Crypto Funds Stopped Growing Like Trees As The Bulls Are Not Grazing There Anymore
In 2017 the market was growing very fast, and cryptocurrency funds showed good results, but 2018 doesn’t pay off. Pantera Capital’s crypto fund lost 72.7% of its value in 2018. Since its launch, the fund lost 40.8% of its value
Seems like all of us are in the same boat, it doesn’t matter how big you are, because it’s not 2017. In 2017 the market was growing on steroids, and it doesn’t matter in retrospective, what caused this growth. The most important is that everybody suddenly became genius investors, young Buffets, and if you’re a genius, it should be considered a crime not to sell your state-of-art skills of investing to ordinary peasants. Some of the new crypto investors with a spark of an entrepreneur inside created Telegram channels, the most gifted of them created Telegram channels with trading signals, all other crypto predators were fine with the leftovers, so they created crypto funds.
We can’t blame them for that. They really believed in their superiority. If you read everywhere that 20% per annum is a really good result, and you get a 1,000% profit, you start thinking that you’re some kind of a trading god. Most people on crypto market were the newbies, seeking help from gurus. People who bought in earlier made a small fortune, so they were regarded as gurus.
There a good explanation of this psychology from Alexander Elder:
The public wants gurus, and new gurus will come…A new market cycle guru emerges in almost every major stock market cycle, once every 4 years. A guru’s fame tends to last for 2 to 3 years. The reigning period of each guru coincides with a major bull market in the United States. At some point, the market changes and starts marching to a different tune. A guru continues to use old methods that worked spectacularly well in the past and rapidly loses his following. When the guru’s forecasts stop working, public admiration turns to hatred.
– Alexander Elder, professional trader
Does it remind you anyone? Oh, yes, it’s Michael Novogratz, who tries to guess the bottom every week. We’ll return to him a bit later.
It was 2017, crypto funds, showing extraordinary profits, were growing like trees in the forest. After a while, seasoned professionals also decided to join the party. Officially, in the summer of 2017 there were only 57 crypto funds, a year later, in the summer, there were a lot more — 225 funds. Some of them were founded by successful hedge funds with their own analysts and a lot of resources. Still, they show that they don’t know anything special about crypto, showing the same losses, as the whole market in general. They followed this buy’n’hold strategy that works well in a bull market when you can buy anything and you’ll get a profit eventually. Currently, the problem is in the market. The bulls are gone.
Pantera Capital are the smart guys. When we gossip about their 40% losses, we should not forget that we talk only about the new fund, that buys altcoins. Their oldest fund, founded 6 years ago, gave a 10,000% return on investments to its investors. That’s a pretty good result. Also, let’s point out that they started to invest before the hype when the bubble was relatively small. Now the bubble burst, but it doesn’t mean that it can’t grow even bigger after that. Most altcoins will die — many of them don’t have any inner value, their token economy doesn’t work and these projects were created only to grab some money by slapping ‘blockchain’ on them. However, some of these coins can have a bright future, the problem is to guess the right ones. Pantera Capital buys for a long hold, so they shouldn’t care about paper losses. Eventually, all coins that won’t die until the next bull will surge again, so let’s not draw conclusions until the next year.
Many other funds show the similar dynamic. I’ve already mentioned Mike Novogratz. He’s a billionaire, that’s enough to describe him. However, we should not ignore the fact that for some reason he continues to make ridiculous statements, calling bottom at all possible levels, talking about $100,000 per Bitcoin by the end of the next year, when he feels extra bullish, and changing his prediction a week later after one-two big red candles (I think somebody should draw a chart of his predictions at the end of 2018, it’s a pity I’m too lazy for this). Anyway, his Galaxy Digital Assets fund reported a loss of $134 million, showing that even billionaires can be wrong sometimes. Or many times.
The year 2017 was a magnificent year for pretty much everyone, except for the most greedy ones. But the blessed times of brainless growth seem to be over. It’s very unlikely that big guys with bottomless pockets will take all this crowd up to the moon. Everyone has to choose wisely from now on — the next bull run will top the previous heights, and increase the capitalization of the crypto market, but not for all coins, and it will also end, nothing can grow endlessly. The good fund should know how to make money in good market conditions and also in bad market conditions. If it shows the same dynamic as an ordinary retail investor, it’s pointless to invest in this fund. So let’s suppose this is the point where everyone starts to realize that crypto market has two directions and starts to apply risk management to his investment portfolio — and then we’ll never see such news again.
