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Hedge Funds Go All-In on Cryptocurrencies
FinTech, Blockchain, Financial Services
With roughly two months left in the year – and an eleventh hour rally highly unlikely – it’s probably safe to write off 2018 as a terrible year for cryptocurrencies.
After soaring to record highs in 2017, the crypto market’s losses this year are now reportedly worse than the dot-com crash, with Bloomberg even comparing Bitcoin’s struggles to one of the most infamous failures of the dot-com era. With horror stories of investors being wiped out by their losses, one might question why anyone would want to dip their toes into the cryptocurrecy market right now.
Well, hedge funds aren’t just anyone.
An interesting sidebar to the story that the financial press will write about the massive contraction in the digital coin space this year, is this somewhat surprising area of explosive growth: There were 90 cryptocurrency hedge funds launched in the first three quarters of this year, according to Crypto Fund Research, on pace for a record-high 120 new funds by the end of 2018.
Crypto Fund Research also notes that of the roughly 600 hedge funds that are expected to have been launched this year, crypto funds will account for 20 percent of the total. In 2017, cryptocurrency hedge funds accounted for 17 percent of hedge fund launches, representing a huge spike from the previous year when they accounted for less than 3 percent.
“In the midst of 2018’s decline in traditional hedge fund launches, crypto hedge funds are a notable aberration. Cryptocurrency prices have been in a bear market for the better part of the year and regulatory uncertainty persists in much of the world,” Joshua Gnaizda, founder of Crypto Fund Research, said in a statement.. “Yet 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.”
To be sure, cryptocurrency hedge funds obviously still make up only a slither of the overall hedge fund market, with Crypto Fund Research noting that they account for only 3 percent of the roughly 9,000 hedge funds currently in operation. Additionally, crypto funds have less than $3 billion assets under management, compared to the more than $9 trillion that traditional funds manage.
Also, crypto funds can’t escape the downturn that has hampered the digital coin market this year, with Bitcoin Exchange Guide reporting in August that cryptocurrency hedge funds are down over 50 percent in 2018. Some had even reportedly begun to short the cyrpto market in order to hedge their investments.
But when the question hanging over the cryptocurrency market always seems to be about what’s next, one possible answer could be found in the growing interest from institutional investors. In fact, Fidelity Investments just launched a new unit – called Fidelity Digital Asset Services, LLC – to manage cryptocurrency assets for hedge funds, family offices and market intermediaries.
“Our goal is to make digitally-native assets, such as bitcoin, more accessible to investors,” Abigail P. Johnson, chairman and CEO of Fidelity Investments, said in a statement. “We expect to continue investing and experimenting, over the long-term, with ways to make this emerging asset class easier for our clients to understand and use.”
While 2018 has been a wash for the cryptocurrency market – and the short-term forecast is for even more pain – the surging growth of crypto funds this year tells a different story: While the plunging price of Bitcoin has gotten all the headlines in 2018, there are a lot of investors who are ignoring the noise and continuing to bet on the long-term future of cryptocurrencies.
Photo: Getty iStock