Despite Nouriel Roubini’s cries that the cryptocurrency market, which he dubs a “stinking cesspool” is in a meltdown, the widespread establishment of crypto-focused hedge funds indicates that this industry is still seeing substantial growth.
20% Of Hedge Funds Launched In 2018 Are Crypto-Focused
Per research and statistics compiled by San Francisco-based Crypto Fund Research (CFR), cryptocurrency hedge funds remain a hot topic, despite the dismal performance this nascent market has seen since the start of 2018. In fact, according to the aforementioned data 90 crypto-focused hedge funds were launched in the first three quarters of this year, with preliminary data indicating that 120 will be established by the end of the 2018 fiscal year.
This, interestingly enough, is in stark contrast to traditional theories that state that funds, along with similar opportunities, see an influx of interest and investment in bull markets, but not in bear markets.
Taking a holistic view of this investment subsector, citing data from Hedge Fund Research, CFR added that 600 funds of the hedge variety are expected to launch in 2018. Out of these 600 investment vehicles, as alluded to earlier, 20% will be crypto-centric, indicating that this nascent market (and the technology backing it) is starting to rapidly gain traction on a global scale.
Explaining its research more in-depth, while also highlighting that crypto-focused funds are seeing substantial growth, CFR added:
In 2017, crypto funds accounted for 16% of new hedge fund launches, up from less than 3% in 2016… The number of crypto hedge funds has skyrocketed since the beginning of 2017. Two thirds of all currently operational crypto funds have launched in the last seven quarters, through Q3 2018.
However, it isn’t all sunshine and rainbows, as the report went on point out that crypto funds are still near-irrelevant in terms of volume and assets under management (AUM). Data indicates that the 303 crypto hedge funds in operation, which account for only 3% of the global hedge fund figure, manage less than $4 billion. While $4 billion from the perspective of an independent investor may seem quite lofty, all hedge funds in existence allegedly manage more than $3 trillion, more than 15x the current market capitalization of all crypto assets.
Joshua Gnaizda, the founder of Crypto Fund Research, had the following to say on the research:
In the midst of 2018’s decline in traditional hedge fund launches, crypto hedge funds are a notable aberration. Cryptocurrency prices have been in a bear market for the better part of the year and regulatory uncertainty persists in much of the world. Yet these seemingly unfavorable market conditions have not deterred managers from launching new crypto hedge funds at a record pace.
Gnaizda went on to add that while CFR doesn’t believe that the “rate of new launches” is sustainable in the long-term, there are currently no signals that indicate that a slowdown is imminent.
Institutional FOMO Incoming
As reported by Ethereum World News, Mike Novogratz, the CEO of Galaxy Digital, claimed that an influx of institutional ‘fear of missing out’ (FOMO) is right around the corner. The aforementioned statistics from CFR only corroborate this theory, as the rise in hedge funds directly alludes to the fact that institutions are starting to foray into crypto.
For now, however, Novogratz has claimed that the onslaught of institutional investors is still a minimum of three months away, as there is still a lack of regulatory certainty and the infrastructure required to facilitate substantial investments from household names. But with the upcoming launch of Bakkt, along with a number of verdicts slated to be made on Bitcoin ETF applications, it can only be assumed that FOMO is rapidly closing in on the crypto market.
Photo by Fezbot2000 on Unsplash