On Wednesday Bloomberg reported that Blocktower Capital’s main hedge fund was allegedly ‘compromised’ and partially drained. It cited insider sources and said limited partners were informed. In public so far there’s been a deafening silence from Blocktower, which has $1.7 billion in assets under management across all funds according to Pitchbook. There are many smart people in the crypto world, but few are smarter than the Blocktower team. This raises the question of who is safe if Blocktower isn’t.
Without details of what happened, it’s hard to assess the cause. Even super smart people are human and make mistakes. Does this shed light on the risks of digital asset custody? We don’t know. Blocktower uses several custodians and security is not entirely up to the custodians. It’s also the responsibility of the people authorized to access the wallets to safeguard that access.
There’s some irony in the timing. Yesterday the Senate passed a resolution to overturn the Securities and Exchange Commission’s (SEC) staff accounting bulletin, SAB 121. The SEC’s bulletin instituted a flawed rule requiring listed companies to put digital assets under custody on the balance sheet. The net effect was to prevent banks from getting involved in crypto custody. It’s hard to imagine this was an accidental side effect that wasn’t envisioned.
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