A research report by Crypto Fund Research revealed that cryptocurrency-focused hedge funds are on the rise. It is expected that by the end of the year, 20 percent of hedge funds formed will be dedicated to cryptocurrencies. The statistics paint a good picture as the number has risen from 3 percent in 2016 to 16 percent in 2017. The figures “defy” odds as the significant growth has come amid a bear market since the beginning of the year.
Crypto Funds on the Rise
Joshua Gnaizda, founder of Crypto Fund Research, admitted that the launch of crypto funds is not slowing down. He said:
“While we don’t believe the rate of new launches is sustainable longer-term, there are currently few signs of a significant slowdown.”
Though crypto funds are on the rise, they only constitute a small part of the whole industry. Of the more than 9,000 operational hedge funds, only 303 are crypto focused, accounting for only 3 percent of the entire market. Globally, hedge funds manage over $3 trillion assets, but crypto hedge funds only have close to $4 billion in assets under management.
The report also shows that the US is the most preferred jurisdiction for new crypto funds, while Malta, China, the UK, and Australia are hot on America’s heels.
Michael Arrington, partner at Arrington XRP Capital, said on Twitter that his firm would stop “token investments in US companies.” The firm is setting its sight to Asia, Europe, and the Middle East.
I emailed @nikhileshde about the title, which isn't correct. We are a hedge fund not a VC fund, and we aren't leaving the US, we are stopping token investments in US companies. Other than the weird Lichtenstein comments, the article is ok. https://t.co/VL8G4CGgmg
— Michael Arrington (@arrington) September 29, 2018
On Sept. 28, he said on Twitter that his firm received two subpoenas from the US Securities and Exchange Commission (SEC). He also mentioned that the legal costs are significant and cannot be ignored.
We received a second subpeona from the SEC, again collecting information from us as investors in a U.S. company. The legal costs of dealing with these are not insignificant. We will not invest in any further U.S. deals until the SEC clarifies token rules. Pivot to Asia.
— Michael Arrington (@arrington) September 28, 2018
In a blog post published on Sept. 4, Arrington said:
“It’s no secret to anyone following the crypto space that most of the innovation is happening outside of the United States. There are many reasons for this, but one of the main ones is the complete lack of regulatory guidance by the SEC.”
Crypto Funds’ Performance
Despite being on the rise, crypto funds are not as profitable as expected. Many analysts, hanging on the balance of Bitcoin’s bull run price, which peaked at almost $20,000 in Dec. 2017, were hopeful for better conditions. However, it did it not happen. And the crypto market tumbled, affecting the performance of cryptocurrency-dedicated funds.
A report released by Autonomous Research LLP, a research analysis firm, revealed that crypto funds are down by 50 percent since the beginning of the year. Some of the crypto firms are resorting to shorting the market as a way of staying afloat.
Pantera Capital, one of the world’s largest crypto hedge funds, has not been spared the brutality of the bear trend. The fund is believed to be down by almost 73 percent this year. In March, the fund was down by 45.7 percent and the firm’s co-chief investment officer, Joey Krug, wrote to clients stating:
“This was a really rough month for the Digital Asset Fund and the space in general.”