A quick article on the rise of crypto funds. Traditional traders are moving towards crypto, as the figures show. Investing through hedge funds can be effective for investors who don’t have the time or know-how to trade profitably in cryptocurrencies.
Crypto investments are increasingly going mainstream, unlike in the early years where there was no way of telling how much money is flowing into crypto, recently esteemed financial institutions now also conduct research and give concise details on how the industry in growing. As noted in the report 2020 Crypto Hedge Fund Report (PWC & Elwood Asset Management, 2020, p.3), “we provide an overview of the global crypto hedge fund landscape and offer insights into both quantitative elements (such as liquidity terms, trading of crypto currencies and performance) and qualitative aspects, such as best practice with respect to custody and governance. By sharing these insights with the broader crypto industry, our goal is to encourage the adoption of sound practices by market participants as the ecosystem matures”.
The total AuM of crypto hedge funds globally increased in 2019 to over US$2 billion from US$1 billion the previous year. AuM (Assets under management). The report shows us that the percentage of crypto hedge funds with an AuM of over US$20 million increased in 2019 from 19% to 35%. There are around 150 active crypto hedge funds. Almost two thirds of these (63%) were launched in 2018 or 2019.
Crypto hedge funds pool money from investors and invest on their behalf in virtual currencies. The coins selected for investment are at the discretion of the fund manager. It could be a more established cryptocurrency like Bitcoin, a challenger like Ethereum, or an altcoin like Ripple’s XRP. The fund manager normally selects the coins they perceive to offer the highest potential returns and use multiple strategies like high frequency trading, arbitrage strategies, long-term hold positions, triangular arbitrage, ICO investments, IEO investments and leveraged trading and shorting to manage portfolio risk.
Despite its risk profile people do make money investing in coins — lots of it — and that pairing of high-risk with potentially high reward has proven irresistible to hedge funds and high frequency trading funds. With a 24000% return over three years for crypto hedge funds, its well worth it!
Could the equity markets be finally moving to embrace crypto currencies just like all other assets?