Date of Last Revision: January 4, 2023
An asset's return over a certain period of time. No matter the direction of the market, the goal is to achieve a positive return.
Certain securities offerings that are exempt from registration may only be offered to, or purchased by, people who are "accredited investors." Here is who qualifies as an accredited investor:
Using a cryptocurrency address, you can send and receive payments into digital wallets. Similar to an account number, the wallet owner shares this address with anyone he or she wishes to receive money from.
An airdrop is a free token distribution from a team, project, company, or smart contract.
'Altcoin' is an abbreviation for 'alternatives to bitcoin'. This term refers to any cryptocurrency that is not bitcoin. Most altcoins share the same underlying building blocks as bitcoin.
The term 'alternative investment' refers to a financial asset that does not belong to any of the conventional categories. Examples of conventional investments are stocks, bonds, and cash. Alternative investments include private equity, venture capital, hedge funds, managed futures, art, antiques, commodities, and derivatives contracts. Real estate is also often included in alternative investments.
The return to a portfolio over and above that of an appropriate benchmark portfolio.
The acronym AML stands for anti-money laundering. AML regulations were originally designed to account for traditional centralized banking systems, which have since been adapted to account for cryptocurrencies.
Any strategy that invests long in an asset and short in a related asset in hopes of profiting from temporary price discrepancies.
An asset classification system for a fund or portfolio. Asset classes include equities, fixed income, cash, and real estate. Among the other categories are commodities, international investments, hedge funds, and limited partnership interests.
A company's assets are things that have value. Typically, this means they can be sold or used by companies to manufacture products or offer services that can be sold. Physical assets include plant properties, trucks, equipment, and inventory. Additionally, it includes things that cannot be touched but nevertheless exist and have value, such as trademarks and patents. Cash itself is an asset. A company's investments are assets, as well.
'All-time high' refers to the highest valuation that a particular cryptocurrency has achieved to date.
AUM (Assets Under Management)
Includes all investments, including cash, which are managed and administered by a fund manager for itself and its clients.
Investment returns are measured in basis points. One basis point equals 1/10 of a percent (e.g. 75 basis points (bps) equals 0.75%).
A bear market occurs when a market experiences prolonged price declines. It is usually characterized by a decline in securities prices of 20% or more compared to their recent highs amid widespread pessimism and lack of confidence among investors.
A point of reference against which the performance of a private equity fund is measured. The benchmark can be a comparison to the performance of other similar funds or a specific threshold return.
Beta measures a security's sensitivity to movements by the market. A Beta of 1.0 means that the security's price moves in lock-step with the market. A Beta of over 1 means the security's price moves up (down) more than the market moves up (down). A Beta of under 1.0 means that the security's price moves up (down) less than the market moves up (down). Beta is also used in private equity to denote the portion of returns that are due to market factors, while Alpha refers to the returns generated by the active management of the fund manager.
Bitcoin is the first peer-to-peer, decentralized digital currency in the world. In contrast to banks and other conventional payment administrators, the Bitcoin network is a payment system that works without an intermediary.
Bitcoin Cash (BCH)
Bitcoin cash is a hard fork of the Bitcoin network, which means a new cryptocurrency with different rules was created from the original bitcoin. With Bitcoin cash, transactions and payments are processed more quickly and efficiently.
Bitcoin Gold (BTG)
Bitcoin gold is another hard-fork from Bitcoin. It is designed to be more decentralized than bitcoin for miners. The centralization of its mining power is among the major criticisms of Bitcoin, which some analysts believe undermines Bitcoin's democratic foundation.
Blocks are used to store unalterable data from the network, primarily transactional information.
Blockchains are distributed databases shared between nodes in a computer network. Blockchains store information electronically in digital form. Bitcoin and other cryptocurrency systems rely on blockchain technology to maintain a secure and decentralized record of transactions. In contrast to traditional records, blockchains guarantee data fidelity and security, and they generate trust without the need for an independent third party.
In a blockchain, the data is structured differently from a typical database. A blockchain consists of groups of information, called blocks, that hold sets of information. Blockchains form chains of data when each filled block is linked to the previous one, forming a chain of data or blockchain. New information following that newly added block is then compiled into another block, which will also be added to the chain once it is filled.
A buyout is a transaction where an investor (typically a private equity fund) acquires control of a mature operating company (which may be public or private) and where a significant portion of the purchase price consists of debt.
A fund can choose to take all the investors' capital at its launch or split the investors' capital among several transfers. The lead can choose to have investors contribute capital at multiple points, and when they are ready to request the next installment from investors, they 'call' capital. An investor's initial drawdown - the amount they contribute upfront - and subsequent requests for capital are called capital calls.
