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Alternative Market Briefing

Custody of assets for a cryptocurrency fund is different to a standard fund

Tuesday, April 03, 2018

Komfie Manalo, Opalesque Asia:

The custody of assets for a cryptocurrency fund is very different to that for a standard fund, said Lucy Frew, a partner at international law firm Walkers at the latest Opalesque 2018 Cayman Roundtable.

She added that technically, it is not the cryptocurrency itself that is held in custody. But rather, it is the unique private key in respect of any cryptocurrency transaction that is the true asset.

"Loss of a private key is an unacceptable scenario for a fund manager as there is no other way of accessing the cryptocurrency. Auditors of cryptocurrency funds need to be highly specialized, not only in audit but also blockchain technology, in order to be capable of verifying ownership of cryptocurrency," she said.

According to Frew, the surge in global cryptocurrency markets over 2017 has been remarkable. From a legal perspective, it is notable that the response of worldwide regulators is not only inconsistent but in flux.

She explained that the legal and regulatory framework at the level of the cryptocurrency fund is the same as for other types of alternative investment funds. Nevertheless, a cryptocurrency strategy does present particular administrative and operational challenges that must be addressed both in practice and in legal drafting. The concepts around the traditional hedge fund se......................

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