Crypto hedge funds are launching at a record rate in 2018, despite the ongoing downtrend in the market.
20% of all hedge funds launched in 2018 are crypto-related, according to new research from Crypto Fund Research. It’s a sign that “big money” and institutional investors haven’t been put off by the year’s selling pressure.
90 Cryptocurrency Hedge Funds Launched in 2018
90 new crypto hedge funds have appeared this year, and that number is expected to rise to 120 before the end of December.
Compare that to 2016 when just 3% of all new hedge funds were crypto-related.
Approximately half the new crypto hedge funds are based in the US, while others have popped up in the UK, Netherlands, Switzerland, China, Australia, and the “Blockchain Island,” Malta.
Rapid growth aside, however, let’s put things in perspective. The total number of crypto hedge funds still account for just 3% of all hedge funds. In terms of market capitalization, crypto funds manage $4 billion compared to the global hedge fund total of $3 trillion.
What’s a Cryptocurrency Hedge Fund?
A crypto hedge fund invests predominantly in crypto assets like bitcoin and ethereum. They may also invest in ICOs (initial coin offerings – a form of crowdfunding capital in the crypto space).
They differ to crypto venture capital funds and private equity funds which invest directly in blockchain projects and crypto startups.
When you invest in a cryptocurrency hedge fund, your money is pooled with others and the returns are shared. Bear in mind, however, that participating in a hedge fund usually involved high minimum deposits.
Undeterred by Low Prices
The rapid growth of hedge funds in a year when bitcoin has dropped almost 70% is curious. Traditionally, hedge funds sprout up during boom markets to capitalize on an uptrend.
Founder of Crypto Fund Research Joshua Gnaizda said:
“These seemingly unfavorable market conditions have not deterred managers from launching new crypto hedge funds at a record pace. While we don’t believe the rate of new launches is sustainable longer-term, there are currently few signs of a significant slowdown.”
Profit From Volatility
While the market conditions might appear unfavorable, a number of crypto hedge funds still make money when prices are down. Hedge funds can profit from volatility, which is why one crypto hedge fund, Amber AI Group, was able to make a 30% profit in the first quarter of 2018, when crypto prices slumped.
Hedge funds are notorious for short-selling, or profiting from an asset’s decline. By doing this, they can “hedge” their losses and, in some cases, make a profit when the whole markets moves downwards.
Wall Street Embraces Bitcoin
The rise of crypto hedge funds is yet another sign that Wall Street is edging closer to broader cryptocurrency adoption.
With the launch of a bitcoin futures market in 2017, rapid hedge fund growth, and an exchange-traded fund (ETF) on the horizon, the “big money” is coming.
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