Capital Commitment (or Total Commitment)
The amount of money an investor commits to invest in a fund. A commitment will be made at closing and the capital will be accessed as needed by the fund during its term.
Capital gain is the increase in the value of an investment. A capital gain is "unrealized" while the investor holds the investment, and is "realized" when the investor sells the investment. Capital gains are either "short term" (holding period of one year or less) or "long-term" (holding period of more than one year).
Within the realm of cryptocurrency, the term 'coin' refers to an individual unit of account within a particular cryptocurrency.
Cold storage is a way to store a reserve of cryptocurrency online. It is possible to eliminate the risk of theft from hackers by using cold storage, but it poses new problems and risks. Examples of cold storage include USB drives, paper, physical coin, or an offline cryptocurrency hardware wallet.
A commodity is a tangible good, rather than a financial asset. A number of commodities are consumed on a daily basis, including industrial and precious metals, oil and natural gas, and agricultural products.
A consensus is an agreement between parties. Public blockchain networks use a mix of software, networking, economics, and game theory to find consensus among unknown parties.
A Core fund is an investment that can be held regardless of the macro environment. They aim to provide stable/strong returns over the market cycle.
An indicator of how strategy returns move with one another in a range of -1 to +1. A correlation of -1 implies opposite movement, whereas a correlation of +1 implies parallel movement.
Cryptocurrency is a digital or virtual currency. Although it functions like regular money (like dollars, pounds, etc. ), it has no physical counterpart, such as banknotes or coins that we can carry around with us. Therefore, it exists only as an electronic currency.
Deal flow refers to the pipeline of investment opportunities available to an investor.
By decentralizing a process, you remove intermediaries and push control over the process or system to the edges of the system.
With decentralized finance, clients can borrow, lend, trade derivatives, insure, and trade derivatives through non-custodial smart contracts carried on blockchains.
A measure of how the price of an option will change with the price of the underlying stock.
Derivatives are financial instruments whose value depends on that of another asset. Options, warrants, forward contracts, futures, and currency and interest rate swaps are examples of financial derivatives.
A digital asset is any digital asset built using blockchain technology, including cryptocurrencies, stablecoins, non-fungible digital collectibles, and security tokens.
A distribution is cash and/or stock paid to an investor (limited partner) from a fund. A cash distribution is just that, a distribution paid in cash. An in-kind distribution is a distribution of securities in a portfolio company, usually stock.
Distribution to Paid in (DPI)
DPI represents the amount of capital returned to investors divided by a fund's capital calls at the valuation date. DPI shows the realized, cash-on-cash returns generated by its investments at the valuation date.
A distribution waterfall refers to the allocation and priority of payments made to the general partner and the limited partners in a private equity fund when a cash distribution is made.
The percentage loss from a fund's highest value to its lowest, over a particular time frame. A fund's maximum drawdown is often looked at as a measure of potential risk.
Due diligence is the process of investigating, evaluating and assessing an investment, whether in a fund or directly in a company. The due diligence investigation will cover the people involved (the team), the market opportunity, the business strategy, intellectual property (IP), finances and projections, operations, etc.
A measure of how sensitive a bond's price is to interest rate changes. A general formula for duration is (change in price) / (change in interest rates).
Ether is the primary value token of Ethereum's blockchain and distributed computing platform.
Ethereum is a decentralized, public blockchain network that supports composable smart contracts. Smart contracts can enable decentralized applications as well as peer-to-peer transfers.
Exchanges are marketplaces where buyers and sellers match their orders for currencies, securities, commodities, and financial instruments.
Exposure indicates the amount of money an investor stands to lose in an investment. Experienced investors limit their exposure to the market optimally to maximize profits.
A family office is an entity established by a wealthy family to manage the assets and investments of the family.
A feeder fund is a sub-fund that invests their money into a master fund, for which a single investment advisor handles all investments and trading. By pooling investment capital, hedge funds can assemble a larger portfolio account by using this two-tiered investment structure.
A fiat currency is a government-issued currency that is not backed by a physical commodity, such as gold or silver, but rather by the government issuing the currency. Fiat currencies are usually regulated and controlled by a government or central bank.
The final return of a fund is the return to LPs after all value has been returned to the LPs and the fund is liquidated.
In the United States, the Financial Industry Regulatory Authority, Inc. is a private corporation that acts as a self-regulatory organization. FINRA is the successor to the National Association of Securities Dealers, Inc. and the member regulation, enforcement, and arbitration operations of the New York Stock Exchange.
