in the future for NFTs.
Your NFT Fund is considered Canada’s first Web3 investment vehicle. What led to Accelerate grabbing a pole position?
Julian Klymochko: Web3 is the next iteration of the global internet, owned by its users via non-fungible tokens. This is important because users generate enormous value for networks, and NFTs allow the users to be the main beneficiary of that value creation.
Accelerate is always seeking to innovate, so we are consistently looking for new asset classes that feature three characteristics: they are inefficient, have significant upside, and include a large opportunity set. The NFT market checked the boxes for those three characteristics.
You are an early adopter to crypto and to NFTs. What’s behind this?
JK: I first came across NFTs with the Cryptokitties in 2017, which I brushed off as inconsequential. I made the same mistake with bitcoin early on. When NFTs came back on my radar in late 2020, I did not want to make the same mistake twice. I started buying NFTs in early 2021 to learn about the market, without having a view and only wanting to get educated. After about 6 months, I got quite bullish on the investment opportunity in Web3. From there, Accelerate put together an internal pool to acquire blue-chip NFTs. The internal pool went up 10x in value in about 8 months.
After this successful proof of concept, we decided to offer the Accelerate NFT Fund to clients for those looking to get diversified exposure to this nascent asset class. I am an NFT investor both personally and through the fund, and have exposure to most blue-chip NFT collections.
Accelerate’s NFT Fund has been active for a few months. How is it performing?
JK: We showcased that we could trade blue-chip NFTs effectively and generate significant alpha by bringing our TradFi skills and knowledge to the space. In addition, we proved NFTs can be stored safely. The fund’s performance has certainly been volatile since launch, and we continue to expect it to remain extremely volatile. Our expectations are for 5x to 10x returns over the long-term – with substantial risk and volatility.
What NFTs specifically does the fund own?
JK: Accelerate’s NFT Fund owns a portfolio of blue-chip NFTs. We focus on the largest, most liquid and most globally sought after NFTs, focusing on buying into collections at a floor price. The fund is not fully deployed and continues to acquire NFT assets such as Bored Ape Yacht Club, CryptoPunk, and Chromie Squiggle by Snowfro.
When investors tell you they are reluctant to invest in crypto, what do you say?
JK: NFT investing is for those who want to allocate a small portion of their portfolio to a new technology that presents tremendous upside potential, but comes with high risk. The best analogy is bitcoin in 2013. If a high-risk, high-upside bet does not appeal to an investor, then it is okay to stay out of the asset class. NFTs are only for the most enterprising of investors, and not fit for most given their risk profile.
In any event, I advise investors not to allocate more than 1% of their portfolios to NFTs. If they go up 10x, then that’s 10% additional return for their portfolio. If they go to zero, then the investor’s portfolio is not devastated.
Crypto has challenges around the security of assets and there are stories of investors losing access to their NFTs. Is this why you feature Tetra Trust prominently when you highlight the fund to investors?
JK: A custodian provides for the safe storage of crypto assets and peace of mind for investors. Tetra securely stores the Accelerate NFT Fund’s digital assets. Tetra’s digital asset solution features multiple enhanced security measures, including multi-sig hardware wallets, custom approval devices, and a multi-person verification process for digital asset transfers.
Safety and security of NFTs and cryptocurrencies are paramount for investors. Many individual investors make costly mistakes when it comes to digital asset safety. Institutional-caliber digital asset custodians such as Tetra give investors peace of mind that their assets are stored safely and securely.
You’re using a digital wallet technology solution from Ledger. Why is that important for investors?
JK: We incorporate Ledger technology into our custody and trading infrastructure. Ledger makes our infrastructure safe and secure, granting investors and stakeholders confidence in the security of the fund’s assets. We incorporate Ledger technology into our trading processes, to ensure that our digital assets stay safe as we buy, sell and transfer them.
In addition, we utilize Ledger cold storage solutions within the Accelerate vault, which is only used to store digital assets, ensuring their security. A digital asset vault, with enhanced security measures and processes, provides the safety of assets that our investors rely on.
You have been quite vocal about the potential for NFTs. What do you see as their future?
JK: I believe the NFT market has tremendous upside potential. There are still fewer than one million people who have ever traded an NFT globally, equivalent to the amount of outstanding bitcoin wallets in 2013. NFT technology can incorporate many assets beyond just PFPs (profile pictures), digital art and metaverse lands.
I foresee a significant amount of new digital asset segments utilizing NFT technology in the future. Assets that are prime to capitalize on blockchain technology to increase their marketability and liquidity include music royalties and other media assets, which are segments of the market that most investors do not currently have access to and are cumbersome to invest in. With NFT technology, media assets such as music royalties can become highly liquid and easy to buy and sell.
You have hinted at additional crypto-based funds and other digital asset offerings from Accelerate. What can we expect?
JK: Just as innovation in traditional asset classes brought many offerings beyond just plain vanilla long exposure to stocks and bonds, I believe crypto will feature the same evolution.
There is a myriad of investment products than can be structured within the crypto space, amongst many segments and risk/volatility profiles. Popular themes in the equity and fixed income asset classes include covered calls, risk-managed, enhanced yield, ESG, and more. I believe the crypto market will incorporate these themes in the future.
Rahil (RJ) Jamal is Tetra Trust’s Director of Operations and Finance.