With growing speculation in global cryptocurrency markets and the struggle to find real-world applications for cryptocurrency, millennial-owned Newport Beach investment firm Oxford Investment Partners, LLC., has announced the inception of a $50 million proprietary fund that has become the first of its kind to use bitcoin or BTC as a currency to invest in venture capital.
Through innovative “drawdown” strategies, Oxford has taken the volatility out of bitcoin in what very well could be the first step towards normalizing the currency and stabilizing its market price. Oxford is now cutting the rates, transaction costs, and conversion fees for its crypto investors as well as providing significant income tax advantages.
In an interview with Red Alert Politics, Dmitriy Chebotarev, 27, president and co-founder of Oxford, talked about his company’s investment experience and new, groundbreaking strategies.
“Our world is changing and it is important for our methodology to change with it,” Chebotarev said. “My generation focuses on quality over quantity and that leads to stronger business relationships. I believe that the world is moving in a positive direction as we transition into the new generation taking the reins.”
When asked about his background, Chebotarev spoke of immigrating to the United States from the collapsed Soviet Union as a child, and how he believes that anyone with a work ethic and ingenuity can be an example for other millennials.
“A lot of people have this idea of millennials not being willing to work hard and innovate,” Chebotarev stated. “I’m here to dispel this rumor and show that no, the cards are not stacked against you just because you are young. I was born in the Soviet Union, and came to the United States with almost nothing.”
“No matter your age, if you’re willing to work hard and put in the effort, you can live the American dream. I think a lot of people in my generation have overlooked this simple truth.”
There are three “arms” to Oxford’s business: commercial real estate, private equity, and venture capital. Due to “extremely overpriced” commercial real estate markets, Oxford has recently focused more of its efforts on venture capital through tech and biotech deals involving hardware, software, and federal and public contracts.
“I have some friends here in Newport Beach that have a lot of crypto,” Chebotarev began. “We were approached by domestic, Chinese, and other foreign investors about ‘Hey I have all this cryptocurrency, what do I do with it?’ People want to take crypto and use it as a currency. There’s a desire for that, so we figured out a way to avoid those large fees. Everyone has to pay their taxes. There’s no way to avoid that, but there are ways to minimize fees.”
Oxford is thereby justifying the use of bitcoin as a currency for major equity transactions.
Many big investors are hesitant to trust their money in volatile crypto markets for fear of an unpredictable market crash. These crypto investments are even less appealing due to the hefty capital gains taxes incurred, especially in the United States. Oxford’s drawdown strategy, however, has alleviated this problem for big-time investors, both foreign and domestic.
“The capital gains taxes are significant, but the main issue is conversion rates. The more money you want to convert, the higher the rate. If you’re talking about a hundred million dollars it can be anywhere between a 5 to 10 percent fee. And if you’re talking about a billion dollars it’s 30 to 35 percent. It’s ridiculous,” Chebotarev explained.
Oxford is now capable of scaling down transaction costs to below one percent – which is unheard of for large cryptocurrency investments. Chebotarev explains that large transaction fees are a result of crypto volatility and that Oxford provides a solution to this problem.
“The reason there’s a fee is because when you flood the market with lots of bitcoin, the value’s going to go down because there’s a big flux – like a ‘whale’ movement. With drawdowns, however, investing with lower chunks doesn’t surprise the market so much. When you use crypto as a currency in drawdowns, it doesn’t give this hysterical sentiment to the market.”
The drawdown strategy begins with Oxford signing a contract with another company (say ABC Company) committing to a large capital investment (say $10 million in equity) over time. However, instead of paying a lump-sum of $10 million up-front, Oxford will only invest an amount equal to ABC Company’s burn rate (say $1 million per month). Smaller, incremental payments (in this case $1 million) are then made by Oxford while remaining committed to the original, larger ($10 million) investment. In turn, Oxford is able to make smaller gains on the big investor’s principle investment – with lower rates – while also having the freedom to invest other unused capital.
“If you drawdown in chunks, it doesn’t have a significant impact on the crypto markets. Because you’re doing it in separate transactions, you’re now able to avoid large fees. Instead of giving all that money at once, you’re giving the amount that’s necessary – while committing to the entire amount – and making at least a minor return of 3 to 4 percent as opposed to zero.”
Chebotarev notes that drawdowns are “a financial strategy, not a new bitcoin technology,” and that Oxford’s sophisticated business methods are the “first institutional use of Bitcoin to purchase assets in the United States” – as opposed to using real assets (or fiat currency) to purchase bitcoin.
One of Oxford’s strong suits is its extensive amount of partnerships. Chebotarev currently works with roughly 425 private investors on a deal-by-deal basis. His company partners with family offices in California and other venture capital funds to divide and break up larger transactions.
“Oxford usually will take half of a transaction and partner with another venture capital firm to take the other half. What we do, aside from buying pieces of companies, is facilitate partnerships. On the deal flow perspective, we have partnerships with different accelerators, incubators, and we’re working on more federal-type partnerships for deal flow. We have people in various markets in California, Nashville, Vegas, Seattle, D.C., Chicago, and Miami that source deal flow for us on an individual basis.”
Chebotarev is “not big into the loan business,” but boasts relationships with Wells Fargo, Chase, Bank of America, and other reputable banks. Although not a common practice, Oxford also partners with local banks for real estate deals. Oxford has 2 offices: Newport Beach, Calif., (main) and Las Vegas, Nev., (branch).
Investors are also capable of receiving a tax advantage by partnering with Oxford, though certain foreign investors may see more benefit than U.S. investors due to tax law discrepancies.
“For foreign investors there can be capital gains deferment depending on the tax laws of their country. Normally with other assets like stocks or real estate, there are ways to defer capital gains if you transfer one asset for another asset. An example of real estate would be like a 1031 exchange. The problem with cryptocurrency is that it’s so new that regulations and laws haven’t been well structured yet.”
Oxford understands that different entities are still defining cryptocurrency.
“The SEC considers cryptocurrency a security. The IRS considers cryptocurrency a property instead of a commodity, and the short-term capital gains tax can be upwards of 35 to 40 percent. Cryptocurrency held for over a year can experience a capital gains tax that will then start applying to your personal taxes. We don’t tax advise at Oxford. We aren’t tax advisers. We’re the investors, so we focus on the quality of the investments,” Chebotarev explained.
“Although domestic investors would experience the initial capital gains, you could hypothetically invest Ripple into an Oxford deal and we would treat it as a security. We would then treat it just like any other capital coming in. As long as the money is valid capital, Oxford doesn’t care if it’s crypto or fiat. We will work with it.”
Oxford doesn’t convert cryptocurrency into U.S. dollars in-house, but is able to use its many partnerships to do so for investors.
Chebotarev remains skeptical yet optimistic about the widespread use and global adaptation of cryptocurrencies. He believes that “if additional uses for cryptocurrencies are created, their market price will start to stabilize.”
