Report: Dozens of cryptocurrency hedge funds closed in 2019
Having dozens of cryptocurrency hedge funds have announced to close this year with institutional investors not yet ready to allocate significant capital to this new high-risk asset class.
In 2017, the explosion of Bitcoin and ICO made digital currencies and tokens multiply in value almost overnight, which gave birth to a new type of hedge fund – the crypto fund.
Before 2017, only a small amount of money was invested in cryptographic assets but the crypto gold rush led to the formation of hundreds of competing for investment funds to pass institutional money to this exciting new high-risk and high-reward asset class.
Having 70 funds shut down in this year
Unlike the boom in the past, this year, 2019, having about 70 crypto funds were forced to close due to a lack of investor interest, according to a new study by Crypto Fund Research. Additionally, the amount of newly issued crypto funds has also declined this year, less than half the number of new launches in 2017 and 2018.
As the data compiled by Crypto Fund Research, there are presently about 800 crypto funds worldwide, in which around 355 are hedge funds.
However, PwC, a global consulting firm believed that only around 150 out of these are actually active in the markets. It detailed in the “2019 Crypto Hedge Fund Report” published in collaboration with Elwood Asset Management. According to that, researchers stated that they estimated “there are 150 active crypto hedge funds collectively managing US$1bn AuM (excluding crypto index funds and crypto venture capital funds)”.
Furthermore, PwC also shared 60% of these funds have less than $10 million of digital assets under management and that the average AuM of crypto hedge funds amounts to around $22 million, as of Q1/2019.
Particularly, PwC has found that the median AuM at launch was higher in Jan 2019 than it was in Jan 2018 ($3.6 million vs $1.2 million) for crypto hedge funds, which shows that the demand of the institutional investor into crypto space does exist despite the burst of the ICO bubble.
The “big wave” is yet to hit the crypto markets
The story about “institutional money is about to flow into crypto” has been fostered by industry experts, pundits, and crypto media for years. However, the actual level of institutional participation pales in comparison to traditional asset classes, the “big wave” is yet to hit the crypto markets.
Although CME Bitcoin Futures trading data finds that there is institutional investors’ interest in BTC, the majority of trading activity on exchanges comes from retail investors. Besides, their newest competitor – Bakkt has fought to attract similar attention from institutional investors since its launch in September.
CME #Bitcoin Futures Activity Report
So far all the trading activity, volume and open interest, has been concentrated on the front month contract. Looks like there is no significant amount of “long term” game being played here.
Keep an eye on it in the daily activity report ? pic.twitter.com/JkUpS5JVsq
— ecoinometrics (@ecoinometrics) December 10, 2019
Spencer Bogart, partner at Blockchain Capital also thought that some would argue about the levels of institutional adoption are disappointing or underwhelming but, of course, this view depends entirely on expectations. And to Bogart, having any institutional adoption for BTC only 10 years into existence is an absolute success and it beyond what anyone could have imagined just 3 or 4 years ago.
On the other hand, the lack of a clear regulatory framework in the American and other large economies is a major hurdle for institutional investors who want to exposure crypto. The performance of the altcoin market since its peak in Jan 2018 is maybe another factor that prevents crypto hedge funds to create much interest from traditional markets.
Some exceptions such as the US pension funds doubled their crypto-asset exposure in Morgan Creek Digital’s fund this year, and the Grayscale Bitcoin Trust has witnessed large inflows through the course of 2019.
With setting up crypto regulations and an eventual crypto market rally, we can hope about the change of crypto hedge fund market, even the wave of Wall Street money finally hitting crypto. Until that, crypto market users will have to play the waiting game and keep building as best they can.
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