There has been a significant rise in the number of decentralized cryptocurrency hedge funds over the last year. A report by fintech research firm, Autonomous NEXT, estimates that 226 hedge funds are operating in this space as of February 2018 with a total of around $3.5 to 5 billion in combined assets under their management.
Measuring Fintech Growth
Autonomous NEXT had, in an earlier report on August 29, 2017, published that only 55 operating hedge funds were known at that time. This surge in hedge funds entering the cryptocurrency industry can be attributed to the significant rise in their prices over the past year.
In 2017, bitcoin soared from $830 to hit an all-time high of $20,000 in December 2017. The return bitcoin prices gave in the last 14 months has caught the attention of both the masses and Wall Street fund managers, or at least those that are willing to enter the volatile cryptocurrency market.
At a time when global equity markets are not at their best, fund managers have begun to keep an eye on the crypto space for opportunities.
Hedge funds are defined as alternative investments seeking higher than market returns using borrowed capital, employing a highly aggressive investment strategy. Such cryptocurrency hedge funds are a perfect option for investors willing to risk their invested money for greater profits.
According to a report by Hedge Fund Alert, law firm Cole-Frieman & Mallon helped to set up seven cryptocurrency funds so far in 2017 and has 17 more on the horizon.
Swath of Interested Parties
Accounting firm Arthur Bell is working with about 15 fund managers in the field and expects to take on 20 more in short order. Fund administrator MG Stover & Co. counts 12 client funds running digital currency strategies and has agreements to service another 25.
Neal Berger, the founder of Eagle’s View Capital, said that while he has personally invested a small amount of money in bitcoin, he believes that digital currencies are far too volatile for his client capital.
“I think the majority of [these cryptocurrency funds] are trying to ride the opportunity du jour,” Berger said. “It’s an access point for people who can’t buy it themselves or don’t want to learn how to do it.”
In a positive turn of events, the United States Securities and Exchange Commission in a public letter released on January 18, 2018, said:
“We have seen interest among sponsors in offering registered funds that would hold these new digital products [referring to cryptocurrency hedge funds and ICOs]. As we have in the past, the Division stands ready to engage in dialogue with sponsors regarding the potential development of these funds.”
Pantera Capital’s bitcoin fund reported returns of 25,004 percent for investors in December 2017. The company, founded in 2013, made the first cryptocurrency hedge fund available to US investors. San Francisco based Grant Hummer along with co-founder James Fickel, run a $100 million cryptocurrency hedge fund Chromatic Capital.
According to Benzinga, the number of hedge funds in the cryptocurrency space is expected to triple in 2018. Don Steinbrugge, CEO of Agecroft Partners, says, “We believe hedge fund assets are going to reach an all-time high in 2018 and there will be a rotation of [the] strategies investors will be looking at.”
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