Business

Ed Drake

Tides turn for BTC-backed cryptocurrency hedge funds

Established in 2017, cryptocurrency hedge funds are now increasingly running into difficulties, with new capital drying up and significant losses reported in the early part of 2018, according to a Bloomberg report.

More than 150 cryptocurrency hedge funds appeared over the period, which coincided with rapid growth in legacy Bitcoin (BTC) and other cryptocurrency markets. However, with BTC down over 50% in 2018 so far, and hovering around its lowest level since November, investors and funds alike are now becoming more cautious.

Multicoin Capital’s Kyle Samani told the news outlet that “new capital has slowed, even for a higher-profile fund like ours.” The sentiment has been reflected across the board, with as many as nine funds, including Alpha Protocol and Crowd Crypto Fund, already shutting up shop.

Distributed fund Alpha Protocol has elected to return funds to investors, according to a post on their website, in light of possible “regulatory and market risks.”

“Considering the potential regulatory and market risks, Alpha Protocol has decided that the best approach is to refund the private sale contributors,” the company said.

Meanwhile, Crowd Crypto Fund has removed its website and deleted associated social media accounts.

Similarly, high-profile BTC enthusiast Mike Novogratz shelved his plans for a cryptocurrency fund back in December, opting to switch his attention to backing blockchain ventures through a new cryptocurrency merchant bank.

Now, some analysts expect a wave of similar closures, with as many as 10% vulnerable to collapse. Rick Marini, of Protocol Ventures, told Bloomberg: “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.”

Many of the 167 cryptocurrency hedge funds set up in 2017 were tied to investments in BTC, and coincided with the explosion in price that saw the value of BTC rise to near $20,000. However, following significant sell-offs in the months since, returns are already down as much as 23%.

However, there are still a number of cryptocurrency hedge funds being established, with at least 20 setup in 2018 so far.

Predominantly, they tend towards investments in a wider portfolio of cryptocurrencies like Bitcoin Cash, Ethereum and Ripple’s XRP, as well as companies poised to benefit from blockchain technology, or developing commercial applications of the technology.

Note: Tokens on the Bitcoin Core (SegWit) chain are referenced as SegWitCoin BTC coins. Altcoins, which value privacy, anonymity, and distance from government intervention, are referenced as dark coins.

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