ZX Squared Capital: Outperforming Bitcoin with Only A Half of its Volatility 

A 30-year Wall Street veteran with a Ph.D. in finance from University of Chicago is now focused on offering investors risk-adjusted exposure to crypto.

CK Zheng, co-founder of crypto hedge fund ZX Squared Capital, is a person with a considerable background in the world of traditional finance and risk management. After working in interest rate derivatives trading at Bank of America and Susquehanna International Group for the first four years of his career, Zheng moved on to Morgan Stanley for five years, where he was an executive director of valuation risk management. He joined Credit Suisse in 2004 and spent the next 17 years there as the financial services titan’s global head of valuation risk. There, he managed 150 people and focused on assessing risk and value across private equities, mortgages, fixed income, equities and derivatives. 

“The way I see it, crypto is another asset class emerging, and I find there’s a lot of interesting ideas that can combine traditional finance with the crypto space,” Zheng told PAN Finance. 

In 2020, Zheng first began realising that crypto was “here to stay” and would “boom” for decades to come. Crypto received more media coverage during the last crypto cycle 2019~2023, he noted, and there was a “snowball eect” of more people getting involved. 

During the previous cycle, Bitcoin price demonstrated extreme volatility. After reaching an all-time high of roughly $69,000 in November 2021, it crashed down to $16,000 when FTX defaulted in November 2022. That was exactly when Zheng correctly called a cycle bottom and also when he had an interview with Cointelegraph sagely titled “FTX will be the last giant to fall this cycle”. 

“If you think about a big investment return, you really have to think about the long-term trend and see where that trend leads to not today, not tomorrow, but 10 years down the road.” 

ZX Squared Capital is designed for TradFi and crypto-native investors that want exposure to crypto but don’t want to stomach the asset class’s volatility. 

The fund uses quantitative strategies with options and futures to reduce its portfolio volatility to a level between 30 to 40%, Zheng explained, versus bitcoin’s current volatility of between 60% and 80%. 

Since its inception, the fund outperformed the Bitcoin by more than 60% in absolute return even though Bitcoin price has doubled during this period. The fund’s volatility is only a half of bitcoin’s volatility. Its Sharpe ratio is two times of Bitcoin’s with far superior risk-adjusted return. 

Zheng created the fund with Felix Xu and Yemu Xu, the CEO and co-founder, respectively, of ARPA Chain (token ticker $ARPA) and DeFi product Bella Protocol (BEL). Combining their crypto-native minds with Zheng’s TradFi knowledge was key for ZX Squared Capital, Yemu said. 

“When [Zheng] brings that profound experience into the crypto space, I think that’s going to be huge,” he added. “Risk management is something that we keep in mind first and foremost.” 


While many of Zheng’s former TradFi colleagues are interested in blockchain technology, the executive noted that crypto’s market capitalisation of nearly $2.5 trillion remains less than Apple’s. 

“The reality is traditional finance is 100 times bigger than crypto,” he said. “A majority of people look at equity, credit, and fixed income, and there’s still a lot of money to be made.” 

Though regulation and compliance concerns continue to keep some investors and financial companies from getting involved, Zheng said he is confident governments will work with TradFi and crypto companies to pave the way for greater adoption. 

The Bitcoin spot ETFs were approved by the SEC early this year. “The ETFs are a total game-changer. A lot of people who thought bitcoin was a scam now see it’s been supported by reputable financial institutions like BlackRock. If you cannot trust them, you cannot trust anyone in the US financial system.” Zheng said. 

Zheng believes that Bitcoin is increasingly deemed as “digital gold”. He pointed out that while physical gold prices have climbed less than 30% since the start of the COVID-19 pandemic, bitcoin prices have risen by more than 350%. 

“During this period of historical massive money printing and high inflation in the U.S., the traditional thesis of gold as a store of value has diminished substantially, as people view bitcoin as a better way to hedge the global money printings,” he said. 

He said that while gold and bitcoin will coexist for the foreseeable future, their “prospective investment bases will be very different.” 

Gold investors “appreciate gold from its historical perspective, with a few thousand years of global trade history,” said Zheng. Bitcoin investors, meanwhile, are “more forward-looking and view bitcoin as a disruptive technology which will shake up traditional finance in the digital age.” 

It will take time for mainstream investors to embrace bitcoin, he said, adding that the adoption time for new technology is typically lengthy. 

“As bitcoin is the best-performing asset class since its inception, it will definitely take away some investment interest from gold.” 

The approval of spot bitcoin ETFs will definitely “make the adoption process easier, as mainstream investors can use the familiar investment vehicles to diversify their risks,” Zheng said. 

Over the long term, however, “performances speak louder than words,” he said. “As bitcoin is the best-performing asset class since its inception, it will definitely take away some investment interest from gold.” 

Wall Street firms will get involved more and more in segments in which they can be profitable, Zheng said, adding that “crypto derivatives could be a good gateway for traditional institutions”. 

“For many asset allocators, it’s critical to allocate a certain percentage in the crypto space. During the last 10 years, for the traditional 60/40 equity/bond portfolio, the total return is around 75%. But if you add 5% to Bitcoin, the total return would be over 150% with about the same volatility, given Bitcoin is mostly uncorrelated to equity or bond in a long term. For the next 10 years, a portfolio without Bitcoin could substantially underperform a benchmark with Bitcoin allocation if history repeats itself.” Zheng concluded. 

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