Crypto Fund Landscape | Q1 2018
Funds by the numbers
Cryptocurrency Fund Landscape
As of Q1 2018, there are more than 226 cryptocurrency hedge funds in existence with $3.5–5.0B USD assets under management. Given the lack of classification around cryptocurrencies as a security, there exists a grey area where liquidity, exchange, and management of such assets is not as heavily scrutinized as traditional securitized assets and equities.
Funds vary in their degree of sophistication — some include investors who experienced rapid accumulation of wealth through the meteoric rise of cryptocurrencies in recent years, and others include teams of sophisticated financiers. Fund also vary in their strategies, from trader-heavy active funds to more passive long-term investors akin to venture capitalists, and hybrid strategies in between, ranging from arbitrage to leverage. LPs are encouraged to exercise their own due diligence before selecting a fund manager for their cryptocurrency assets should they desire to gain exposure to the burgeoning asset class. As a team of entrepreneurs, technologists, and venture capitalists, the management at Vin Prime Capital collectively aims to educate current and prospective investors. We equally pride ourselves on the financial discipline and discourse on the execution of a well-considered strategy. We believe that with the lack of institutional confidence in the asset class due to issues such as reliable centralized custody partners and inherent volatility, the initial wave of funds will benefit through first-mover advantage and innovative methods to address investor concerns for security while positioning investments in the market for early adopter growth.
In 2017, the market saw an influx of new funds entering the market. There is a clear correlation between bitcoin price and fund inception.
Furthermore, crypto funds assumed a variety of strategies to gain exposure the the cryptocurrency market.
An analysis by Bloomberg revealed strong performance of crypto hedge funds, only moderating trailing bitcoin by December 2017.
Cryptocurrency hedge fund strategies may be further stratified by their investment dimensions.
Investors must choose their fund and allocation based on their risk appetite and strategic intention.
Funds are also innovating the way capital is managed and deployed. Groups like Tokenbox are tokenizing asset strategies, allowing individuals or managers to provide a basket of offerings. Similarly, ICONOMI offers virtual fund exposure for a fee. Other players like Bitwise offer direct investment into a Top-10 index for accredited investors. Pursuing fund creation is no small endeavor, as outlined by Christopher Catalinis’s research paper exploring the operational considerations, however fund quality evaluation is upon each individual investor to evaluate. The SEC has issued subpoenas to many funds to evaluate compliance procedures — compliant funds should have minimal issues proceeding with business as usual.
2018 has seen a marked decline in the inception of new funds as the market and investments mature through waves of the volatility cycle. Meanwhile, it is evident that funds tend to cluster around a select few portfolio plays — this theme is reflective of a flight to quality as funds raise their standards and investment criteria, and fewer ventures receive funding from emerging name-brand Funds.
References:
- https://next.autonomous.com/cryptofundlist/
- https://www.reuters.com/article/uk-hedgefunds-bitcoin/number-of-crypto-hedge-funds-surges-amid-bitcoin-volatility-idUSKCN1FZ189
- https://www.bloombergquint.com/markets/2018/01/16/crypto-hedge-funds-soar-more-than-1–000-as-bubble-debate-rages
- https://medium.com/@etiennebr/so-you-want-to-start-or-invest-in-an-ico-blockchain-crypto-fund-2209460bd86
- https://thenextweb.com/contributors/2017/11/09/rise-crypto-funds/
- https://www-cdn.law.stanford.edu/wp-content/uploads/2018/03/Crypto-Proof_AD_cropped.pdf
- https://www.ccn.com/sec-subpoenas-80-cryptocurrency-firms-including-techcrunch-fund/
