Is the Crypto Hedge-fund a Bubble that is Deflating?
According to Bloomberg, crypto hedge-fund is a bubble that has begun to deflate as 2018 has already witnessed around nine funds that have closed down while other funds have losses of approximately 23 percent.
Last year when the price of Bitcoin skyrocketed, more than 150 hedge funds appeared onto the market which drew the attention of institutional and individual investors towards cryptocurrencies. However, after reaching its all-time high in December 2017, the price of Bitcoin started falling and at present stands at about $7,000, lowest since November 2017. Now as the price of bitcoin has dropped by more than 60%, investors are thinking twice before placing their funds in similar enterprises. According to Bloomberg, this year around nine funds have been shuttered and industry tracker says that funds have losses of 23 percent in 2018.
Kyle Samani, co-founder of Austin, Texas-based Multicoin Capital, wrote, “New capital has slowed, even for a higher-profile fund like ours.”
Such a sharp fall in the price of bitcoin and other cryptocurrencies has resulted in closing down of at least nine funds, including Crowd Crypto Fund and Alpha Protocol, which shuttered down and removed their websites and social media accounts. Alpha Protocol, a distributed fund, wrote on its website, “Considering the potential regulatory and market risks, AlphaProtocol has decided that the best approach is to refund the private sale contributors.”
In 2017, some funds grew more than 1,000 percent and bitcoin gathered all the limelight. However, the scene changed drastically this year as according to Eurekahedge Crypto-Currency Hedge Fund Index, returns are already down by 23 percent.
In such a scenario, Billionaire Mike Novogratz has canceled plans to launch a crypto fund and is now directing efforts to a merchant bank focused on cryptocurrencies and ventures based on related technologies. Moreover, in January, Polychain Capital, probably the leading cryptocurrency hedge fund with about $ 250 million under management, decided not to go public in Canada.
Rick Marini, the founding partner at Protocol Ventures, believes that to serve institutional investors only 50 funds will be able to raise sufficient external capital, while the rest will face problems. Lex Sokolin, global director of fintech strategy at Autonomous Research LLP holds the opinion that by the end of 2018, around 10 percent of all crypto funds may get close.
Marini told that at present on an average he gets three pitches daily from new crypto-currency funds but he meets with two and plans to invest only in one or two in 2018.
He said, “We are going to see it by the end of this year. People are able to leverage good returns last year to try to raise money this year, but this year is going to be different.”
However, despite the fact that prices are going down, new funds keep emerging as supporters of this technology believe in the transformative nature of blockchain, which governs Bitcoin and other cryptos.
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