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Despite the prolonged crypto-market slump in 2018, the creation of cryptocurrency-focused hedge and venture funds is pacing at a level compared to the cryptocurrency market in 2017. Over 90 such funds launched in the first half of 2018 and the number is projected to top 120 before the start of next year.
Crypto Hedge Funds Defying Bear Market
According to a report by Crypto Fund Research (CFR), a publication dedicated to tracking cryptocurrency fund performances, the rate of growth defies popularly held convention of hedge funds launching only in bull markets – a feature stemming from observing the traditional markets. The growth of crypto-funds is despite a 50 percent plunge in the prices of most cryptocurrencies, such as bitcoin and ether, and a 60 percent fall in the cryptocurrency market cap, which is placed at $200 billion at the time of writing compared to $800 billion in January.
Overall, 600 hedge funds are expected to launch in 2018, for both crypto and traditional markets. Of these, 120 funds, or 20 percent, are dedicated to digital asset investing and active trading. As observed, the crypto funds invest in large quantities of the major cryptocurrencies, dedicate part of the raised money to promising altcoins, and an even smaller percentage to participate in private sales of Initial Coin Offerings (ICOs).
In comparison to 2017, crypto hedge funds accounted for 16 percent of all new fund launches, up from less than 3 percent in 2016.
Over 600 Funds Dedicated to Cryptocurrencies
CFR noted that two-thirds of all cryptocurrency funds in operation launched between the start of 2017 through Q3 2018. The asset class now forms one of the world’s fastest growing fund strategies, as investors presumably look to make quick profits using age-old strategies that worked in the significantly less-volatile traditional markets.
Over 203 recognized cryptocurrency funds are in existence today, making up for a small percentage of the global hedge fund industry in terms of both number and assets under management. Traditional hedge funds markets dwarf cryptocurrency markets in both number and trade volume. The former has over 9,000 funds handling a mammoth $3 trillion in assets under management, compared to the latter which boasts of a couple hundred funds handling $4 billion in crypto-assets.
Meanwhile, crypto-focussed hedge funds – which actively trade major cryptocurrencies and get in and out of positions quickly – make up under half of all crypto funds, which consists of venture capital and private equity funds. If the three categories are clubbed, there are 622 crypto funds currently operational. Half of all crypto funds are based in the U.S, with Australia, China, Malta, Switzerland, and the U.K. seeing their fair share of crypto hedge fund launches in 2018.
Joshua Gnaizda, the founder of CFR, believes the rise of crypto funds in a notorious bear market is evidence of investor interest towards the broader digital asset sector. He adds:
“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.”
A rise in cryptocurrency fund investing towards various businesses working in the industry of the rising asset class displays great promise for the further development of the crypto-economy.