Swan Bitcoin questioned over unnamed investor and new trading fund

Swan Bitcoin recently announced numerous new lines of business, including bitcoin-backed lending, venture and private equity investments, and incredibly, a trading fund. Indeed, despite repeated warnings against active trading and an unwavering buy-and-hold message regarding bitcoin, Swan has hired a quant trader to actively trade the currency.

Fortune Crypto wrote that Swan “deployed” $200 million worth of capital in 2023. In that piece, Fortune publicized Swan’s “$40 million in funding raised in 2023 for expansion efforts.” However, it was initially difficult to determine exactly how much equity Swan sold to raise that capital.

In an email to Protos, Klippsten further explained, “$16.5 million was in our Series B round, which priced in November 2022 and closed in early 2023. We’ve taken about $25 million so far on a $30 million convertible note leading into our Series C.”

Swan disclosed $50 million allocated to its new trading fund, Timechain Alpha, whose raise has closed. Swan’s Institutional webpage doesn’t name the source or denomination of those funds.

Klippsten promised more details on the terms and participants of that round within a few months, however, since then, Swan has repeatedly declined to name the primary source of its 2023 fundraising efforts.

On an episode of Laura Shin’s Unchained podcast, Klippsten further explained Timechain Alpha. Its newly-hired trader, who previously worked at Cumberland and Tower Research, now trades for Swan using “all code and signals and uses AI and market micro-structures to determine whether he has enough time window to get in and out of his positions and all this kind of stuff, so he’s very sophisticated.”

Read more: Swan Bitcoin’s custodian now owned by Ripple — but execs have major beef

Matt Odell guesses the name of Swan’s biggest investor

One of the earliest organizers of Bitcoin Magazine’s annual conferences, Matt Odell, is a managing partner at bitcoin-focused investment fund, Ten31.

Swan says it deployed $150 million in 2023 yet, according to Odell, “nobody knows anywhere where that money went.”

Of course, Odell does not admit that Swan could have deployed that capital on new lines of business or other places outside the visibility of Ten31’s deal flow monitoring. He does, however, contrast this alleged opacity with Ten31, which deployed approximately $100 million into 36 companies from 2021 through 2023 and publicly disclosed its investments.

Odell suspects Swan’s revenue numbers are exaggerated, although he doesn’t consider business operations that aren’t publicly advertised. Indeed, it’s highly unlikely that Swan’s 0.99% commission on bitcoin purchases alone would account for its $125 million in annualized revenue.

In a moment of pure speculation with co-host Marty Bent, Odell supposed that money connected to Tether might be supporting Swan. Odell guessed, “The only thing that could kind of even come close to making sense is if it’s Bitfinex/Tether money.” Odell admitted that he didn’t have evidence of Tether’s involvement.

Klippsten responds to Odell

Klippsten disputes these claims and believes that Odell holds inaccurate beliefs about Swan. The Swan CEO notes that Odell was an early advisor yet does not have privileged information rights nowadays.

In an email to Protos, Klippsten explained, “We have hundreds of investors historically, and a planned $150M Series C raise underway. We are extremely selective about disclosing our capital partnerships, whether for Swan directly or for our financing of deals through Swan Institutional, because whenever capital providers become public knowledge they get inundated with funding inquiries from companies and venture funds.”

He also responded to Odell’s criticism of Timechain Alpha. “We needed a head of trading for institutional clients to execute trades… from multiple OTC desks. He happened to have a great track record of asset management, and a strong desire to continue managing money… The fund is already at capacity and we are not marketing it.” Swan’s December 7, 2023 press release claims that Timechain Alpha launched fully subscribed.

Withdrawal requests honored

Swan’s first custodian of record, Prime Trust, collapsed into bankruptcy in August 2023. The founder of that company, Scott Purcell, resigned from Prime Trust and started a similar company, Fortress Trust.

Read more: Former Binance US custodian Prime Trust joins crypto’s chapter 11 club

Despite these custodians’ troubles, Swan has fulfilled customer withdrawal requests. Indeed, the vast majority of customers have already withdrawn their bitcoin into self-custody. 

Klippsten told Protos, “Every single withdrawal request has been processed unless it was involved in suspected fraud or a criminal case. Swan has never lost a cent, and never lost a sat.”

He added, “Our goal is zero BTC under custody for non-regulated segments and we’re proud that 83% of all bitcoin purchased through Swan historically has been withdrawn. We don’t charge for custody because we don’t want to create the incentive to accumulate custodied coins, and we have free withdrawals for our users for the same reason.”

Of the bitcoin that Swan reluctantly custodies — again, despite an 83% withdrawal rate and repeated calls for customers to withdraw into self-custody — the company currently stores most at insured, multi-signature, cold storage wallets in BitGo’s custody.

Swan also says it holds a few coins in hot wallets or Fireblocks wallets controlled by Fortress and Bakkt to satisfy regular, day-to-day customer purchases and withdrawals.

Other Swan criticisms and responses

Protos has previously covered Ripple’s eyebrow-raising bid to acquire Swan’s primary custodian of record, Fortress Trust — surprising given how often Klippsten had accused Ripple executives of criminal activity. Ripple’s deal to acquire Fortress Trust ultimately fell through.

The previous year, Klippsten publicly discussed the use of mortgages in wealth planning for Bitcoin investment. Naturally, Bitcoiners quickly attacked what appeared to be an endorsement of leverage.

Klippsten clarified to Protos, “We announced a year ago that we were working on a Swan Home Equity product and we continue to look for the right path to bring it to market. People already use HELOCs to diversify their holdings into bitcoin.

“We’re hoping to let people accomplish that with a single transaction, with extremely conservative LTV limits, and no out-of-pocket costs on origination. It’s not controversial at all with anyone who has actually taken a few minutes to understand the product, and there is a ton of demand for it.”

Not only this, Swan drew considerable criticism for advising users not to withdraw directly into mixing services. Samourai Wallet described that move as “preemptively” complying with sanctions while Bitcoin Takeover podcast host Vlad Costea described the move as “dystopian.” In response, Swan CTO Yan Pritzker defended his company’s position on mixing services in a lengthy tweet.

Swan has also consistently criticized misbehavior in the crypto industry, including FTX, Celsius, Voyager, BlockFi, Terra LUNA, and many other failed projects. Its media division and all of its company spokespeople consistently focus on Bitcoin and disavow altcoins entirely.

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Edit 21:30 UTC, Jan 12: Corrected the amount of Swan’s Series C convertible note. Corrected references to Timechain Alpha’s location. Corrected Matt Odell’s role as an early advisor, not investor, in Swan.