Despite the recent market crash, the number of cryptocurrency hedge funds are still steadily increasing in number.
Based on a research conducted by fintech research house Autonomous NEXT, there were only 37 cryptocurrency hedge funds at the start of 2017. Eight months later, this number rose to 55, and by February 2018, the number of crypto hedge funds have quadrupled to 226.
“The number of crypto hedge funds more than doubled in the four months to Feb. 15…The research firm recorded a record high of 226 global hedge funds with such a strategy, up from 110 global hedge funds as of Oct. 18.” – Reuters
One of the main reasons behind the success of these hedge funds is the massive returns that they have been raking in, thanks to the recent bull market. On average, these hedge funds displayed a return of 1,478% in 2017. However, the market crash in the beginning of 2018 did not seem to deter these hedge funds either.
Lex Sokolin, a partner at Autonomous NEXT, believes that a bearish market does not affect the performance of cryptocurrency hedge funds.
“While the softer prices of crypto assets do create a more difficult environment for investors, I do not think it will pause the influx of funds and other financial institutions building products in the space…It would take the extreme case of the entire space contracting by 80 percent and high regulation before the flow of funds turns around.”
Types of Crypto Hedge Funds
According to Reuters, there are different types of crypto hedge funds out there. Some, like Blockweather Holdings LLC, invest in just Bitcoin, taking both long and short positions for profit. Others, like Virgil Capital, buy a basket of cryptocurrencies and exploit the arbitrage between different exchanges’ prices.
The founder of Bitspread, a high growth blockchain fintech firm, Cedric Jeanson revealed that there are some hedge funds that generate millions of dollars in revenue with their absurdly high fees.
“Some of the hedge funds charge high fees – an average of 1.6 percent for management and 17.5 percent for performance for funds tracked by Eurekahedge – even though they are using largely passive strategies,”
The increase in investor money in cryptocurrency hedge funds comes at a volatile time in light of the recent market correction, which was rather violent. In January 2018, Bitcoin loss nearly 70% of its value to go from $20,000 to $6,000 apiece – its worse monthly performance in three years. The total market capitalization of all cryptocurrencies shed a similar percentage of its value as well, dropping from $829 billion to $279 billion in less than a month.