Category Archives: Hedge funds

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Morgan Creek Digital Forecasts Fall and Rise of Crypto Hedge Funds

The Founder of Morgan Creek Digital, Anthony “Pomp” Pompliano, forecasts that cryptocurrency-oriented hedge funds will begin to close their doors. Further, Pompliano says regarding the bear market that “things will get much worse before they get better”.

There are two main factors that will cause cryptocurrency hedge funds to shut down according to Pompliano. First, there is something called a high water mark, which determines the salary of hedge fund managers. Basically, hedge fund managers only receive their performance fee, which is usually 20% of profits, if the fund’s net assets are higher than in any previous period. Due to this bear market, which has seen the price of Bitcoin decline from USD 20,000 to less than USD 5,000 in a year, practically no cryptocurrency hedge fund managers will get their performance fee, making their businesses much less lucrative.

Pompliano thinks cryptocurrency hedge funds will close down, be quiet for a few months or up to a year, and then restart under a new name. Since the market is at a very low point, closing an old fund and launching a new one will likely ensure consistent performance fees for fund managers.

The second factor that will cause cryptocurrency hedge funds to close down is the increasing Securities and Exchange Commission (SEC) enforcement in the initial coin offering (ICO) market. Recently, the SEC issued its first civil penalties against Paragon (PRG) and Airfox (AIR). Each firm was fined USD 250,000 and is being forced to return investments to investors who choose the option. Most ICOs have lost money and if the SEC proceeds to take this action against the rest of the ICO market, it could lead to widespread bankruptcy of ICO companies, according to Pompliano.

This will have a direct impact on cryptocurrency hedge funds, since many of the ICO investments they have on the books could quickly go to zero. Pompliano said, “As both ICOs and funds begin to shut down, it is easy to see a future feeling of panic and desperation spreading across parts of the market.”

On a positive note, Pompliano thinks once the bear market runs its course the market will be in a healthy position to rebuild. Specifically, he said, “Remember, bear markets get rid of the tourists so that the true entrepreneurs can focus on building sustainable value. Watch closely for the founders who are quietly toiling away with talented teams right now.”


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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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George Soros Gets Crypto Trade Approval

George Soros, Hungarian-American investor, business magnate, philanthropist, political activist and author, added a new feather to his cap as his company Soros Fund Management received approval to trade cryptocurrency. The company was founded in 1969 and is currently worth USD 26 billion.

This marks a change of heart for the magnate who, in January of this year, labelled cryptocurrencies a bubble, commenting that digital coins could never function as actual currencies due to their volatility. Since the billionaire’s comments earlier this year, Bitcoin has fallen 41%.

Soros is one of the world’s most successful investors. As of February 2018, Soros had a net worth of USD 8 billion, after donating USD 18 billion to his philanthropic agency, Open Society Foundations.

According to a recent article on Bloomberg, Adam Fischer, the macro investment manager of Soros Fund Management, had been given the go-ahead to begin trading cryptocurrencies although as yet, there is no official word on exactly when trading will commence.

The iconic hedge fund manager has a blistering track record of acquisitions and sales and always appears to be on the lookout for new stock, some of his biggest holdings being Facebook and Time Warner.

According to Bloomberg and despite his earlier comments, Soros has been indirectly backing cryptocurrency by amassing a stake in In August of 2017, the company became the first major retailer to accept digital currencies and also planned to start its own cryptocurrency exchange.

The cryptocurrency market is increasingly under scrutiny from governments around the world. Central banks are currently investigating the risks as well as the obvious benefits of adopting the virtual currency. Earlier in the year, Soros commented on some of the risks, “As long as you have dictators on the rise you will have a different ending because the rulers in those countries will turn to Bitcoin to build a nest egg abroad”.

Given that Soros has long expressed doubt regarding the viability of cryptocurrencies, the recent announcement by the family office has been of great interest to industry pundits.


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