Prometheus is a member of the Financial Industry Regulatory Authority, Inc. (FINRA), a self-regulatory organization aimed at promoting honesty and fairness in the broker-dealer industry.
A fund administrator is a third-party organization acts as an intermediary between fund managers and investors by verifying and distributing assets tied to investments.
By investing in a fund-of-funds, investors can access a number of different hedge funds they'd normally be unable to invest in individually due to high minimum investment requirements.
A restriction a hedge fund manager places on the amount of the withdrawal that can be processed for the liquidation during a single redemption period. Subsequent liquidations can occur at future redemption periods.
General Partner (GP)
A general partner (GP) is one of two or more investors who jointly own a business that is structured as a partnership, or an entity who assumes a day-to-day role in managing it.
It is the first block in a blockchain. It does not reference any prior block, as all subsequent blocks will.
When an investor buys an asset with the assumption that its price will rise in the future, they are said to be going long. When an investor chooses to go long, they are anticipating bullish returns from a particular asset. Going long on bitcoin means purchasing bitcoin because the price is believed to rise in the near future. The opposite of going long is going short.
Investors who expect an asset to lose value take a position known as going short. Short selling involves borrowing assets from a broker, then selling them immediately at current market value. When the asset loses value, the investor can repurchase it and repay the broker. The investor profits from the difference between the asset's value when it was originally borrowed and the lowered value when it has been repaid. Going short is the opposite of going long.
A hard fork occurs when a blockchain network's protocol is radically altered, resulting in two separate branches: one that follows the previous protocol, and one that follows the new protocol. In a hard fork, holders of tokens on the original blockchain will also get tokens on the new fork, but miners must choose which blockchain to verify. Hard forks can take place on any blockchain.
A hash function maps data of variable size to a new set of data at a fixed size in a way that the reverse computation is impossible. For instance, a hash function can create a fingerprint for a set of data, but it cannot reveal the content of the underlying data it represents.
Cryptocurrency networks are measured by their hashrate, which measures their speed of processing. The higher the hashrate, the faster the cryptocurrency network will process transactions and perform other operations.
Combining an investment with another to reduce directional exposure, such as purchasing a long position and a short position in similar stocks to offset the effect that the overall market level will have on the long position.
The number of shares of common stock that a manager sells short out of the total number possible.
High Water Mark
This requires a manager to attain performance above the highest previous level, before earning additional incentive fees, to ensure that the investor does not pay for covering the same ground twice.
The practice of holding onto a cryptocurrency for the long term rather than selling it for a profit when its valuation reaches a certain level. Many HODL investors will not sell their assets in a falling market.
A hot wallet is a way to keep a cryptocurrency reserve or wallet connected to the internet. There are digital money platforms that provide both a hot wallet and a cold wallet for storing cryptocurrency assets, which makes it easier to access and trade. As a tradeoff, hot storage is more susceptible to hackers and other online threats than cold storage.
The return that must be earned each year before the manager begins to earn incentive fees.
Inception To Date (ITD) Return
Inception to date (ITD) return represents the performance of a fund since it's launch.
Initial Coin Offering (ICO)
The purpose of an initial coin offering (ICO) is to raise money for a startup, software project, or blockchain network by selling a newly created cryptocurrency or token. ICO investors typically buy tokens that they hope to sell on an exchange for a profit later on.
The IOTA platform uses distributed ledger technology and is one of the few prominent cryptocurrencies not based on the blockchain. It is completely blockless and does not require mining. Rather, the platform verifies transactions by verifying previous transactions across IOTA wallets.
An institutional investor is an entity that makes investments. Types of institutional investors include sovereign wealth funds, public and private pension funds, corporations, insurance companies, foundations and endowments.
Internal Rate of Return (IRR)
IRR is the annualized rate of return from a series of cash flows relating to a fund
KYC (Know Your Customer)
KYC stands for "know your customer." It is a standard abbreviation designed to help investment advisors learn more about their clients' financial backgrounds, investment knowledge, and risk tolerances.
Hardware wallets like the Ledger Nano are used to store cryptocurrencies. They can be connected to any computer or device with a USB port. Nano Ledgers offer cold storage of cryptocurrencies, allowing you to access and manage your account remotely.
Left Tail Fund
A left tail fund should provide outsized performance in difficult macro environments, recent examples include the tech bubble, global financial crisis, and Covid-19 market downturns.
Left Tail Investment
A left tail investment is used to protect against market downturns (also known as tail protect funds).
The practice of borrowing to increase a position in a security. If one uses leverage and makes sound investment decisions, leverage can magnify the gain. However, it can also magnify a loss.
