Round-up: Crypto Hedge Funds Attract Billions in Investment
The number of crypto hedge funds have seen an enormous growth in 2017. 100 new hedge funds have opened this year alone – around 80% of all crypto hedge funds in existence. Nasdaq analytics firm eVestment estimates that traditional hedge funds in 2017 have been able to generate an average Year-To-Date return of approximately 7.2% which pales in comparison to the massive returns crypto has been able to give its clients.
Cryptocurrency investment trust is for investors that want to gain an exposure to a price movement through a traditional investment vehicle without the challenges of buying, storing, and safekeeping the cryptocurrency.
Cryptocurrency hedge funds are estimated to manage between $2 and $3Bn in assets but aspiring to manage $8Bn. Autonomous Next is the only research provider that maintains a crypto hedge funds database. By their definition, hedge funds include conventional hedge funds, VC funds, investment funds and crypto indexes but exclude investment vehicles that package exposure to a single cryptocurrency. Diar looks at 30 of the largest and most well-known investment vehicles that are investing exclusively in crypto assets. These funds manage a total of $2.5Bn and more than 55% of them were opened this year. Only 40% of these would be considered or call themselves hedge funds.
The largest investment vehicle in the crypto space is currently Grayscale’s Bitcoin Investment Trust with $1.08Bn assets under management and 740% YTD while charging a 2% annual fee. Grayscale also runs an Ethereum Classic and Zcash Investment Trust with $37.6Mm and $12.9Mn of assets under management respectively.
The value of the two largest cryptocurrencies, Bitcoin and Ethereum, has risen by 770% and 5500% in 2017 respectively. According to Mangrove Capital Partners, the value of all visible ICOs have increased by 1220% in 2017 including a large number of projects that failed. Thus it is easy to see why so many of new funds started appearing in the crypto space.
Unlike mutual funds, hedge funds’ leverage is not capped by regulators, they are not as protective to the investors and some are not even required to register with the SEC. Most of the hedge funds charge an annual management fee of 2% and an incentive fee of anywhere between 10-20% of profits. Therefore, hedge funds must promise a great prospect of making large returns by leveraging risky investments.
The crypto hedge funds are putting money in either crypto assets, promising blockchain companies or a combination of both while employing a diverse mix of strategies. Some utilize buy-and-hold strategies and others are actively managed. The largest conventional hedge fund that invests in blockchain assets, Polychain Capital, was started by the first employee of Coinbase, Olaf Carlson-Wee. Mr Carlson-Wee started the hedge fund in July of 2016 and now has approximately $200Mn of assets under management.
In September of 2017, billionaire and a former hedge fund manager Michael Novogratz, announced that he is starting a $500 million cryptocurrency hedge fund, in which he has a personal vested interest to the tune of $150Mn. Novogratz believes that the cryptocurrency space “is going to be the largest bubble of our lifetimes” and he is planning to make money on the rise in the prices.
Blockchain Capital, a venture firm based in San Francisco, started specializing on crypto projects in 2013. Since then, they have invested in more than 40 companies such as Coinbase, Blockcypher, Blockstream, Kraken, Ripple, Shapeshift, Xapo and many other industry leaders. In April, Blockchain Capital raised $10Mn of funding through an ICO in only six hours.
Number of New Cryptocurrency Hedge Funds Per Year
Source: Autonomous NEXT
Logos Fund, based in Germany, started a fund dedicated to investing in blockchain mining. The Logos Fund was started by Marco Streng who is a founder of the largest cloud Bitcoin mining company Genesis Mining. Streng said that the largest advantage is that the fund is profitable even when Bitcoin’s price is declining. A hedge fund BitSpread, which is based in London, also generates returns that are independent to price developments. The hedge fund utilizes the price disparities between the cryptocurrency exchanges. BitSpread gained about 80% from January to September. It currently holds more than $25Mn in assets.
Pollinate Capital, which already manages $100Mn of assets in their hedge fund, will utilize quantitative trading methods along with conventional short and long trading. Matthew Goetz, a former Goldman Sachs VP, co-founded BlockTower Capital, which is an investment fund with $50Mn in assets. BlockTower Capital utilizes an active trading strategy, which engages in trades in reaction to events such as forks or major announcements. Grasshopper Capital, a hedge fund with about $25Mn in assets, uses a similar strategy of event-driven arbitrage but also algorithmic trading and conventional trading.
Target Coin and Taas are both decentralized crypto investment funds that raised money through an ICO. Target Coin is based in India and raised $20Mn. Target Coin uses machine learning and quantitative arbitrage strategies. It is built on profit sharing smart contracts where each quarter, all the investors receive 85% of the generated profits. Taas is a fund based in Ukraine designed to reduce the risks and technical barriers of investing in the blockchain space. It also allows the token owners to collect 50% of quarterly earnings though smart contracts. Out of the 30 investment vehicles, 9 of the funds utilized some sort of fundraising through ICOs.
