The Emergence Of Cryptocurrency Hedge Funds
Risk-averse investors have always believed in hedge funds and analysts to guide their money in the right direction under all market conditions. With the rise of cryptocurrencies like Bitcoin, analysts have found a new edge in hedge funds. However, timing is an important player. Even under extreme stress scenarios, the huge growth of Bitcoins has increased the investor’s faith in cryptocurrency.
Accessible infrastructure makes transactions via block chain easy and makes it possible for investors to exchange crypto with fiat currency, enabling the big fishes to swim in the new found waters. With the creation of a perfect entry for hedge funds, the small volume asset like Bitcoin, which recently touched the $100 billion market capitalization benchmark and the ever interested population of investors, have taken the plunge. Though there has been both dismay and accolades in the crypto community, one thing is for sure – The returns so far have been excellent.
What is a Cryptocurrency Hedge fund?
A Cryptocurrency Hedge fund, unlike a Cryptocurrency Index fund, is a way for an investor to invest in a large group of underlying securities. Expert analysts manage these funds, re-balance as and when required, and continuously analyze. This manoeuvring helps investors in garnering profits.
Cryptocurrency Hedge funds are of two types at present. One has portfolios containing exclusively cryptocurrency, and the other has mixed cryptocurrency with different asset types.
The first type of cryptocurrency hedge fund seeks to maximize profits by adding newly offered coins to the mix. In contrast, the second type of cryptocurrency hedge funds is more risk averse and produces lesser profits.
Asset under Management.
A recent survey by PWC and Elwood Asset Management Services Ltd, titled “2020 Crypto Hedge Fund Report,” has shown that the cryptocurrency hedge funds’ assets under management have significantly risen to $2 billion at the end of last year. This industry is expected to grow more along with the price of Bitcoins.
The 2020 report states that there are around 150 active crypto hedge funds. Two-third of which were launched in 2018 or 2019.
Most cryptocurrencies surveyed traded BTC at 97%, followed by ETC at 67%, XRP at 38%, LTC at 38%, BCH at 31%, and EOS at 25%. The price increase of cryptocurrencies, like Bitcoin that increased from $3872 on Jan 1, 2019, to $7174 on Dec 31, 2019, is also considered to be a factor in the increase of AUM.
Several analysts have predicted that the interest in cryptocurrencies from institutional investors will increase post the COVID -19 pandemic.
The vast majority of investors in cryptocurrency hedge funds are either family offices or high net worth individuals. A growing number of funds have been investing in cryptocurrency hedge funds, causing the whole ecosystem to emerge massively.
Wall Street has also become more open to BTC (Bitcoin) as a new asset class. With more and more talent shifting from the traditional hedge funds to the digital assets proves that cryptocurrency is here to stay.