The Rise of Crypto Investment Funds and What This Means for Cryptocurrencies
Hedge funds and venture funds are two of the most popular investment methods that use high-risk methods and borrowed money to maximize returns. They have been longtime players in the financial investment scene, and these methods are also being adopted in the emergence of cryptocurrency funds in the market.
Technology has been dominating and evolving people’s daily tasks over the years, so it should not be much of a surprise that cryptocurrency funds are now a thing. After all, the growth of the crypto industry, as well as the rising value of Bitcoin are both desirable to any investor.
Primarily, much like traditional investment funds, a crypto fund seeks to amplify returns through cryptocurrencies or adding new initial coin offerings (ICOs) to the mix. This investment will buy and trade virtual tokens instead of fiat currency; however, the fiat value of the coins dictate the direction of the investment.
The Crypto Investment Fund Landscape
According to Crypto Fund Research, there are 769 crypto investment funds in the global market. More than 50% of these funds are set up as hedge venture capital funds, closely followed by hedge funds, and lastly, private equity or hybrid funds.
Venture funds are now the most common type of crypto investment fund. Tech and crypto companies are beginning to blueprint and start their blockchain funds as well. Blockchain companies who have been in the game for quite some time are beginning to experiment with private equity funds. Hybrid funds were also introduced, which are a combination of investing in cryptocurrencies and ICOs. In terms of behavior, hybrid funds act like venture funds.
How many crypto funds are there?
In terms of crypto fund launches, the industry saw a spike in new funds in 2017, with around 224 openings. It was a big deal for the investment landscape as this figure tripled that of the funds open in 2016, which was just at 53. In 2018, a new record was set of 239 new funds opened. This means that more than half of today’s current crypto funds were opened within the last two years.
This 2019, the projected number of new funds to open is 145. This number could grow to become more significant, depending on the investment trends happening within the year.
Since a lot of these funds opened up fairly recently, it’s not much of a shock to learn that most of them are still relatively small. Around half have less than $10 million in assets under management (AUM). However, there are still several funds that amount to $100 million in assets. Some of the most prominent players in this category are:
1. Pantera Capital
2. Galaxy Digital Assets
3. Alphabit Fund
It’s worthy to note that while crypto funds are slowly increasing in popularity, it’s a long way to go before this dominates the investment scene. All crypto funds combined make up less than 1% of total hedge fund assets.
Where are crypto funds coming from?
The U.S. takes the lead as the country with the most number of crypto funds opened at 372. This is around half of the current total in the market. The top cities are San Francisco and New York. They are closely followed by the countries below, including the number of funds opened:
1. China/Hong Kong: 72
2. United Kingdom: 48
3. Singapore: 45
4. Switzerland: 28
5. Canada: 23
6. Australia: 22
7. Germany: 14
There are 141 funds spread around various countries across the globe, most prominently in Eastern Europe and Russia. It’s worthy to note that the top places where crypto funds exist are cities where hedge fund and venture capital investments are prominent.
What Crypto Funds Mean for Digital Currencies
According to Josh Gnaizda, founder and CEO of CryptoFundResearch, crypto funds peaked in popularity when Bitcoin broke through $5,000. This gave investors confidence to open their funds, inspiring even those who are operating small-scale and with no prior investment management experience. The growth of funds is looking to be optimistic for 2019 and beyond, as the market is new and racking up interest. Surprisingly, lower cryptocurrency prices in 2018 did not affect the performance of crypto funds, as their AUM increased. Many crypto funds are still expected to launch with $100 million assets in tow.
However, volatility is just something you can’t erase from the cryptocurrency industry. Even top-performing coins such as Bitcoin, Ethereum, and Ripple can’t escape the bearish trends that inevitably hit them. This means that, much like any other crypto product, altcoins should remain as a risky but viable investment for traders and companies so they can incorporate more of the blockchain tech in their processes and eventually consumer activities.
Investment schemes will continue to get creative and adopt new methods to earn money. Crypto funds are looking to have a bright future amidst the uncertainty and skepticism that its industry usually deals with frequently. Expect more fintech companies and new players to start investing in crypto funds and the future of cryptocurrencies to remain bright as more people start believing in the applications and use of blockchain technology.