Limited Partner (LP)
A limited partnership is commonly used by hedge funds and investment partnerships as they allow them to raise capital while retaining control. The limited partners invest in an LP and have little to no control over its management, but their liability is limited to the amount invested by them.
Liquidity refers to the period throughout which investors can redeem their investments and receive their money back from the fund (monthly, quarterly, etc.).
A limited partnership is when two or more partners go into business together, with the limited partners only liable up to the amount of their investment.
The time an investor must remain invested in the portfolio before their investment can be redeemed.
Typically, management fees are based on a percentage of the fund's assets, usually 1% to 2%. Additional incentive fees may also apply.
A memory pool (mempool) is a collection of unconfirmed transactions on the Bitcoin network. As soon as a transaction occurs, it is placed into the memory pool before it is confirmed.
Central banks print traditional currencies, but bitcoins are created by bitcoin miners. Miner must solve complex mathematical problems that require time and computing power to solve in order to get bitcoins. The mining of bitcoins is also rewarded with bitcoins as a reward for validating transactions on the blockchain nodes they maintain.
In a mining pool, miners share resources (such as processing power/hashrate) over a network, and share the rewards of mining based on their contributions to the pool. The benefit of mining in pools is that they often get more cryptocurrency from working together than if they were mining on their own.
Multiple on Invested Capital (MOIC)
Multiple on Invested Capital, “MOIC”, is a metric used to describe the value or performance of an investment relative to its initial cost, commonly used within private markets. MOIC is also referred to as Equity Multiple.
Net Market Exposure
Investing in long positions without aligning them with equal dollar amounts of short positions exposes the portfolio to market fluctuations.
Net Asset Value (NAV)
Also known as "NAV," this is calculated as the sum of all of the fund's assets less all liabilities. If the fund is publicly-traded, this amount is divided by the fund's outstanding shares to obtain a NAV per share. The measure is used to determine prices available to investors for redemptions and subscriptions.
An amount in cryptocurrency must be paid as a network fee every time an amount is transferred via blockchain. The network fees are paid to miners who verify the transactions. Whenever you buy or sell a cryptocurrency, you must pay a network fee. Generally, higher network fees are associated with faster transaction speeds as they are given priority over lower-priced transactions.
A non-fungible token represents unique digital property, whether it is a collectible, artwork, intellectual property, or something else, which cannot be exchanged 1:1 with another token.
Nodes are software that function as non-mining transaction validity checkers and digital wallets for the network and participants. Additionally, nodes relay transactions to other nodes, which forms an essential component of a public blockchain's network topology.
The minimum number of days by which an investor needs to notify the fund that they intend to redeem.
An Oracle is an entity or process that distributes data from off-chain for the purposes of on-chain participants, including smart contracts. Currently, public blockchains are not aware of off-chain events without being informed of them, a function performed by oracles. Among these events are the price of a digital asset, the weather, political actions, sporting results, or the outcome of a contract.
A term that describes an aggressive strategy with a goal of making money, as opposed to holding onto the money one already has.
The term "peer-to-peer" describes networks without centralized control. Bitcoin and other cryptocurrencies are peer-to-peer electronic transaction systems.
A hedge fund manager's share in the fund's profits. Typically, 20% is charged each year, in addition to a standard management fee.
A private key is a 51-alphanumeric character cryptographic code. Private keys allow cryptocurrency owners to access their funds and provide unique protection against theft and unauthorized access. Private keys are one half of a key pair. Public keys are the other half. Funds can be deposited with a public key, but only withdrawn with the private key.
Proof of Stake (PoS)
PoS-based cryptocurrency creators are chosen deterministically by their wealth (aka stake). There is no block reward in PoS systems, so miners take transaction fees.
Proof of Space (PoSpace)
Also known as PoC (Proof of Capacity). Validation of new coins is done with PoSpace or PoC. This means miners use their hard drives to mine. Your chances of mining a block increase with more space.
In cryptoeconomy, a protocol often refers to a blockchain network like Bitcoin, or a set of interlocking smart contracts, which has a set of rules that must be followed by participants who wish to interact with them.
Cryptocurrency reserves and wallets are identified by their public keys. The address is public and allows funds to be deposited into the wallet. The public key is also part of a key pair. The other half is the private key, which is known only to its owner.
Qualified Client (QC)
Is an individual who holds at least Client $1 million+ in AUM; or an executive officer, director, trustee, general partner, or similar at the advisor; or an employee of the advisor who participates in investment activities for at least 12 months.
