Why cybersecurity is an important consideration for crypto hedge fund launches

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More and more investment managers are trading digital assets as interest in cryptocurrencies continues to grow. AIMA’s Global Crypto Report, released over the summer, showed that around 20% of hedge funds are now investing in the space.

As a fund manager, protecting the intellectual property, complex algorithms, systems and data that enable them to generate returns is paramount. That’s why cybersecurity is an important consideration both for traditional managers setting up shop in the space and for new start-up funds.

George Ralph, global managing director of cybersecurity firm RFA, has seen a surge in the number of crypto customers in the UK looking for security and infrastructure solutions.

Ralph says the three biggest challenges cited by traditional funds when considering a possible move into the crypto space were “regulatory uncertainty, reputational risk, and lack of infrastructure.”

Read more: Are cryptocurrencies secure? Yes and no – Here’s why

Exploits remain common in the digital asset space, particularly in the more experimental area of ​​decentralized finance (DeFi).

In August, over $ 600 million was stolen in one of the biggest crypto heists to date. Hackers were able to exploit a vulnerability in Poly Network, a decentralized financial platform that allows different blockchains to connect to work together.

In an unexpected turn, the responsible hacker returned a large majority of the stolen funds after experts and companies said they would track their activity on the blockchain. Mt. Gox, the world’s largest bitcoin exchange at the time, filed for bankruptcy in March 2014 after hackers stole $ 460 million.

“Simple and secure storage solutions are urgently needed for the more than 221 million crypto users worldwide who are the targets of fraud and theft,” according to Jon Wilk, CEO of CompoSecure.

“More than $ 8 billion worth of crypto has been hacked or stolen in 2021 so far, doubling the previous year, including examples of hacked crypto exchanges, compromised personal devices or usernames and hook passwords that were part of these growing losses, ”says Wilk.

The story continues

Read more: Poly Hack and Crypto trust issues

When it comes to crypto fund launches, the key element in terms of threats is event driven, the focus is on insider threats, said RFA’s Ralph, and this has been exacerbated by the shift to work. at home after the COVID-19 epidemic. .

Investors looking to launch funds in the post-COVID era must hire people they have never met before; doing checks on potential new hires is more difficult in this current paradigm, Ralph said.

Peter Habermacher, CEO of Aaro Capital, says that “the key targets for criminals are usually bank accounts or fund assets. However, leaks of confidential information, intellectual property and personal data can be just as damaging and the problems in this regard can sometimes be internal.

But not all that is new is unprecedented.

“Asset crypto funds are like hedge funds in the 90s,” Habermacher said. “The market is dominated by startup managers who are operationally weaker than their established counterparts in traditional asset management and, as such, they often do not have the necessary cybersecurity procedures in place to fully satisfy customers. institutional due diligence processes.

More needs to be done on the regulatory side, Habermacher said, to ensure that “crypto service providers such as exchanges and custodians are properly regulated and meet minimum security and process standards.”

Crypto-criminals stole $ 1.9 billion in 2020, according to a report by blockchain investigative firm Ciphertrace, up from $ 4.5 billion in 2019.

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