Blockstream plans to attract institutional Bitcoin investors with focus on yield

After years of scandals, including the stunning collapse of FTX, Blockstream is betting that wealthy investors are willing to reconsider Bitcoin investment strategies that provide passive income, especially if they don’t have to compromise on safety.

The Montreal-based company, led by crypto pioneer W Satoshi Nakamoto’s first collaborator Adam Back is making the move into asset management with a range of funds under its new Blockstream Asset Management (BAM) division.

Although investors now have access to a variety of Bitcoin instruments — from spot and futures ETFs, funds targeting 2x Bitcoin returns, MicroStrategy convertible bonds, and even Coinbase’s newly revived Bitcoin-backed loans — the list for strategies Comprehensive and risk-managed lending, especially to institutions and accredited investors, remains limited. Blockstream wants to fill this gap.

“We want to be the service provider that opens the door to this new asset class beyond just exposure to betas and ETFs,” says Sean Bell, Blockstream’s newly appointed chief investment officer. “We need to offer a good return and risk ratio to investors in a category where they don’t have easy access to some of these strategies right now.” Bell joined Blockstream in November after serving as Director of Information Technology at Prime Meridian Capital Management, a fintech-focused hedge fund, and as Treasurer and CIO of the Santa Clara Valley Transit Authority.

The three funds – Blockstream Income Fund, Blockstream Alpha Fund, and Blockstream Yield Fund – are designed to meet a wide range of goals and risk appetites.

• The Income Fund is designed to provide bitcoin-backed loans to companies with bitcoin vaults, enabling them to borrow cash without selling their bitcoin. The fund targets small loans, ranging from $100,000 to $5 million, with typical loan-to-value ratios ranging from 25% to 65% to ensure strong collateral coverage. Borrowers will pay interest based on the loan maturity date, loan-to-value (LTV) ratio, and market conditions, generating returns for investors. Annual returns are expected to be in the “high single digits to mid-teens.”
• The Alpha Fund is geared toward investors seeking higher returns through more complex strategies, such as fundamental trading (exploiting pricing gaps between spot and futures markets) and derivatives trades. A portion of the Fund’s capital will flow into the Income Fund, and some strategies may be outsourced to specialized third parties.
• The Yield Fund, described as a Bitcoin alternative to money market funds, targets annual returns of 1.5% to 3%. It will lend bitcoin to institutions, such as exchanges and ETF providers. Borrowers will pay interest on the borrowed bitcoin, generating modest but steady returns for fund participants.

Two funds, Income and Alpha, are scheduled to launch this quarter, followed by Return in the second quarter. The company is planning a global offering: US funds will be registered in Delaware, while offshore issues will be based in the Cayman Islands. The fee structure is still being finalized.

Blockstream is not the first company to offer enterprise-focused Bitcoin products, but it offers well-established credentials. The company is best known for its work on the Liquid Network, a sidechain of Bitcoin that allows for faster and more confidential transactions and the issuance of digital assets such as stablecoins and tokenized securities.

To back its funds, Blockstream will partner with platforms including Unchained Capital, Hodl Hodl and Debifi, which will originate loans and provide liquidity. They rely on multi-signature escrow contracts to manage Bitcoin collateral, enforce LTV limits, and handle liquidations if necessary. Blockstream also plans to partner with exchanges and custodians to enhance its lending and borrowing operations.

The company’s plan emphasizes transparency and risk control. Custody of the offshore funds will be handled by Komainu, a Nomura-backed, Jersey-based custodian, in which Blockstream recently invested $75 million. For U.S. operations, the company will employ a “qualified guard” as needed, according to Bell. Monthly net asset value (NAV) reports, detailed quarterly disclosures, and independent audits – currently being completed – will be the standard.

“We were already looking at Bitcoin return strategies before FTX and other failures of the last few years,” says Blockstream CEO Buck. “Because we use secure, reliable Bitcoin technology, and partners with multi-signature custody, we are moving away from this type of technology risk, and institutional and professional traders are becoming more aware of the platform risks. We hope that lessons will be learned.”