Qualified Purchaser (QP)
Is an individual or family company holding at least $5 million in investments or an entity that owns and invests on a discretionary basis at least $25 million in investments.
Liquidation of shares or interests in an investment fund.
Right Tail Fund
A right tail fund is a fund that should outperform in a strong macro environment. They still should perform in line during a normalized macro environment but are best suited to outperform when market conditions are favorable.
Ripple is a San Francisco-based startup company, which developed the Ripple payment protocol and its associated cryptocurrency as well. Ripple issued 100 billion XRP tokens at launch. This is the maximum number of tokens they'll ever issue. In contrast, other cryptocurrencies, like Ether, have no limit on the number of tokens they can release, while Bitcoin can be 'mined' and will eventually reach a maximum amount.
XRP was designed as a 'bridge currency', allowing financial institutions to make simple, fast, cross-border payments, without multiple middlemen, or the high fees generally associated with them.
Strategy to generate profits by taking a long position in the stock of a target company and optionally combining it with a short position in stock of an acquiring company to create a hedge.
Measure of how closely a portfolio's performance varies with the performance of a benchmark, and thus a measure of what portion of its performance can be explained by the performance of the overall market or index.
One satoshi is one hundred millionth of a bitcoin. Bitcoin can be divided into fractions of up to 8 digits in length. Therefore, 1 bitcoin can be divided into 100,000,000 subunits. There are 0.00000001 satoshi in each bitcoin. It is the smallest fraction of a bitcoin. Named after the original Bitcoin creator, Satoshi Nakamoto.
SEPA (Single Euro Payments Area)
SEPA wire transfers allow for easy transactions between European banks and bank accounts. Not all cryptocurrency exchanges and platforms accept SEPA transfers.
A measure of risk-adjusted return calculated by dividing a fund's return over the risk-free rate by the standard deviation of returns. In other words, it's a way of quantifying how much risk was taken to produce the alpha.
Short Interest Rebate
If you borrow stock and then sell it short, you have cash in your account. The short rebate is the interest earned on that cash.
Short selling occurs when an investor borrows a security and sells it on the open market, planning to buy it back later for less money.
In contrast to a traditional contract, a Smart Contract is written in computer language rather than legal language. In a smart contract, the parameters of legally-binding agreements can be laid out transparently so as to minimize conflict, while avoiding the involvement of lawyers. Using the blockchain, smart contracts can be stored, replicated, and enforced by a network of computers running the blockchain.
A ratio used to evaluate a portfolio's return relative to its downside risk. This is a modified Sharpe ratio that measures only downside risk based on returns below the risk-free rate. The Sortino ratio indicates a high return compared to the downside risk.
The difference between the yields of two comparable or related securities. Spreads are measured in basis points. The more risky the security, the larger the spread.
Stablecoins are tokens designed to track the value of an off-chain asset, such as fiat money or an exchange traded commodity, typically US dollars.
The measure of average deviation from an expected result. The larger the variation, the riskier the investment.
Technical Analysis (TA)
TA considers the history of a coin through price charts and trading volume, rather than focusing on value projections. The technique can be useful to traders for assessing cryptocurrency prices.
Usually used interchangeably with a cryptocurrency, tokens represent a digital asset, utility, or equity on top of another blockchain. Initial coin offerings (ICOs) are particularly associated with tokens.
The term 'trading pair' refers to a trade between two different kinds of currencies. An example would be BTC/ETC. With BTC/ETH you can buy Ethereum with Bitcoin, or sell Ethereum for Bitcoin.
The trading volume of assets and/or securities is the amount of assets and/or securities traded in a given period. The daily trading volume of a cryptocurrency exchange, for example, refers to the total volume of cryptocurrencies exchanged over a single day.
The ability to review the underlying instruments and positions within a manager's portfolio.
The rate and extent at which the price of a portfolio, security or index, moves up and down. If the price swings up and down with large movements, it has high volatility. If the price moves more slowly and to a lesser extent, it has lower volatility. It is used as a measure of the riskiness of an investment
A statistical analysis of historical market trends and volatility to estimate whether a portfolio will experience losses that exceed a specific amount. It is used by risk managers in order to measure and control the level of risk which the firm undertakes.
A wallet has a special meaning in the cryptocurrency context. A digital wallet stores bitcoin and other cryptocurrencies instead of bills, coins, and bank cards. A digital wallet can only be controlled by its owner. Cryptocurrency wallets come in many different types. Other types of fiat currencies, commodities, and cryptocurrencies can also be held.
Whales are cryptocurrency traders with substantial financial resources. By buying or selling a large amount of coins, whales can influence the exchange rate of a cryptocurrency.