Wall Street - Bitcoin hedge funds

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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bitcoin price

Billionaire trader Mike Novogratz said that he had shelved plans to launch a $500 million crypto hedge fund after the cryptocurrency markets entered a $180 billion tailspin on Friday.

Novogratz Shelves $500 Million Crypto Hedge Fund as Bitcoin Price Retraces

Novogratz, a former Fortress principal, had stated on Dec. 12 that he intended to launch Galaxy Investment Partners “by the end of the week,” rapidly moving up a timetable that had originally planned the fund’s launch for the first quarter of next year. With a $500 million target, the crypto hedge fund was expected to be the largest of its kind.

However, on Friday the long-time bitcoin bull revealed that he had not only not launched Galaxy Investment Partners last week as planned but had also shelved the crypto hedge fund indefinitely, according to a Bloomberg report.

“We didn’t like market conditions and we wanted to re-evaluate what we’re doing,” Novogratz said in a phone interview. “I look pretty smart pressing the pause button right now.”

The revelation of the abrupt reversal comes as the cryptocurrency markets have entered a severe correction following a parabolic run-up. After reaching an all-time high of $19,891 on Dec. 17, the bitcoin price plunged to a nearly three-week low of $10,700 on Friday morning, according to data from Bitfinex.

‘When Insiders Sell It Always Is Important’

Novogratz — who recently predicted that the bitcoin price would hit $40,000 in 2018 — said that he now believes the bitcoin price could retrace as far as $8,000 before resuming its bullish rally.

“Looks to me like a short-term top is in,” he wrote on Twitter. “My hunch is we consolidate between 10-16k for a while. Extreme would be 8k. Bull market isn’t over. Just pausing.”

Elsewhere on Twitter, he appeared to lay part of the blame for the correction on Litecoin creator Charlie Lee, who revealed earlier this week that — to avoid a “conflict of interest” — he had sold his entire LTC balance and donated the proceeds to undisclosed organizations.

“When insiders sell it always is important,” Novogratz said.

Featured Image from Bloomberg/YouTube

bitcoin price

Hedge fund legend Mike Novogratz used last weekend’s bitcoin price decline as an opportunity to deepen his BTC position by $15 million to $20 million.

Speaking at the Reuters Global Investment 2018 Outlook Summit Novogratz — a billionaire macro trader and former principal at Fortress Investment Group — explained that he sees the recent bitcoin price decline as a buying opportunity, not a cause for concern.

After peaking above $7,700 on November 8, the bitcoin price crashed in the aftermath of the indefinite suspension of bitcoin scaling proposal SegWit2x, which had been scheduled to activate this week. The global average bitcoin price tumbled approximately $2,200, eventually reaching a November low of $5,519 on November 12, according to CoinMarketcap.

bitcoin price
Source: BitcoinWisdom

This unexpected bearish turn left many investors panicking, but Novogratz says that he bought between $15 million and $20 million worth of bitcoin during the dip. Despite the weekend pullback, he believes the bitcoin price will reach $10,000 by March on the heels of increased attention from institutional investors. He says the herd will arrive once a mainstream firm begins offering crypto assets as investment options.

“When it’s that easy, the price of bitcoin or ethereum is going to go much higher. And that is a lot closer than people think,” he said, adding that it could happen within the next six months.

Novogratz recently announced the creation of Galaxy Investment Partners, a blockchain-focused hedge fund whose largest single position is in bitcoin. He has invested approximately $100 million of his own capital in the fund, and he intends to raise $500 million, which will make Galaxy the largest fund of its kind.

March is still four months away — an eternity in the crypto economy — so it remains to be seen whether Novogratz’s price target will be realized. However, his bullish bet is already paying off. The bitcoin price has already recovered by more than $1,000 since Sunday. Depending on when he placed his buy orders, the value of his weekend purchases may have already increased by several million dollars.