Category Archives: crypto hedge funds

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20% of All New Hedge Funds Crypto-Oriented

A report from Crypto Fund Research indicates that 90 crypto hedge funds have launched so far in the first nine months of 2018, with an extrapolated projection of 120 new crypto hedge funds in 2018. In general, there are 600 new hedge funds launched per year, so crypto oriented hedge funds represent 20% of all new hedge funds. This is a solid indication of how the crypto space is becoming relevant to mainstream investors.

The acceleration of the startup of new crypto hedge funds is remarkable. In 2016, less than 3% of all new hedge funds were crypto oriented; a year later this grew to 16% and now that number has swelled to 20%. Most new funds are in the United States, with some launching in Australia, UK, Malta, Switzerland, the Netherlands and China.

In total, there are 303 crypto hedge funds with aggregated assets of USD 4 billion, according to Crypto Fund Research. However, there’s an even larger amount of crypto funds when including venture capital and private equity, with 622 crypto funds in total.

Perhaps even more remarkable is that in general, fewer hedge funds are being launched, yet the number of new crypto hedge funds continues to accelerate. Founder of Crypto Fund Research, Joshua Gnaizda, says, “In the midst of 2018’s decline in traditional hedge fund launches, crypto hedge funds are a notable aberration… 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.”

Crypto hedge funds are a critical piece of infrastructure which facilitates institutional investment, along with cryptocurrency custodians like Coinbase, Xapo and BitGo. It is certainly a positive sign that the crypto hedge fund infrastructure is rapidly expanding, and is setting the stage for a major crypto rally fueled by institutional investors.

 

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Bitcoin’s Ground Game More Important Than ETF

The Bitcoin mainstream is currently obsessed with the possibility of a Bitcoin exchange-traded fund (ETF). Most of the market moving headlines recently have been about Bitcoin ETFs being proposed and then rejected, and now stayed.

The excitement is that a Bitcoin ETF would allow Bitcoin, or Bitcoin derivatives, to be easily tradeable on all the major stock trading platforms where institutional investors transact trillions of US dollars, and how this could potentially lead to a Bitcoin rally. However, people obsessed with a Bitcoin ETF are ignoring its ground game such as Bitcoin ATMs, adoption, and crypto hedge funds, which are far more important and have a more direct impact on price than ETFs.

First off, many of the proposed Bitcoin ETFs, including the ones that have been stayed and are pending further review, are derivatives, i.e. paper Bitcoins. The Direxion and Proshares Bitcoin ETFs are settled for cash and only have cash backing them, meaning that even if trillions of dollars pour into these if approved, it wouldn’t have a direct impact on Bitcoin’s spot demand or price. The only ones that would really be important is one backed by actual Bitcoins, like the Winklevoss Bitcoin Trust ETF, which was rejected, and the VanEck SolidX Bitcoin ETF which has been stalled for the foreseeable future.

As far as institutional investors are concerned, the proliferation of crypto hedge funds across the globe is far more important than a Bitcoin ETF. Currently, there are at least 466 crypto hedge funds and these largely invest in Bitcoin. Further, they provide a global infrastructure for institutional investors to invest money in Bitcoin and crypto in a safe and regulated way. Crypto hedge funds represent far more options and avenues than any potential ETF, yet the market is barely reacting to the news that the number of crypto hedge funds is skyrocketing.

Perhaps even more important is the real ground game, especially the adoption of Bitcoin by everyday people. This can perhaps be tracked by the absolute explosion of Bitcoin ATMs across the world. There are now over 3,600 Bitcoin ATMs in the world with five new machines being added per day on average. To put this in perspective, at the end of 2013 there were fewer than five Bitcoin ATMs in the entire world. These have turned into critical infrastructure that allows for rapid buying and selling of Bitcoin for fiat, turning Bitcoin into a real currency that can be used in everyday life.

The fact that Bitcoin can now be easily used to pay rent, buy food, or buy anything else thanks to Bitcoin ATMs is laying the groundwork for rapid global adoption.

People have more control over their money with a decentralized currency that can’t be seized or frozen. Bitcoin is less cumbersome than physical cash and easier to conceal, reducing the risk of theft and allowing for instant international transactions with low fees. Further, Bitcoin is the most secure form of money in history due to cryptographic security that has yet to be hacked

Perhaps most importantly, Bitcoin’s decentralization means it can’t be printed by governments or manipulated to balance a budget, unlike fiat currencies which are abused by their respective governments. These are the reasons why Bitcoin got popular to begin with, and now Bitcoin’s infrastructure is rapidly growing and setting the stage for global crypto proliferation.

Essentially, a Bitcoin ETF that is based on actual Bitcoins would be good news and useful, but it is not the most important thing. Bitcoin’s ground game consisting of crypto hedge funds and Bitcoin ATMs is what will really drive Bitcoin’s adoption and price upwards long term.

 

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