During 2017 the enormous growth of the cryptocurrency market created euphoria and curiosity among numerous investors that had not been interested in the cryptocurrencies before. This caused a proliferation of hedge funds whose objective was to facilitate the investments on the cryptocurrency market. After the strong decline of the prices on the cryptocurrency market seen in the last few months, many of these hedge funds were affected in a negative way and some of them even had to stop operating.
According to Bloomberg, at least nine hedge funds had to close their doors since the beginning of this year. Some of them, such as Crowd Crypto Fund, closed their websites and Twitter and Facebook accounts as well. For example, a fund called Alpha Protocol decided to publish a message in which it explains that due to the regulatory risks and market risks, the management decided the best option was to reimburse the private contributors and shut down all operations.
During the last few months, the cryptocurrency market experienced a clear tendency of decline. According to data provided by EurekaHedge, the return on investment these funds were able to offer to their investors went down 23%. This is the main reason why some hedge funds decided to shut down and its does not come as a surprise. Some other funds, despite not closing their doors, were forced to take actions because of the cryptocurrency market decline.
Kyle Samani, the co-founder of Multicoin Capital, a hedge fund from the state of Texas in the United States of America, said: “New capital has slowed, even for a higher-profile fund like ours.” Multicoin started its operation last August and is currently managing around 50 million dollars worth of assets.
According to Lex Sokolin, the global director of fintech strategy at Autonomous Research, up to 10% of all the funds related to cryptocurrencies could close their doors by the end of this year.
On the other hand, Rick Marini, one of the founding partners at Protocol Ventures, a company that invests in crypto funds, such as Polychain Capital and Multicoin Capital, predicts that only 50 funds would be able to raise sufficient outside capital in order to sustain their institutional investors, while the rest of the funds would find themselves in trouble. Marini added: “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.”
This was the case of Polychain Capital, one of the largest cryptocurrency hedge funds. The fund decided not to proceed with its initial public offering (IPO) at the end of January this year.
Also, the creation of new hedge funds slowed down significantly since the beginning of this year. Last year 167 cryptocurrency hedge funds were created, while only 20 new hedge funds operating on the cryptocurrency market were launched since the beginning of 2018, according to Bloomberg’s sources. It seems the declining trend of the cryptocurrency market calmed the spirits of the investors and thus such a small number of new hedge funds on the market.
However, this does not mean the end of the investment funds operating in the blockchain ecosystem. There are still optimistic voices on the cryptocurrency market. For example, Chris Concannon, the Chairman of CBOE Global Markets, a few days ago said the arrival of exchange-traded funds (ETFs) is the next step in the evolution of Bitcoin. Moreover, other people highlight the revolutionary potential of the blockchain technology and think it would inevitably impulse the prices of the cryptocurrencies in the future.