For ZX Squared Capital co-founder and chief investment officer CK Zheng, managing digital-asset exposure involves attention to downside risk alongside potential returns. His background includes valuation risk roles at Morgan Stanley and Credit Suisse, according to a September 2026 interview with Odaily.
Zheng describes a strategy combining long-term spot Bitcoin holdings, options hedging, separate custody and avoiding leverage. He says the objective is to moderate market fluctuations while retaining exposure to digital assets and outperforming Bitcoin over the long term. These are his account of the strategy and its objectives, rather than a guarantee of returns or protection against losses.
Assessing reported performance
In the Odaily interview, Zheng reports that the fund experienced a smaller maximum drawdown than Bitcoin during the 2022 downturn. A maximum drawdown measures the decline from a peak to a subsequent low over a specified period. A smaller historical decline can be relevant to an investor’s assessment, especially for investors with less risk tolerance. This reported result has not been independently verified for this article.
A meaningful performance comparison would require a consistent reporting period, an identified fund or share class, a clear treatment of management and performance fees, and a stated Bitcoin benchmark. Volatility calculations should also use matching observation periods and methods. Historical results should not be treated as a forecast of how the strategy will behave in a future market cycle.
What volatility figures can show
Realised volatility measures past return fluctuations. Implied volatility is derived from options prices and reflects the market’s pricing of future uncertainty. Similar percentages from these measures do not establish equivalent risk or stability, particularly when their time horizons differ.
For example, CoinDesk reported in May 2026 that Bitcoin’s annualised 30-day implied volatility index had fallen to 38%, citing Volmex. That was a market observation at a particular time. It does not establish the fund’s realised volatility or how it behaves in quiet or stressed markets.
The trade offs in options hedging
Zheng says the fund adjusts its hedging intensity as its market view changes. Buying protective options can limit exposure to certain price declines, but premiums and transaction costs reduce returns. The extent of protection depends on the instrument, strike, expiry and size of the position. Protection may expire or cover only part of a loss.
Reducing hedges during an expected bull market can lower premium spending while increasing exposure if prices instead fall. Allocations to other digital assets can increase risk. Outcomes depend on investment decisions and execution, and the strategy may underperform a direct Bitcoin holding, including after costs and fees.
Avoiding borrowing does not eliminate risk
Zheng presents avoiding leverage as a way to reduce exposure to forced liquidation. That can address one source of vulnerability, but unborrowed holdings can still suffer substantial losses. Derivatives also require scrutiny of their structure, obligations and economic exposure; a description of zero leverage should be read alongside the actual fund terms.
A June 2026 CoinDesk report described approximately $1.84 billion in liquidated leveraged crypto positions across 24 hours, including about $1.66 billion in long positions. Those were market-wide figures, rather than evidence about ZX Squared’s holdings or performance.
The Coinperps overview of crypto options activity discusses rapid growth in options open interest, including contracts on IBIT. Open interest measures outstanding contracts. It does not, on its own, establish whether investors are buying protection, taking directional exposure or selling options for income.
Custody and the risks that remain
In the Odaily interview, Zheng identifies Copper as the fund’s custody provider and says the strategy avoids reliance on a prime broker. These are reported operational choices; their effect on risk depends on the specific custody, settlement and contractual arrangements.
The SEC’s investor education bulletin on crypto custody explains that third-party custody can still expose investors to loss of access if a provider is hacked, closes or becomes insolvent. The relevant entity, asset segregation, settlement arrangements and contractual protections therefore matter when assessing a custody structure.
The CertiK Hack3D report for the first half of 2026 records more than $1.31 billion in losses across 344 Web3 security incidents. This provides industry context, not a measure of ZX Squared’s security or evidence that its custody arrangements prevent comparable losses.
Discipline and changing market views
Zheng says the fund avoids meme coins and concentrates on Bitcoin and selected mainstream digital assets. He also describes revising an earlier view about institutional participation changing Bitcoin’s market cycle. His emphasis is on responding to new information and correcting mistakes, rather than treating a market thesis as permanent.
That perspective keeps risk management central to the discussion. Investors still need to assess the fund’s documented performance, fees, liquidity terms and remaining exposures. Hedging and custody arrangements can influence the risk profile, but their value depends on how they operate in practice and what protection they actually provide.
This article provides general information and does not constitute investment advice or a recommendation to invest in ZX Squared Capital or digital assets. Investments can suffer substantial losses, and past performance is not a reliable indicator of future results.
References
2. Odaily interview with CK Zheng
3. CoinDesk on Bitcoin implied volatility
4. CoinDesk on June 2026 crypto liquidations
5. Coinperps crypto options statistics