Only a few of the largest and most well-known funds actually disclosed their yearly returns. The claimed highest disclosed yearly return was 2,280% by Cyber Capital. Cyber Capital is a smaller fund founded by Boudewijn Rooseboom in the Netherlands. It utilizes a long-term, buy and hold strategy in investing in cryptocurrencies and focuses on those that provide utility to its users. Because the minimum investment amount is € 100,000, the fund therefore falls outside the supervision of regulators.
As long as the crypto assets continue to increase in value, hedge funds and other investment vehicles will continue to appear. Cryptocurrencies present a great opportunity for hedge fund managers to collect the hefty incentive fees without actually exposing themselves to high risk and unpredictability of the crypto market. Hedge funds and other investment vehicles decrease the technical barriers of investing in cryptocurrencies, which is driving the capital that is being invested into crypto assets and could be one of the reason of this years bull run. The question is whether a growth like this can be sustainable in long term.
Top 30 Crypto Investment/Hedge Funds
|Grayscale||2013||$1,128,500,000||Investment trust||USA||Bitcoin, Ethereum Classic and ZCash Investment Trust|
|Polychain||July, 2016||$200,000,000||Hedge Fund||USA||Actively managed portfolio of these blockchain assets|
|Galaxy Digital Assets Fund||September, 2017||$150,000,000||Hedge Fund||USA||Cryptocurrencies, token sales and related startups|
|Blueyard||January, 2016||$120,000,000||VC fund||Germany||Early Stage Blockchain ventures|
|Logos Fund||March 2016||$100,000,000||Investment Fund||Germany||Cryptocurrency mining fund|
|Pollinate Capital||April 2017||$100,000,000||Hedge Fund||USA||Algorithmic trading of cryptocurrencies|
|BB Fund||June, 2016||$100,000,000||VC fund||Singapore||Fintech, blockchain and tokenized assets|
|Blockchain Capital||October, 2013||$95,000,000||VC fund||USA||Investing in blockchain technology companies|
|Metastable||2014||$70,000,000||Hedge Fund||USA||Long-term focused blockchain investment|
|Pantera||2013||$55,000,000||Investment Fund||USA||Investing in blockchain technologies|
|BlockTower Capital||August, 2017||$50,000,000||Investment Fund||USA||Active trading strategy reacting to events|
|ConsenSys Ventures||September, 2017||$50,000,000||VC fund||USA||Blockchain projects with social and environmental inclinations|
|Tezos||August, 2017||$50,000,000||Platform Fund||USA/Switzerland||Venture capital funding to companies looking to build on the Tezos platform|
|BlockStack||August 2017||$25,000,000||Platform Fund||USA||Facilitate the partnerships that will result in quality app development on the Blockstack platform|
|BitSpread||May, 2017||$25,000,000||Hedge Fund||United Kingdom||Market-neutral, arbitrage strategy in blockchain assets|
|Grasshopper Capital||July 2017||$25,000,000||Hedge Fund||USA||Actively managed cryptocurrency and cryptoasset hedge fund fundamental, event-driven arbitrage, and algorithmic trading|
|General Crypto||July 2017||$25,000,000||Hedge Fund||USA||Investing in coins with technology that could solve a real world problem|
|Altana Digital Currency Fund||May, 2014||$22,000,000||Hedge Fund||USA/Luxembourg||Actively managed cryptocurrency trading (long, short) aiming to capture excess volatility|
|Finshi Capital||June, 2017||$21,000,000||Investment Fund||Singapore||Venture fund investing in growing blockchain technology|
|FBG Capital||December 2016||$20,000,000||Hedge Fund||China||Investments in cryptocurrencies|
|Target Coin||July, 2017||$20,000,000||Investment Fund||India||Machine Learning, Quantitative Arbitrage and Margin Financing of cryptocurrencies|
|AlphaBit||April, 2017||$13,000,000||Hedge Fund||Cayman Islands||Actively managed cryptocurrency fund for professional investors|
|Science Inc.||August, 2017||$12,300,000||Investment Fund||USA||Funding a new incubator cohort of blockchain-based startups|
|ICONOMI||December 2016||$10,000,000||Investment Fund||Czech Republic||Platform for cryptocurrency management fund|
|Crypto Assets Fund||August, 2017||$10,000,000||Hedge Fund||Latin America||Buy-and-hold cryptocurrencies|
|Superbloom Network||August, 2017||$10,000,000||Investment Fund||USA||Streamlining the blockchain imvesting process and establishing a network to vet ICOs|
|Crypto Asset Fund||June, 2017||$10,000,000||Hedge Fund||USA||Five classes of shares with different investment strategies|
|Cyber Capital||April, 2016||$8,200,000||Investment fund||Netherlands||Invests exclusively in cryptocurrencies that provide utility to its users|
|Taas||February 2017||$7,600,000||Investment Fund||Ukraine||Tokenized closed-end fund dedicated to blockchain assets|
|Astronaut Capital||September, 2016||$2,300,000||Asset manager||Singapore||Asset manager specialising in the research and investment of cryptocurrencies|
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