So far 2018 has seen the shuttering of at least nine cryptocurrency hedge funds, with analysts pointing to a sector revenue downturn of some 23 percent to date.
Global director of fintech strategy at Autonomous Research LLP, Lex Sokolin, said that as much as ten percent of the cryptocurrency funds sector could close shop by the end of 2018. The founding partner at Protocol Ventures, Rick Marini, estimates that about 50 funds will make it to a liquidity status that sees them able to service institutional investors, with the others falling by the wayside. Protocol Ventures invests in virtual currency funds, including Polychain and Multicoin.
BTCManager reported in October 2017 that over 100 hedge funds had focused their sights on cryptoassets.
Crypto Hedge Funds Set to Tumble
Apart from attracting scrutiny from regulators all over the world, cryptocurrency hedge funds have also been stretched by the current bearish sentiment manifest towards digital coins by new and institutional investors. As regulators struggled to sift through applicable legislation over the last few months, the novelty of digital hedge funds has suffered heavy scrutiny, with lawmakers keen to play catch-up with anything amiss in their affairs.
Alongside that, some believe that the controversial Bitcoin bubble may have popped, and Bitcoin was the primary driving force behind the funds’ evolution during 2017. Bitcoin closed at just below $7,000 on April 2, 2018, almost a third of its all-time high of over $19,000 in December 2017.
A long-awaited crackdown on rough edges is happening among cryptocurrency hedge funds, and the co-founder of Multicoin Capital, running out of Austin, Texas, Kyle Samani, said, “New capital has slowed, even for a higher-profile fund like ours.” Samani’s fund manages around $50 million in assets.
In a far cry from the optimism of the average 2017 ICO, players like the distributed fund AlphaProtocol are bowing out, saying in a post on their site that “Considering the potential regulatory and market risks, AlphaProtocol has decided that the best approach is to refund the private sale contributors.”
Another shuttered industry member, Crowd Crypto Fund, has deleted websites and its social media accounts. Arguably the biggest hitter in the sector with around $250 million under management, Polychain Capital canceled a public offering in Canada in January 2018. Yet another fund startup was aborted by Mike Novogratz, the billionaire investor, who has decided to rather invest in a banking service dealing with cryptocurrencies and related-technology ventures.
New Cryptocurrency Hedge Funds Keep Opening
According to the Eurekahedge Cryptocurrency Hedge Fund Index, returns for exchanges are already down 23 percent so far for 2018. Meteoric exchange gains – some exceeding 1,000 percent – were the order of the day as bitcoin soared during 2017. A far quieter and more sober mood has set in now as investors exude far more caution towards such a volatile asset and, by implication, all cryptocurrencies.
Notwithstanding the downturn, new hedge funds constantly emerge as the baseline enthusiasm and belief in the fundamental value of the blockchain persists. Other coins like ripple, litecoin, and ether that have avoided most of the drama are still generating good feelings among investors and are helping to maintain optimism in the sector.
Marini pointed out that he gets about three new cryptocurrency hedge fund pitches on average every day. While he meets with the majority, he plans to invest in only one or two for the remainder of 2018. “We are going to see it by the end of this year,” he said. “People are able to leverage good returns [from] last year to try to raise money this year, but this year is going to be different.”